FASB financing disclosure rule the latest supply chain wrinkle

Supply chain financing has become popular among businesses like yours, and the Financial Accounting Standards Board (FASB) has taken notice.

A new rule approved by FASB’s board on July 20 means you’ll have to disclose information on any supply chain financing programs that you’re enrolled in. According to FASB, the rule was proposed in December and there was a three-month window for public comment on the transparency policy which began December 20, 2021.

Financing vendor invoices through a bank or other third party to pay suppliers, with the promise of re-paying the bank later, can be a big help for cash flow management and stocking up on inventory. However, it now has a new administrative burden and you’ll need to let your accounting team know that they have to start reporting the following in your financial statements:

• Quarterly disclosure of outstanding balances on supply chain financing programs and year-over-year comparisons
• Disclosure of general descriptions of payment terms, including the timing and how it’s determined, plus any assets pledged as securities, or other forms of guarantees, the company or its affiliates provided to the financing organization, and
• Annual disclosure of the invoiced amount you still have yet to pay under the program (FASB calls it the “roll-forward” amount).

FASB said that providing those figures helps your investors, or stakeholders that want to review a financial statement, understand the financing program’s impact on your working capital, liquidity and cash flow.

The rule goes into effect in 2023, except for the annual roll-forward information disclosure, which will be required starting in 2024.

More supply chain expectation adjustments?

Meanwhile, it may be time to re-evaluate your supply chain strategy.

“Chain Reaction: Why Global Supply Chains May Never be the Same,” a Wall Street Journal documentary available to watch on YouTube, reveals just how vulnerable the different interdependent links in the global supply chain are to disruption, especially sine the pandemic.

It’s easy to take for granted the millions of sailors, longshore workers, truck drivers, warehouse workers and “last mile” delivery drivers that keep high-demand goods moving. But it may be time to start taking into consideration the labor shortages and other logistics issues happening along the entire supply chain that are causing shortages and raising the shipping costs of both your products and vendor shipments.

“As a result of these supply chain challenges, companies are re-thinking where things are manufactured and how far they have to travel to get to us,” said author and Wall Street Journal tech columnist Christopher Mims, noting Samsung and Intel’s commitments to build facilities in America.