22 March 2022
Dr. Andreas Barckow
Chair
International Accounting Standards Board
Columbus Building, 7 Westferry Circus
Canary Wharf, London, E14 4HD
United Kingdom

Comments on the Exposure Draft Supplier Finance Arrangements
1.

The Accounting Standards Board of Japan (“the ASBJ” or “we”) welcome theopportunity to provide our comments on the International Accounting Standards
Board (“the IASB”)’s Exposure Draft (ED/2021/10) Supplier Finance Arrangements(“the ED”), issued in November 2021.

2.

We acknowledge that information needs of financial statement users regardingtransactions based on supplier finance arrangements entered into by entities exist,
and agree that there is room for improvement in the provision of information in thisarea.

3.

However, we are of the view that disclosures to address the aforementioned
information needs should not be limited to cover particular transactions, but
disclosures would be more useful when the general disclosure objectives to provide
information about an entity’s liquidity management or cash flow management areclearly stated and when disclosures are made in line with those objectives.

In

addition, we are concerned that, even if disclosures are enhanced every time aparticular transaction scheme is developed, new transaction schemes will emerge asa result of developments in financial technology, and the more these new schemes
are used, the more likely it will be that such limited amendments to disclosure
requirements will become insufficient to deal with such new schemes.

Accordingly,

we are of the view that the IASB should comprehensively consider what types of1

disclosures are desirable based on the IASB’s understanding of the information needsof financial statement users regarding an entity's liquidity or cash flow management(including strategies related thereto), rather than considering disclosure requirements
every time particular transactions (such as supplier finance agreements) that do not
fit within existing accounting standards emerge and issues are identified.
4.

Our opinion on the ED is as described above.

However, if the IASB were to address

this issue by enhancing disclosures about supplier finance arrangements, we haveconcerns about the excessive burden on entities of some of the disclosure
requirements proposed by the IASB and about the usefulness of the information
provided. Accordingly, we do not support those proposals.
5.

We understand that the U.S. Financial Accounting Standards Board (“the FASB”) isalso currently working on enhancing disclosures about supplier finance programs.
We are of the view that, if the IASB were to address this issue by enhancing
disclosures about supplier finance arrangements, it would be desirable that the resultsof the initiatives of the IASB, including this ED, be ultimately consistent with therequirements under U.S. GAAP.

Accordingly, we expect the IASB and the FASB

to work closely together to develop their respective accounting standards.
6.

For our comments on the specific questions, please refer to the Appendix.

7.

We hope our comments are helpful for the IASB’s consideration in the future.
you have any questions, please feel free to contact us.

Yours sincerely,

Yasunobu Kawanishi
Vice Chair
Accounting Standards Board of Japan

2IfAppendix
Question 1—Scope of disclosure requirements
The [Draft] Amendments to IAS 7 and IFRS 7 do not propose to define supplier financearrangements. Instead, paragraph 44G of the [Draft] Amendments to IAS 7 describes
the characteristics of an arrangement for which an entity would be required to provide
the information proposed in this Exposure Draft. Paragraph 44G also sets out examplesof the different forms of such arrangements that would be within the scope of theBoard’s proposals.
Paragraphs BC5–BC11 of the Basis for Conclusions explain the Board’s rationale forthis proposal.
Do you agree with this proposal? Why or why not? If you disagree with the proposal,
please explain what you suggest instead and why.
1.

As stated in our cover letter, we are of the view that the IASB should
comprehensively consider what types of disclosures are desirable based on theIASB’s understanding of the information needs of financial statement users regarding
an entity's liquidity or cash flow management, rather than considering disclosure
requirements every time particular transactions (such as supplier finance agreements)that does not fit within existing accounting standards emerges and issues areidentified.

However, if the IASB were to address this issue by enhancing

disclosures about supplier finance arrangements, we have concerns about some ofthe proposals in the ED as well, as follows.
2.

The IASB proposed not to attempt to develop a detailed definition of supplier financearrangements and instead to explain the type of arrangements.

Regarding this

proposal, we are of the view that it will be difficult to develop a definition that canbe stably applied because we think that the development of financial technology willcontinue to create new schemes that may not be captured by a prescriptive definition.
We also expect that explaining the type of arrangements will enable entities todisclose information that they judge to be relevant.

Therefore, the IASB's approachof explaining the type of supplier finance arrangements that are within the scope of
proposed disclosures rather than defining in detail the arrangements in scope isunderstandable.

