The new Financial Accounting Standards Board accounting disclosure changes that come into effect in March 2023 have significant implications for investors wanting to assess the financial condition of corporations that utilize Supplier Finance Programs.

Financial condition, at its most basic level, is the ability of an entity—in this case a non-financial corporation—to meet current and future financial commitments. Supplier Finance Programs, also known as supply chain finance, utilize the credit capacity available to a company and the new Financial Accounting Standards Board (FASB) disclosure requirements do not allow financial statement users to determine the impact of such programs on either the size of that credit utilization or on the ability of the company to access further financing. In addition, the new accounting disclosure rules do not require a corporation to provide the necessary information to evaluate whether its Supplier Finance Program should be classified as debt when it is recorded by the corporate filer as accounts payable.

Given the inadequate scope of these disclosure requirements both audit and ratings agency insights and evaluations based on financial statements are limited. Investors in non-financial corporation fixed income and equity should carefully consider the implications of these new disclosures in the context of Supplier Finance Program usage and the potential impacts they can have on their investments. Fermat Capital’s Adam Dener has co-authored a white paper that delves further into the limitations of Supplier Finance Program accounting for investors.

Updated March 2023