U.S. companies will have to disclose the terms and the size of their supply-chain financing programs under a new rule from the Financial Accounting Standards Board, which approved it on Wednesday.
Supply-chain financing has gained popularity as companies stock up on inventory and push their payment terms out further. The tool allows companies to pay bills later, while suppliers get their cash more quickly. A third party—usually a bank—pays the vendor’s invoices, but takes a cut. The business pays the bank what was due under the invoice, though at a later date than originally required.
Previously, companies haven’t had to report these arrangements in their financial statements.
The FASB’s new rule requires them to disclose the outstanding balance of their financing programs every quarter and provide year-over-year comparisons. The rule, which the U.S. accounting standard-setter formally proposed in December, also compels companies to divulge the key terms of their programs.
On Wednesday, the board laid out the specific terms companies must provide: a general description of payment terms, including their timing and how it was determined. Also required would be any assets pledged as securities or other forms of guarantees the company or its affiliated entities provided to the finance provider, the FASB said.
Under the new rule, companies will have to provide a “roll-forward” amount, the invoiced amount they have yet to pay under the program. That figure will help investors or anyone perusing a financial statement grasp the magnitude of the program and better analyze companies’ cash flows, the FASB said.
The rule is set to go into effect in early 2023, except for the annual roll-forward information, which will be required starting in 2024. The FASB expects to issue the new standard sometime this fall, a spokeswoman said.
Companies had voiced objections to aspects of the proposed rule in the months prior to Wednesday’s approval.
Ball Corp.
, a Westminster, Colo.-based maker of aluminum packaging, called the proposal costly to implement as well as unnecessary. The company would have to increase its information-technology spending to accurately identify a subsection of transactions with suppliers, Vice President and Controller
Nate Carey
said in a March letter to the FASB.
Mr. Carey also said investors can see the balances for total accounts payable on the balance sheet and calculate the payment terms by measuring the average number of days companies took to pay their suppliers.
“We feel sufficient disclosures already exist in the financial statements,” he said in his letter.
Vials of the Pfizer-BioNTech Covid-19 vaccine. Pfizer in March had objected to FASB’s roll-forward disclosure.
Photo:
/Associated Press
Pharmaceutical giant
Pfizer Inc.
said the roll-forward disclosure would be costly and unnecessary, as the information that companies provide might not be representative of the actual activity under the program and would show only a subset of total accounts payable, according to a March letter from
Jennifer Damico,
the company’s senior vice president and controller.
The New York-based company also opposed applying the rule retrospectively, which it said would create a data-gathering burden.
The companies didn’t immediately respond to a request for comment.
The International Accounting Standards Board, which sets standards for many jurisdictions outside the U.S., in November issued a proposal seeking similar disclosure on companies’ supply-chain finance programs and is discussing public feedback at its meetings this week.
The FASB is watching that process. “It’s important we certainly understand what they learn as part of this,” Chairman
Rich Jones
said at FASB’s meeting Wednesday.
The IASB declined to comment.
Write to Mark Maurer at [email protected]
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