Page 1 of 5Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
24 March 2022Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Exposure Draft ED/2021/10Supplier Finance Arrangements(Proposed amendments to IAS 7 and IFRS 7)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only body authorisedby law to set and promulgate standards relating to financial reporting, auditing and ethics forprofessional accountants in Hong Kong. We are grateful for the opportunity to provide you withour comments on this Exposure Draft (ED).The HKICPA welcomes the IASB’s proposals to enhance the transparency of supplier financearrangements (SFA) and their effects on an entity’s liabilities and cash flows.We agree with the IASB’s approach to describing the characteristics of SFA instead of definingSFA. However, we consider that the characteristics of SFA as stated in paragraph 44G of the EDmay not be sufficiently clear. In particular, questions are raised as to whether the scope of SFAwould depend on who initiated the financing arrangement, and the extent of involvement andcooperation between the buyer, the finance provider and the supplier. In this regard, we stronglyrecommend that the IASB provide a clear principle of what constitutes a SFA, test thecharacteristics of SFA to ensure they cover the arrangements that the IASB intends to cover, andprovide illustrative examples that (i) fall within; and (ii) do not fall within the scope of the ED toexplain the key features of SFA.In addition, we note that neither the IFRS Interpretations Committee’s Agenda Decision SupplyChain Financing Arrangements-Reverse Factoring nor the ED addresses the presentation ofcash flows arising from SFA. It is likely that diversity in practice will continue to exist. We areconcerned that the current proposal in paragraph 44B(da), which only requires disclosure of non-cash changes from financing activities, may not capture those that would be classified as cashflows from operating activities. Accordingly, we recommend that the IASB move the proposal inparagraph 44B(da) to paragraph 44H of the ED, and include disclosure of non-cash changesarising from operating activities. Also, consistent with our response to the IASB Third AgendaConsultation, we recommend the IASB consider undertaking a targeted project to improve thewider aspects of the statement of cash flows, including cash flows arising from SFA, in the future.Our detailed comments are provided in the Appendix.Page 2 of 5If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk), Katherine Leung (katherineleung@hkicpa.org.hk) or Norman Chan(normanchan@hkicpa.org.hk), Associate Directors of the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting DepartmentPage 3 of 5Work undertaken by HKICPA in forming its viewsThe HKICPA:
(i)
issued an Invitation to Comment on ED/2021/10 on 29 November 2021 to its members andother stakeholders;
(ii) sought input from its Disclosure Initiative Advisory Panel and Financial Instruments AdvisoryPanel, which are mainly comprised of technical and industry experts from large as well assmall and medium accounting firms (collectively, Practitioners);
(iii) sought input from a finance provider which is a listed company that engages in supply chainfinance platform and commercial factoring in Mainland China; and(iv) developed its views through its Financial Reporting Standards Committee, having reflectedon its stakeholder views. The Committee comprises preparer representatives from variousindustry sectors, regulators, as well as technical and industry experts from small, mediumand large accounting firms.Detailed comments on ED/2021/10Question 1: Scope of disclosure requirements
1.The HKICPA and its respondents agreed with the IASB’s approach to describing thecharacteristics of Supplier Finance Arrangements (SFA) that are within the scope of theproposals instead of defining SFA for the reason stated in paragraph BC6 of the ED. However,most of the respondents considered that the characteristics of SFA as stated in paragraph44G of the ED may not be sufficiently clear.