33.

However, we are concerned that the scope of arrangements subject to the proposed
disclosure requirements in the ED is ambiguous, which may cause difficulties inapplying the proposal in practice and may lead to an overly broad view of transactions
subject to disclosure.

4.

We think that the essence of a supplier finance arrangement is that a third party
funding source other than the entity provides an extension of the due date for payment
to the entity or early payment to the supplier for financial liabilities, such as tradeaccounts payable, that the entity has confirmed as the subject of the supplier financearrangement.

Therefore, we are of the view that the second sentence of paragraph

44G of the proposed amendments to IAS 7 in the ED should be given greater
prominence to clarify the essence of a supplier finance arrangement.
5.

However, we think that there are cases in which an entity uses a specific financial
institution to manage all payments to its suppliers, and the supplier of the entity may
factor its accounts receivable with that same specific financial institution.

The

proposal in the ED could be read to suggest that such transactions would be subject
to disclosure as supplier finance arrangements.

If such transactions between

suppliers and financial institutions, of which the entity has no knowledge, are subject
to disclosure, there are concerns about the availability and verifiability of information
about such transactions.

Therefore, we are of the view that it should be clarified

that the proposal in the ED would not apply to cases in which a third party financeprovider merely acts as a paying agent for the entity's accounts payable, to fundingtransactions that are not related to the entity, for example, where the entity's suppliers
and finance provider simply perform factoring on receivables due from the entity,
and to cases in which the entity’s suppliers enter into transactions related to
discounting letters of credit.
Question 2—Disclosure objective and disclosure requirements
Paragraph 44F of the [Draft] Amendments to IAS 7 would require an entity to disclose
information in the notes about supplier finance arrangements that enables users offinancial statements to assess the effects of those arrangements on an entity’s liabilities
and cash flows.
To meet that objective, paragraph 44H of the [Draft] Amendments to IAS 7 proposes4

to require an entity to disclose:(a) the terms and conditions of each arrangement;(b) for each arrangement, as at the beginning and end of the reporting period:(i) the carrying amount of financial liabilities recognised in the entity’s statement offinancial position that are part of the arrangement and the line item(s) in whichthose financial liabilities are presented;(ii) the carrying amount of financial liabilities disclosed under (i) for which suppliers
have already received payment from the finance providers; and(iii) the range of payment due dates of financial liabilities disclosed under (i); and(c) as at the beginning and end of the reporting period, the range of payment due datesof trade payables that are not part of a supplier finance arrangement.
Paragraph 44I would permit an entity to aggregate this information for different
arrangements only when the terms and conditions of the arrangements are similar.
Paragraphs BC12–BC15 and BC17–BC20 of the Basis for Conclusions explain theBoard’s rationale for this proposal.
Do you agree with this proposal? Why or why not? If you agree with only parts of theproposal, please specify what you agree and disagree with. If you disagree with theproposal (or parts of it), please explain what you suggest instead and why.
6.

As stated in our cover letter, we acknowledge that information needs of financialstatement users regarding transactions based on supplier finance arrangements
entered into by entities exist, and agree that there is room for improvement in theprovision of information in this area.

However, we have concerns about thefollowing items among the disclosure requirements proposed in the ED.
The carrying amount of financial liabilities for which suppliers have alreadyreceived payment from the finance providers
7.

We disagree with paragraph 44H(b)(ii) of the proposed amendment to IAS 7 in theED, which requires disclosure of the carrying amount of financial liabilities for which
the supplier has already received payment from the funding source.

5This is because

we think that, based on paragraph 44G of the proposed amendment to IAS 7 in theED, there are concerns about the availability of information and the verifiability ofsuch information even if it were available.
8.

We agree that the information that the IASB proposes to disclose in the ED could
provide users of financial statements with:(a) information about the amount of cash outflows that are reported as part of cash
flows from operating activities in the statement of cash flows in subsequent
periods and that may in substance be considered to be cash flows from financing
activities; and(b) information on the risk that financial liabilities such as accounts payable may berequired to be repaid before they are due, depending on the nature of the supplierfinance arrangements entered into by the entity, if the entity's credit risk
deteriorates.
In addition, this information is considered to be relatively easy to obtain when thesupplier finance arrangements are concluded as a three-way contract between theentity, the supplier, and the finance provider.

9.

