ACCA welcomes FRC proposals on improving reporting requirements

Increased clarity and detail on reporting requirements for disclosures of finance arrangements for SMEs could improve businesses’ access to finance and the UK’s late payment culture, ACCA said.

Responding to a consultation from the accounting regulator, The Financial Reporting Council (FRC), ACCA said the switch would help businesses at a time when accessing finance is difficult and increasingly expensive.  

ACCA also applauded the alignment with international accounting standards. The FRC proposals come at a time when the government plans to tackle late payments as outlined in last month’s Autumn statement.   

Jessica Bingham, policy and insights lead, (EEMA & UK), ACCA, said: “Considering the potential relief that supplier finance arrangements offer, ACCA stresses that these amendments will not only enable a more holistic view of cash flow and firm liquidity, but will also provide clearer insights into supply chain dependencies.”  

ACCA warned that the benefits of the increased transparency must be balanced with the cost and burden of the additional reporting required.   

Typical supplier finance arrangement – such as factoring or invoice discounting – gives business a cashflow advantage with a finance house providing the value of the sale straightaway and then receiving cash from the customer under standard payment terms.  

ACCA has previously highlighted the fear that SMEs face regarding potential consequences of complaining about the payment practices of larger, more powerful, organisations. Practices could include paying later than the agreed terms or forcing suppliers to enter expensive finance arrangements in order to improve the balance sheet and working capital of the larger customer.  

Currently, users of accounts would not be aware of third-party financing arrangements and the impact on the businesses cash flow and financial position. In FRED 84 Draft Amendments to FRS 102 – Supplier Finance Arrangements, the FRC is suggesting bringing UK reporting disclosure requirements for smaller businesses in line with international accounting standards.    

ACCA agreed with the FRC’s proposals to require additional information about an entity’s use of supplier finance arrangements. Under the key changes, companies would have to disclose the terms and conditions of the finance arrangement, the carrying amount of the financial liabilities of the arrangement, and the range of the payment due dates, such as 30-40 days after the invoice date.   

The FRC has estimated that 414 medium and large businesses could be impacted by the amendment, and that auditor costs could increase annually by £147,000 as well as one off costs for companies and auditors of £900,000.   

If approved, the new rules would come into effect for accounting periods beginning on or after 1 January 2025.  

Bingham said: “Businesses seeking to navigate new requirements might explore alternative financial arrangements. For instance, companies bidding for government contracts now need to demonstrate compliance with stricter payment periods throughout their supply chain, potentially impacting the landscape of supplier finance.”