2.Paragraph BC8(a) of the ED mentions that an arrangement whereby the reporting entity (thebuyer) settles the invoices on their contractual due dates with the finance providers, butsuppliers can choose to be paid earlier by the finance providers at a discount also falls intothe scope of SFA. We consider that the substance of BC8(a) (i.e. the suppliers receiving earlypayment at a discount) could be similar to the following common financing arrangements,and so question whether these arrangements are within the scope of the ED.a) A supplier accepts a commercial bill issued by the reporting entity (the buyer) assettlement of the amount outstanding. The supplier may discount the bill with a bankand the buyer may or may not be involved in the discounting arrangement. A questionarises as to whether and when such an arrangement would fall within the scope of SFAfor the reporting entity. For example, does it depend on:
i)
whether the buyer or the supplier initiated the discounting framework arrangement?ii)
whether the buyer was involved in negotiating the granular details of eachdiscounting arrangement?iii) the extent of involvement/cooperation between the buyer and the bank that acceptsthe bills for discounting?b) Bank acceptance bills (BABs) are issued by a bank to the reporting entity (the buyer)
which is then used by the buyer to settle the amount owing to a supplier. The suppliercan choose to discount the BAB with the issuing or other bank earlier than the invoicedue date, similar to the situation described in BC8(a) of the ED. As the issue of BABsinvolves cooperation between the buyer and the bank, a question arises as to whethertrade payables that are subject to BAB arrangements fall within the scope of SFA.c) Equitable v. legal assignments. In certain equitable assignments, the suppliers wouldreceive early payment from the finance providers but the buyers are not involved in andmay not even know about the suppliers’ financing arrangements. The followingquestions/concerns were raised by our respondents:
i)
As stated in paragraph 44G of the ED, one of the characteristics of SFA is that “theentity agrees to pay the finance providers”. This seems to imply that equitableassignments of receivables may not fall within the scope of the ED. Our respondentsquestioned whether it is the IASB’s intention that only legal assignment ofAppendixPage 4 of 5receivables (i.e. where there are tripartite agreements) would fall under the scopeof the ED.ii)
If equitable assignments were to fall into the scope of the ED, then entities (thebuyers) would have practical difficulties in obtaining and providing the informationproposed in the ED, e.g. the disclosure of concentration risk as the reporting entitymay not be in a position to know whether the financial liabilities under the SFA havebeen further assigned. Even if they could do so, there is a significant concern onthe auditability of the related information.
3.We are concerned that if the characteristics of SFA are not clear, there would be a risk ofinconsistent application of the proposals which would in turn reduce the comparability offinancial information among entities.
4.A respondent noted that one of the major differences between reverse factoring andtraditional factoring (where the supplier factors the receivable to a finance provider) is thatreverse factoring is normally initiated by the buyer, not the supplier. Therefore, to address thequestions raised in paragraph 2 above, this respondent suggested that the IASB consideradding this characteristic explicitly in paragraph 44G of the ED if this is the intention of theIASB.
5.In light of the above, the HKICPA strongly recommends the IASB:
a) provide a clear principle of what constitutes a SFA. This would include the factors forconsideration, e.g. the nature, timing and extent of involvement of the reporting entity inthe arrangement, and an explanation of the key features of a SFA;
b) test the characteristics of SFA to ensure that they cover the arrangements that the IASBintends to cover; andc) provide illustrative examples that (i) fall within; and (ii) do not fall within the scope of theED with reference to the examples in paragraph 2 above.Question 2: Disclosure objective and disclosure requirements
6.We generally support the proposed disclosures in paragraph 44F of the ED because weconsider that they can provide useful information to users of financial statements to assessthe effects of SFA on an entity’s liabilities and cash flows.
7.A few respondents (practitioners) considered that the benefits of providing the disclosure inparagraph 44H(b)(ii) of the ED (i.e. the carrying amount of financial liabilities for whichsuppliers have already received payment from the finance providers) may not justify its costs.They considered that an entity would not normally obtain and verify such information in itsdaily operation. Therefore, the proposal would inevitably increase the costs of the entity toobtain and prepare, and the practical difficulties for the auditors to audit, such information. Inaddition, it is questionable whether the proposed disclosure helps users in assessing thefinancial position of the entity. In particular, for cases where the supplier receives earlypayment at a discount, the entity still has to pay the finance provider the full invoice amounton the due date (which would be disclosed under paragraph 44H(b)(iii) of the ED). Theproposed disclosure in paragraph 44H(b)(ii) does not provide additional useful information inthis case.
8.Given the above, the HKICPA recommends the IASB assess the costs and benefits ofproviding the proposed disclosure in paragraph 44H(b)(ii) of the ED by considering thefeedback from users on the usefulness of such information, and from the preparers andauditors on the costs of preparing and auditing the proposed disclosure.Page 5 of 5Question 3: Examples added to disclosure requirementsConcentrations of risk
9.We note that in certain financing arrangements, the finance providers may be acting as aconduit or an intermediary to spread the credit risk of the reporting entity to multiple financeproviders (e.g. by sub-contracting all or part of the risk to other financial institutions). As thereporting entity may not know the finance provider’s back-end arrangements on its debt, itmay not be able to identify the ultimate finance providers in such case. It would only be ableto identify the party with which it had contracted for the SFA and the total amount that it wouldhave to pay to this party. We considered that the ED is not clear as to whether the proposalregarding concentrations of risk in paragraph IG18 would require an entity to discloseinformation only up to the party with whom it contracted or information that covers the wholechain of SFA. Accordingly, we suggest that the IASB clarify the extent of disclosure that isrequired under paragraph IG18 of the ED.Statement of cash flows
10.Paragraph BC16 of the ED explains that SFA is added as an example to paragraph 44B ofthe ED to help users of financial statements understand the effects of SFA on an entity’soperating and financing cash flows. However, the proposed disclosure in paragraph 44B(da)
covers non-cash changes arising from financing activities only.
