Tag Archive for: accounting standards

Dayita Kanodia | finserv@vinodkothari.com

The amendments in Ind AS 7 emanate from similar amendments in IAS 7 by the IASB, made in May 2023, which itself is the culmination of a project that was initiated in 2020.

The amendments related to Supply Chain Financing (SCF) or reverse factoring arrangements. Globally, the SCF volumes increased by 8% to USD 2,462bn by the end of 2024.

Read our article explaining the Supply Chain Finance here.

The key features of a supply chain finance arrangement to require specific disclosure under the revised Standard are:

• The trade payables of the entity are paid by a financial institution; the entity then pays to the financial institution.
• The entity either gets extended payment terms, or the suppliers get earlier payment terms, than the terms as contained in the relevant supply invoices/agreements.
  • Examples: X Ltd acquires goods/services from vendors with a 90 days’ credit. It organises a supply chain financing arrangement where Bank A discounts the receivables and pays off the vendor within 30 days, whereas the Bank will collect payment from X on 90 days of the invoice. The arrangement is covered.
  • Same facts as above; but X is required to pay to the Bank in 180 days, whereas the Vendor is paid in 90 days. The arrangement is covered.
  • If the due date of payment to the Bank is the same as the due date of payment to the vendor, the arrangement has no economic value, and does not impact either party’s cashflows – hence, does not require any specific disclosures.
• Note that the amendments do not affect asset side financing arrangements, that is to say, receivables financing or forward factoring.