IFRS Accounting Standards

This topic includes FAQs relating to the following IFRS standards, IFRIC Interpretations and SIC Interpretations:

IAS 32 Financial Instruments: Presentation

IFRS 7 Financial Instruments: Disclosures

Other resources

IFRS At a Glance by standard is available here.

Sub-topic within this main topic are set out below, with links to IFRS Interpretation Committee agenda decisions and BDO IFRS FAQs relating to that sub-topic below each sub-topic:

Sub-topic Number	Sub-topic and Related FAQ
503.1	Scope and definitions
503.2	Statement of financial position
503.3	Statement of comprehensive income
503.4	Hedge accounting
503.5	Fair value
503.6	Nature and extent of risks - qualitative disclosures
503.7	Quantitative disclosures for each type of risk arising from financial instruments
503.8	Nature and extent of risks - credit risk
503.9	Nature and extent of risks - liquidity risk
503.9.1.1	IFRIC Agenda Decision - Supply Chain Financing Arrangements—Reverse Factoring
503.10	Nature and extent of risks - market risk
503.11	Sensitivity analysis
503.12	Transfers of financial assets
503.13	Other issues

FAQ#

Title

Text of FAQ

503.9.1.1

IFRIC Agenda Decision - Supply Chain Financing Arrangements—Reverse Factoring

December 2020 - The Committee received a request about reverse factoring arrangements. Specifically, the request asked:

a.	how an entity presents liabilities to pay for goods or services received when the related invoices are part of a reverse factoring arrangement; and
b.	what information about reverse factoring arrangements an entity is required to disclose in its financial statements.

In a reverse factoring arrangement, a financial institution agrees to pay amounts an entity owes to the entity’s suppliers and the entity agrees to pay the financial institution at the same date as, or a date later than, suppliers are paid.

...

Notes to the financial statements

Paragraph 31 of IFRS 7 Financial Instruments: Disclosures requires an entity to provide information that enables users of its financial statements to evaluate the nature and extent of risks arising from financial instruments to which the entity is exposed. IFRS 7 defines liquidity risk as ‘the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset’. The Committee observed that reverse factoring arrangements often give rise to liquidity risk because:

the entity has concentrated a portion of its liabilities with one financial institution rather than a diverse group of suppliers. The entity may also obtain other sources of funding from the financial institution providing the reverse factoring arrangement. If the entity were to encounter any difficulty in meeting its obligations, such a concentration would increase the risk that the entity might have to pay a significant amount, at one time, to one counterparty.

the entity may have become reliant on extended payment terms or the entity’s supplier may have become accustomed to, or reliant on, earlier payment under the reverse factoring arrangement. If the financial institution were to withdraw the reverse factoring arrangement, that withdrawal could affect the entity’s ability to settle liabilities when they are due, particularly if the entity were already in financial distress.

Paragraphs 33⁠–⁠35 of IFRS 7 require an entity to disclose how exposures to risk arising from financial instruments, including liquidity risk, arise; the entity’s objectives, policies and processes for managing the risk; summary quantitative data about the entity’s exposure to liquidity risk at the end of the reporting period (including further information if this data is unrepresentative of the entity’s exposure to liquidity risk during the period); and concentrations of risk. Paragraphs 39 and B11F of IFRS 7 specify further requirements and factors an entity might consider in providing liquidity risk disclosures.

...

The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis for an entity to determine the presentation of liabilities that are part of reverse factoring arrangements, the presentation of the related cash flows, and the information to disclose in the notes about, for example, liquidity risks that arise in such arrangements. Consequently, the Committee decided not to add a standard-setting project on these matters to the work plan.

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