11.We note that neither the IFRS Interpretations Committee’s Agenda Decision Supply ChainFinancing Arrangements-Reverse Factoring nor the ED addresses the presentation of cashflows arising from SFA, e.g. whether the gross or net presentation of cash flows should beapplied, and whether and when cash flows should be presented under operating or financingactivities. Therefore, it is likely that diversity in practice will continue to exist. We areconcerned that the current proposal in paragraph 44B(da) may not capture those non-cashchanges that would be classified as cash outflows from operating activities in the future giventhe same facts and circumstances.
12.To capture all non-cash changes arising from SFA, we recommend that the IASB move theproposal in paragraph 44B(da) to paragraph 44H of the ED, and include non-cash changesarising from operating activities as follows:
“non-cash changes arising from supplier finance arrangements (as described inparagraph 44G), for example when future cash outflows will be classified as cashflows from operating or financing activities; and”
We consider that including this disclosure in paragraph 44H, which specifically addressesthe disclosures of SFA, would avoid entities missing out the requirement that was originallyproposed in other parts of IAS 7 Statements of Cash Flows.
13.In addition, as the issue on the presentation of cash flows arising from SFA is yet to beaddressed, consistent with our response to the IASB Third Agenda Consultation, we suggestthat the IASB consider undertaking a targeted project to improve the wider aspects of thestatement of cash flows, including cash flows arising from SFA, in the future.~ End ~
IASB Exposure Draft ED/2021/10 Supplier Finance Arrangements (Proposed amendments to IAS 7 and IFRS 7)
下载原件Page 1 of 5Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
24 March 2022Dr Andreas BarckowInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Andreas,IASB Exposure Draft ED/2021/10Supplier Finance Arrangements(Proposed amendments to IAS 7 and IFRS 7)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only body authorisedby law to set and promulgate standards relating to financial reporting, auditing and ethics forprofessional accountants in Hong Kong. We are grateful for the opportunity to provide you withour comments on this Exposure Draft (ED).The HKICPA welcomes the IASB’s proposals to enhance the transparency of supplier financearrangements (SFA) and their effects on an entity’s liabilities and cash flows.We agree with the IASB’s approach to describing the characteristics of SFA instead of definingSFA. However, we consider that the characteristics of SFA as stated in paragraph 44G of the EDmay not be sufficiently clear. In particular, questions are raised as to whether the scope of SFAwould depend on who initiated the financing arrangement, and the extent of involvement andcooperation between the buyer, the finance provider and the supplier. In this regard, we stronglyrecommend that the IASB provide a clear principle of what constitutes a SFA, test thecharacteristics of SFA to ensure they cover the arrangements that the IASB intends to cover, andprovide illustrative examples that (i) fall within; and (ii) do not fall within the scope of the ED toexplain the key features of SFA.In addition, we note that neither the IFRS Interpretations Committee’s Agenda Decision SupplyChain Financing Arrangements-Reverse Factoring nor the ED addresses the presentation ofcash flows arising from SFA. It is likely that diversity in practice will continue to exist. We areconcerned that the current proposal in paragraph 44B(da), which only requires disclosure of non-cash changes from financing activities, may not capture those that would be classified as cashflows from operating activities. Accordingly, we recommend that the IASB move the proposal inparagraph 44B(da) to paragraph 44H of the ED, and include disclosure of non-cash changesarising from operating activities. Also, consistent with our response to the IASB Third AgendaConsultation, we recommend the IASB consider undertaking a targeted project to improve thewider aspects of the statement of cash flows, including cash flows arising from SFA, in the future.Our detailed comments are provided in the Appendix.Page 2 of 5If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk), Katherine Leung (katherineleung@hkicpa.org.hk) or Norman Chan(normanchan@hkicpa.org.hk), Associate Directors of the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting DepartmentPage 3 of 5Work undertaken by HKICPA in forming its viewsThe HKICPA:
(i)
issued an Invitation to Comment on ED/2021/10 on 29 November 2021 to its members andother stakeholders;
