SUSTAINABILITY REPORTING STANDARDS

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9/03/2022 - EFRAG'S FINAL COMMENT LETTERS ON THE IASB'S EXPOSURE DRAFTS ON NON-CURRENT LIABILITIES WITH COVENANTS AND SUPPLIER FINANCE ARRANGEMENTS

EFRAG has published its comment letters in response to the IASB's Exposure Drafts ED/2021/9 Non-Current Liabilities with Covenants and ED/2021/10 Supplier Finance Arrangements (the EDs). In the EDs, the IASB proposes to clarify the classification of liabilities with covenants as non-current versus current and to enhance the transparency of reporting for supplier finance arrangements and their effects on an entity's liabilities and cash flows. Please find the comment letter on ED/2021/09 Non-Current Liabilities with Covenants and the one on ED/2021/10 Supplier Finance Arrangements.

EFRAG welcomes the IASB's efforts to address constituents' concerns relating to classification of liabilities as current and non-current where compliance with specified condition is required after the reporting period end and transparency of reporting for supplier finance arrangements.

ED/2021/09 Non-Current Liabilities with Covenants
EFRAG supports the ED's requirement to classify liabilities with covenants as non-current when compliance is required after the reporting period end. However, EFRAG has concerns about other aspects of the proposals that regulate the classification of liabilities with "other conditions" as current or non-current and thus recommends to the IASB to delete 72C(b) while requesting the IASB to further consider paragraph 72C(a) in the light of the amendment focusing on covenants. EFRAG recommends that the IASB considers the broader issue, also for other conditional provisions, from a conceptual perspective. EFRAG disagrees with a separate presentation on the face of the statements of financial position for liabilities under paragraph 72B(b) and with parts of the disclosures under paragraph 76ZA(b)(iii). EFRAG has concerns that the scope of disclosures, all liabilities under 72B(b), is too broad, thus disclosures should be required only where uncertainties above a probability threshold, that will have to be defined, exist.

ED/2021/10 Supplier Finance Arrangements
EFRAG supports the IASB's ED on supplier finance arrangements as it will timely enhance the transparency of reporting for these arrangements and increase conformity with existing disclosure requirements in IFRS Standards. However, EFRAG considers that the project does not completely address the wider issue of providing necessary transparency on entities' liquidity risk and working capital leverage and encourages the IASB to consider possible improvements related to supplier finance arrangements in the future.

EFRAG broadly supports the narrow-scope of the project to develop specific disclosure requirements for supplier finance arrangements that provide relevant information to users of financial statements and makes further recommendations how to strengthen the description of these arrangements, to expand the disclosure objective by also considering the effects of those arrangements on an entity's liquidity risk and financial performance the and suggests improvements to the proposed disclosure requirements to IAS 7 and IFRS 7 to better address users information needs.

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