Analysis of the Amendments in IAS 7 and IFRS 7 within the Scope of Supplier Finance Arrangements
Seçil Sigali, Reha MemişoğluSupplier finance-reverse factoring transactions have positive effects on supply chain finance and resilience, mainly by lowering the financing costs of suppliers that are mostly small- and medium-sized enterprises. However, these transactions have become one of the focal points of the discussions on corporate governance and agency problems due to the lack of transparency in the disclosures and financial reporting issues, leading to the bankruptcies of Carillion and Greensill Capital, and the effects Greensill Capital’s bankruptcy had on the collapse of Credit Suisse in March 2023. On May 25, 2023, International Accounting Standards Board published mandatory disclosures on supplier finance arrangements that would be effective for annual reporting periods beginning on or after January 1, 2024 through its amendments to the International Accounting Standard 7 Statement of Cash Flows and International Financial Reporting Standard 7 Financial Tools. The aim of this study is to analyze these amendments by evaluating the reasons and targets of these changes, which credit rating agencies and auditors insistently request. The amendments are expected to positively impact how the effects of supplier financing are measured on buyer companies’ financial statements and to reduce the manipulative use of supplier finance arrangements by lowering information asymmetry and agency problems, thus increasing the positive effects these transactions have on world trade.
Tedarikçi Finansmanı İşlemleri Kapsamında UMS 7 ve UFRS 7’de Yapılan Değişikliklerin Analizi
Seçil Sigali, Reha MemişoğluTedarikçi finansmanı-ters faktöring işlemleri, özellikle tedarikçi konumunda olan küçük ve orta büyüklükteki firmaların finansman maliyetlerini düşürerek, tedarik zinciri finansmanı ve direncine olumlu katkıda bulunmaktadır. Ancak, bu işlemlerin şeffaflığı ve finansal tablolarda sunumu ile ilgili sorunlar, Carillion ve Greensill Capital firmalarının iflası ve Credit Suisse’in Mart 2023’teki çöküşünde Greensill Capital iflasının etkileri, tedarikçi finansmanı işlemlerini, kurumsal yönetim ve vekalet teorisi kapsamında tartışmaların odak noktalarından biri haline getirmiştir. Bu tartışmalar nedeniyle, Uluslararası Muhasebe Standartları Kurulu, tedarikçi finansmanı düzenlemelerini, Uluslararası Muhasebe Standardı 7 Nakit Akım Tablosu ve Uluslararası Finansal Raporlama Standardı 7 Finansal Araçlar’daki değişiklikler yolu ile 25 Mayıs 2023’te yayınlamış ve 1 Ocak 2024 itibariyle yıllık raporlamada zorunlu olacağını açıklamıştır. Bu çalışmanın amacı, kredi derecelendirme kuruluşları ve denetçiler tarafından talep edilen bu değişikliklerin nedenlerini ve hedeflerini değerlendirerek, analizinin gerçekleştirilmesidir. Tedarikçi finansmanı düzenlemelerinin, bilgi asimetrisini ve vekalet problemlerini azaltarak, tedarikçi finansmanının alıcı firmaların finansal tablolarındaki etkisinin ölçülmesinde olumlu etki yaratması ve bu araçların manipülatif kullanımını azaltması, böylelikle tedarikçi finansmanı işlemlerinin ticaret hayatına olumlu etkilerinin artması beklenmektedir.
Supplier financing-terms invoicing operations, which reduce financing costs for small- and medium-sized enterprises (SMEs), particularly improve supply chain financing and resilience. The reason why reverse invoicing is known as supplier financing is that the process focuses on supplier firms, thus providing a solution where buyers can offer their suppliers early payments on approved invoices. Suppliers may demand early payment of invoices from banks or other financial institutions, and the acquiring company may send the payment to the financial institution on the date the invoice is issued. In this context, supplier financing practices have increased significantly both worldwide and in Türkiye. However, the bankruptcies of Carillion and Greensill Capital, as well as the impact of the collapse of Credit Suisse in March 2023, are the focal points of the discussions on supplier financing transactions, corporate governance, and agency theory. The changes the International Accounting Standards Board (IASB) has published aim to increase the positive impact on business by making supplier financing processes more transparent.
This study aims to investigate these adjustments by assessing the motivations behind and goals of these revisions for which auditors and credit rating agencies have pushed. The changes are anticipated to improve the measurement of how supplier financing affects buyer companies’ financial statements, lessen agency issues and information asymmetry, and lessen the manipulative use of supplier finance arrangements, all of which will increase the benefits these transactions have for global trade. This article uses a case study analysis of the collapses of the Carillion and Greensill companies to identify the causes for the changes in International Accounting Standard (IAS) 7 and International Financial Reporting Standard (IFRS) 7 Financial Tools. Case study analyses have become one of the most widely used strategies for qualitative social research these days. Case study analyses involve the empirical study of a phenomenon in the context of real life. In this context, this study examines in detail within the framework of supplier financing the factors and processes that caused the collapse of the Carillion and Greensill firms. This case analysis explains how the bankruptcies of these firms resulted in the changes to IAS 7 and IFRS 7. This article uses the content analysis method to evaluate and analyze the objectives of the changes to IAS 7 and IFRS 7. The content analysis method can be used qualitatively or quantitatively for the systematic analysis of written, oral, or visual material. In this context, the study analyzes the IASB meeting where the amendments were made to IAS 7 and IFRS 7, as well as the related documents and reports. The article then summaries the results from the content analysis as a hypothetical working example.
Supplier financing tools help suppliers create corporate capital from discount rates they cannot obtain on their own. However, the practices of companies such as Carillion and Greensill that have gradually entered the class of creative accounting have undermined investor confidence in these tools and resulted in supplier benefits decreasing over the long term. Furthermore, as a result of the increased use of supplier financing instruments, commercial debt now contains more financial debt, and although these debts have increased their repayment times, they remain unclear, causing difficulties for investors and credit rating agencies when calculating the financial leverage of a company, particularly when determining the need for short-term financing. The disclosure requirements in the amendments aim to improve existing requirements and help users of the financial table understand the impact supplier financing has on a company’s debt, cash flows, and liquidity risk exposure. In this context, the liquidity risk declarations in IFRS 7 include supplier financing regulations as examples of other factors that may be relevant to the declaration. The extent to which a company’s financial liabilities are covered by supplier financing and the impact this situation has on the financial table can both be examined, as can the degree to which the company would be exposed to liquidity risk in the event of the termination of supplier funding as set out in the sample description in Table 1.
The Supplier Financing Regulations issued by IASB on May 25, 2023 that will have entered into force on January 1, 2024, are expected to have a positive impact on measuring the impact supplier financing has on the financial statements of purchasing companies by reducing information asymmetry and the manipulative use of these tools, thereby increasing the benefits to trade and supply chain resilience. Discussions will continue as to whether or not these arrangements are adequate. These discussions will particularly focus on the interim changes. This situation also highlights the difficulties purchasing companies have in obtaining the requested information. As a result, the authors believe the regulations relating to supplier financing transactions should not be confined to accounting standards alone in order to lessen agency issues, information asymmetry, and the manipulative use of supplier finance arrangements in practice.