(ii) sought input from its Disclosure Initiative Advisory Panel and Financial Instruments AdvisoryPanel, which are mainly comprised of technical and industry experts from large as well assmall and medium accounting firms (collectively, Practitioners);
(iii) sought input from a finance provider which is a listed company that engages in supply chainfinance platform and commercial factoring in Mainland China; and(iv) developed its views through its Financial Reporting Standards Committee, having reflectedon its stakeholder views. The Committee comprises preparer representatives from variousindustry sectors, regulators, as well as technical and industry experts from small, mediumand large accounting firms.Detailed comments on ED/2021/10Question 1: Scope of disclosure requirements
1.The HKICPA and its respondents agreed with the IASB’s approach to describing thecharacteristics of Supplier Finance Arrangements (SFA) that are within the scope of theproposals instead of defining SFA for the reason stated in paragraph BC6 of the ED. However,most of the respondents considered that the characteristics of SFA as stated in paragraph44G of the ED may not be sufficiently clear.
2.Paragraph BC8(a) of the ED mentions that an arrangement whereby the reporting entity (thebuyer) settles the invoices on their contractual due dates with the finance providers, butsuppliers can choose to be paid earlier by the finance providers at a discount also falls intothe scope of SFA. We consider that the substance of BC8(a) (i.e. the suppliers receiving earlypayment at a discount) could be similar to the following common financing arrangements,and so question whether these arrangements are within the scope of the ED.a) A supplier accepts a commercial bill issued by the reporting entity (the buyer) assettlement of the amount outstanding. The supplier may discount the bill with a bankand the buyer may or may not be involved in the discounting arrangement. A questionarises as to whether and when such an arrangement would fall within the scope of SFAfor the reporting entity. For example, does it depend on:
i)
whether the buyer or the supplier initiated the discounting framework arrangement?ii)
whether the buyer was involved in negotiating the granular details of eachdiscounting arrangement?iii) the extent of involvement/cooperation between the buyer and the bank that acceptsthe bills for discounting?b) Bank acceptance bills (BABs) are issued by a bank to the reporting entity (the buyer)
which is then used by the buyer to settle the amount owing to a supplier. The suppliercan choose to discount the BAB with the issuing or other bank earlier than the invoicedue date, similar to the situation described in BC8(a) of the ED. As the issue of BABsinvolves cooperation between the buyer and the bank, a question arises as to whethertrade payables that are subject to BAB arrangements fall within the scope of SFA.c) Equitable v. legal assignments. In certain equitable assignments, the suppliers wouldreceive early payment from the finance providers but the buyers are not involved in andmay not even know about the suppliers’ financing arrangements. The followingquestions/concerns were raised by our respondents:
i)
As stated in paragraph 44G of the ED, one of the characteristics of SFA is that “theentity agrees to pay the finance providers”. This seems to imply that equitableassignments of receivables may not fall within the scope of the ED. Our respondentsquestioned whether it is the IASB’s intention that only legal assignment ofAppendixPage 4 of 5receivables (i.e. where there are tripartite agreements) would fall under the scopeof the ED.ii)
If equitable assignments were to fall into the scope of the ED, then entities (thebuyers) would have practical difficulties in obtaining and providing the informationproposed in the ED, e.g. the disclosure of concentration risk as the reporting entitymay not be in a position to know whether the financial liabilities under the SFA havebeen further assigned. Even if they could do so, there is a significant concern onthe auditability of the related information.
3.We are concerned that if the characteristics of SFA are not clear, there would be a risk ofinconsistent application of the proposals which would in turn reduce the comparability offinancial information among entities.
4.A respondent noted that one of the major differences between reverse factoring andtraditional factoring (where the supplier factors the receivable to a finance provider) is thatreverse factoring is normally initiated by the buyer, not the supplier. Therefore, to address thequestions raised in paragraph 2 above, this respondent suggested that the IASB consideradding this characteristic explicitly in paragraph 44G of the ED if this is the intention of theIASB.