However, as described in our comments on Question 1, given the ambiguity in thescope of supplier finance agreements subject to disclosure in the proposals in the ED,
we are concerned that the scope of the ED could be read to extend to a variety ofcases which were not the intention of the IASB. By way of example, there are cases
in which an entity uses a particular financial institution solely for the purpose ofmanaging payments to its suppliers in bulk.

As part of this, the entity's suppliers

and funding providers may be simply factoring receivables for the supplier and theentity uses the financial institution to facilitate its supplier’s arrangements. In thiscase, as the entity is not a party to the factoring agreement and is merely indirectly
involved without knowing the details of the arrangement, there would be concerns
about the availability of the information required to be disclosed in the ED and, evenif such information is available, there would be concerns about the verifiability ofthat information.

We therefore disagree that the disclosure of this information isrequired, assuming that the scope of supplier finance agreements that are subject todisclosure proposed in the ED remains unchanged.

If the disclosure of theinformation proposed in the ED were to be required, we are of the view that the IASB
should ensure the availability and verifiability of the information by clarifying that6the ED would not apply, for example, when a third party funding source acts merely
as a paying agent for the entity with its suppliers, as we stated in our response toQuestion 1.
The range of payment due dates of trade payables as at the beginning and end of thereporting period
10. We disagree with the IASB's proposal in the ED to add IAS 7 paragraphs 44H (b)(iii) and (c), which require an entity to disclose information about the range ofpayment due dates for trade payables.
11. We agree that the information that would be required by IAS 7 paragraphs 44H(b)(iii)and (c) may be useful in assessing the extent to which operating cash flows will
improve, as discussed in the Basis for Conclusions in the ED. However, we are of
the view that:(a) Not all supplier finance arrangements extend the due date of trade payables, anduniformly requiring such entities to disclose such information would not provide
useful information in light of the disclosure objective.
(b) Entities usually do not improve their operating cash flows solely throughsupplier finance arrangements, but as part of their overall management of cash
flows, including factoring of trade receivables and inventory financing. The
disclosure of further disaggregation of accounts payable only as proposed in theED would be of limited usefulness.
12. We are of the view that the objective of the ED would be achieved by amending
paragraph 44H(a) of IAS 7, which the IASB proposes to add in the ED, to clarify thatsuch information should be disclosed as part of the disclosure requirements for theterms and conditions of each supplier finance arrangement if the extension of therelevant date is material.

Question 3—Examples added to disclosure requirements
Paragraph 44B of the [Draft] Amendments to IAS 7 and paragraphs B11F and IG18 of
the [Draft] Amendments to IFRS 7 propose to add supplier finance arrangements as anexample within the requirements to disclose information about changes in liabilities

7arising from financing activities and about an entity’s exposure to liquidity risk,respectively.
Paragraphs BC16 and BC21–BC22 of the Basis for Conclusions explain the Board’s
rationale for this proposal.
Do you agree with this proposal? Why or why not? If you disagree with the proposal,
please explain what you suggest instead and why.
13. We disagree with the proposal to require an entity to disclose the information inparagraph 44B(da) of the proposed amendments to IAS 7 in the ED.
14. We think that the information that would be required by paragraph 44B(da) of theproposed amendments to IAS 7 will often be similar to the information on thecarrying amount of financial liabilities for which suppliers have already received
payment from the finance providers in paragraph 44H(b)(ii) of the proposed
amendments to IAS 7 in the ED.

Therefore, we are of the view that the same

concerns exist as in our responses to questions 1 and 2.
15. In addition, as described in our cover letter and in our response to Question 1, we areof the view that the IASB should comprehensively consider what types of disclosures
are desirable based on the IASB’s understanding of the information needs of financial
statement users regarding an entity's liquidity or cash flow management.

In thisregard, we think that the current IFRS 7 Financial Instruments: Disclosures(hereinafter referred to as “IFRS 7”) requires an entity to disclose its risk
management objectives and policies, and that these risk management objectives andpolicies may overlap in some respects with the entity's strategy.

However, we donot think that requiring the same level of disclosure in the financial statements as inIFRS 7 about an entity's risk management that also exists outside the scope of IFRS
7 would necessarily improve the disclosures within the financial statements.

Thisis because it would simply increase disclosures without considering what should beincluded in the financial statements and would not necessarily be consistent with theobjective of financial statements to provide information about an entity's financialposition, financial performance and cash flows that is useful to users in making
economic decisions.

We are of the view that this should also be taken into accountin the comprehensive consideration we propose.

8