The International Accounting Standards Board (IASB) has issued a critical addendum exposure draft as a supplement to its 2022 Exposure Draft concerning the IFRS for SMEs Accounting Standard. This supplementary document, open for comment until 31 July 2024, introduces targeted proposals significantly impacting how small and medium-sized entities (SMEs) report supplier finance arrangements and handle non-exchangeable currencies.
Key Proposals and SME Impacts:
- Supplier Finance Arrangements (Amending s 7 – Statement of Cash Flows):
- New Disclosures Required: SMEs using supplier finance (where the SME or its suppliers obtain financing for amounts the SME owes) will face mandatory disclosures including:
- The arrangements’ terms and conditions.
- The carrying amount of liabilities covered by these arrangements, separately disclosing amounts already paid to suppliers by finance providers, and their presentation within the statement of financial position.
- The range of payment due dates for these liabilities.
- The nature and impact of non-cash changes related to these liabilities.
- Impact: SMEs engaged in supplier finance must enhance their financial statement transparency, providing stakeholders with clearer insights into these financing structures and associated obligations.
- New Disclosures Required: SMEs using supplier finance (where the SME or its suppliers obtain financing for amounts the SME owes) will face mandatory disclosures including:
- Lack of Exchangeability (Amending s 30 – Foreign Currency Translation):
- Consistent Approach Mandated: The proposals require SMEs to standardize their methodology for:
- Assessing whether a currency can be exchanged into another currency.
- Estimating the exchange rate to use (and the related disclosures required) when dealing with a currency that cannot be exchanged.
- Impact: SMEs involved in any of the following will need to implement and consistently apply robust assessment and estimation processes:
- Conducting transactions in non-exchangeable foreign currencies.
- Operating a foreign entity (subsidiary, branch, associate, joint venture) whose functional currency is non-exchangeable.
- Using a presentation currency or functional currency that is itself non-exchangeable.
- Consistent Approach Mandated: The proposals require SMEs to standardize their methodology for:
The IASB emphasizes the importance of stakeholder input, particularly from SMEs, their advisors, and users of SME financial statements. Comments on the specific proposals within this Addendum Exposure Draft must be submitted by 31 July 2024.
Source: IFRS Foundation, 5 April 2024.