5.In light of the above, the HKICPA strongly recommends the IASB:
a) provide a clear principle of what constitutes a SFA. This would include the factors forconsideration, e.g. the nature, timing and extent of involvement of the reporting entity inthe arrangement, and an explanation of the key features of a SFA;
b) test the characteristics of SFA to ensure that they cover the arrangements that the IASBintends to cover; andc) provide illustrative examples that (i) fall within; and (ii) do not fall within the scope of theED with reference to the examples in paragraph 2 above.Question 2: Disclosure objective and disclosure requirements
6.We generally support the proposed disclosures in paragraph 44F of the ED because weconsider that they can provide useful information to users of financial statements to assessthe effects of SFA on an entity’s liabilities and cash flows.
7.A few respondents (practitioners) considered that the benefits of providing the disclosure inparagraph 44H(b)(ii) of the ED (i.e. the carrying amount of financial liabilities for whichsuppliers have already received payment from the finance providers) may not justify its costs.They considered that an entity would not normally obtain and verify such information in itsdaily operation. Therefore, the proposal would inevitably increase the costs of the entity toobtain and prepare, and the practical difficulties for the auditors to audit, such information. Inaddition, it is questionable whether the proposed disclosure helps users in assessing thefinancial position of the entity. In particular, for cases where the supplier receives earlypayment at a discount, the entity still has to pay the finance provider the full invoice amounton the due date (which would be disclosed under paragraph 44H(b)(iii) of the ED). Theproposed disclosure in paragraph 44H(b)(ii) does not provide additional useful information inthis case.
8.Given the above, the HKICPA recommends the IASB assess the costs and benefits ofproviding the proposed disclosure in paragraph 44H(b)(ii) of the ED by considering thefeedback from users on the usefulness of such information, and from the preparers andauditors on the costs of preparing and auditing the proposed disclosure.Page 5 of 5Question 3: Examples added to disclosure requirementsConcentrations of risk
9.We note that in certain financing arrangements, the finance providers may be acting as aconduit or an intermediary to spread the credit risk of the reporting entity to multiple financeproviders (e.g. by sub-contracting all or part of the risk to other financial institutions). As thereporting entity may not know the finance provider’s back-end arrangements on its debt, itmay not be able to identify the ultimate finance providers in such case. It would only be ableto identify the party with which it had contracted for the SFA and the total amount that it wouldhave to pay to this party. We considered that the ED is not clear as to whether the proposalregarding concentrations of risk in paragraph IG18 would require an entity to discloseinformation only up to the party with whom it contracted or information that covers the wholechain of SFA. Accordingly, we suggest that the IASB clarify the extent of disclosure that isrequired under paragraph IG18 of the ED.Statement of cash flows
10.Paragraph BC16 of the ED explains that SFA is added as an example to paragraph 44B ofthe ED to help users of financial statements understand the effects of SFA on an entity’soperating and financing cash flows. However, the proposed disclosure in paragraph 44B(da)
covers non-cash changes arising from financing activities only.
11.We note that neither the IFRS Interpretations Committee’s Agenda Decision Supply ChainFinancing Arrangements-Reverse Factoring nor the ED addresses the presentation of cashflows arising from SFA, e.g. whether the gross or net presentation of cash flows should beapplied, and whether and when cash flows should be presented under operating or financingactivities. Therefore, it is likely that diversity in practice will continue to exist. We areconcerned that the current proposal in paragraph 44B(da) may not capture those non-cashchanges that would be classified as cash outflows from operating activities in the future giventhe same facts and circumstances.
12.To capture all non-cash changes arising from SFA, we recommend that the IASB move theproposal in paragraph 44B(da) to paragraph 44H of the ED, and include non-cash changesarising from operating activities as follows:
“non-cash changes arising from supplier finance arrangements (as described inparagraph 44G), for example when future cash outflows will be classified as cashflows from operating or financing activities; and”
We consider that including this disclosure in paragraph 44H, which specifically addressesthe disclosures of SFA, would avoid entities missing out the requirement that was originallyproposed in other parts of IAS 7 Statements of Cash Flows.
13.In addition, as the issue on the presentation of cash flows arising from SFA is yet to beaddressed, consistent with our response to the IASB Third Agenda Consultation, we suggestthat the IASB consider undertaking a targeted project to improve the wider aspects of thestatement of cash flows, including cash flows arising from SFA, in the future.~ End ~