The central concept is “supplier finance arrangements”, defined in new paragraph 44G of AASB 107. The definition has three characteristics. First, one or more finance providers offer to pay amounts an entity owes its suppliers. Second, the entity agrees to pay according to the terms and conditions of the arrangement at the same date as, or a date later than, suppliers are paid. Third, the arrangement provides the entity with extended payment terms, or its suppliers with early payment terms, compared to the related invoice payment due date. The paragraph notes that these arrangements are often referred to as supply‑chain finance, payables finance, or reverse factoring. It explicitly excludes arrangements that are solely credit enhancements for the entity (for example, financial guarantees, including letters of credit used as guarantees) and instruments used by the entity to settle directly with a supplier the amounts owed (for example, credit cards).

The definition is intentionally broad. It does not require that the entity formally novate the liability to the finance provider, nor does it require the finance provider to have recourse to the supplier. Any arrangement under which a third‑party funder pays the supplier on behalf of the buyer, and the buyer repays the funder on terms that differ from the original invoice date, falls within scope. This captures arrangements where the finance provider’s payment to the supplier may be early, on‑time, or even late, so long as the buyer’s payment date is later than, or equal to, the supplier’s payment date. The key economic substance is that the buyer effectively obtains liquidity from the finance provider rather than from the supplier.

The disclosure requirements centre on the aggregate of all supplier finance arrangements, but with a carve‑out for arrangements that have dissimilar terms and conditions: the entity must disclose the terms and conditions of dissimilar arrangements separately (paragraph 44H(a)). This prevents aggregation of a 30‑day arrangement with a 180‑day arrangement, which would obscure risk. The required disclosures include carrying amounts at the beginning and end of the period, broken down by line item in the statement of financial position (for example, trade payables, other liabilities, or borrowings). Within those amounts, the entity must also show how much of the balance at each date relates to liabilities for which suppliers have already received payment from the finance providers (paragraph 44H(b)(ii)). That is a significant granularity: it reveals the portion of the liability that is no longer owed to the original trade creditor but is effectively a debt to the finance provider.

The range of payment due dates must be disclosed for both the arrangement liabilities and comparable trade payables that are not part of a supplier finance arrangement. “Comparable trade payables” are defined as trade payables of the entity within the same line of business or jurisdiction as the financial liabilities disclosed under (b)(i). If ranges are wide, the entity must disclose explanatory information or provide additional stratified ranges (for example, 30-60 days, 61-120 days). This allows users to compare payment terms across the entity’s payables portfolio and assess whether supplier finance arrangements are being used to mask worsening payment practices.

Finally, non‑cash changes in the carrying amounts of the arrangement liabilities must be disclosed by type and effect. Examples given in the standard include business combinations, exchange differences, and other transactions that do not require the use of cash or cash equivalents (paragraph 44H(c), cross‑referencing paragraph 43 of AASB 107). This ensures users can reconcile the opening and closing balances without assuming all changes are cash movements.

The amendments apply to all entities that prepare financial statements in accordance with AASB 107 and AASB 7, as determined by AASB 1057 Application of Australian Accounting Standards. In practice, this covers reporting entities under the Corporations Act 2001 (Cth) that are required to comply with Australian Accounting Standards. It also applies to other entities that voluntarily or mandatorily apply the standards, such as public sector entities and not‑for‑profit organisations. The instrument does not carve out small or medium‑sized entities, even though many of them will never enter into a supplier finance arrangement. Those entities must still assess whether they have any such arrangements, adding a compliance cost with no benefit to users if the answer is no.

The entities most directly affected are large corporate buyers that use supply‑chain finance or reverse factoring programmes. These are often retailers, manufacturers, or construction firms that have significant bargaining power over their suppliers and seek to extend payment terms while the suppliers gain early access to cash. The finance providers are typically banks or specialised fintech firms; they are not directly subject to the disclosure requirements, but they may need to provide information to their corporate clients to enable compliance. Suppliers are not required to disclose anything under this standard, but they may be indirectly affected if their buyers discontinue supplier finance programmes due to the added transparency and potential scrutiny of payment terms.

International entities listed in Australia or with Australian subsidiaries that apply Australian Accounting Standards are also affected. The transition relief in paragraph 63 is valuable for them: they need not restate prior‑year comparatives, and they need not disclose the detailed range and paid‑by‑provider data as at the beginning of the first application period. This reduces the cost of retrospective application. However, from the second year onward, full comparative information will be required unless further transitional relief is granted.

The compliance burden falls on the entity’s finance and accounting functions. They must identify all arrangements that meet the definition, which may require reviewing contracts with finance providers and internal processes. For entities with multiple arrangements with different terms, the requirement to disclose terms and conditions separately (if dissimilar) adds complexity. The need to determine the range of payment due dates for comparable trade payables not part of the arrangement requires access to detailed accounts payable ageing data. For a large buyer with thousands of suppliers and multiple jurisdictions, this is a non‑trivial data exercise. Audit costs will also rise because auditors must verify the completeness and accuracy of the disclosures.

The primary duty is to disclose the information required by paragraph 44H of AASB 107 in aggregate for all supplier finance arrangements. There is no right to withhold the information on grounds of commercial sensitivity. The duty applies for each annual reporting period beginning on or after 1 January 2024, with earlier application permitted.

Specifically, the entity must:

• Disclose the terms and conditions of the arrangements, including extended payment terms and any security or guarantees provided. If arrangements have dissimilar terms and conditions, the entity must disclose them separately (paragraph 44H(a)).
• Disclose the carrying amounts of the financial liabilities that are part of a supplier finance arrangement at the beginning and end of the reporting period, along with the associated line items in the statement of financial position (paragraph 44H(b)(i)).
• Disclose, for those same liabilities, the carrying amounts for which suppliers have already received payment from the finance providers, also at the beginning and end of the period (paragraph 44H(b)(ii)).
• Disclose the range of payment due dates for both the arrangement liabilities and comparable trade payables not part of the arrangement (paragraph 44H(b)(iii)). If ranges are wide, the entity must provide explanatory information or additional stratified ranges.
• Disclose the type and effect of non‑cash changes in the carrying amounts of the arrangement liabilities (paragraph 44H(c)).

The entity also has a duty under AASB 7 to consider whether it has accessed, or has access to, facilities under supplier finance arrangements as a factor in its quantitative liquidity risk disclosures (paragraph B11F, as amended).

The entity has the right to apply the amendments early, before 1 January 2024. If it does so, it must disclose that fact (paragraph 62). The entity has the right to transitional relief: it does not have to provide comparative information for any reporting period before the beginning of the first annual period of application (paragraph 63(a)); it does not have to provide the information in 44H(b)(ii)-(iii) as at the beginning of that first annual period (paragraph 63(b)); and it does not have to provide the new disclosures for any interim period presented within that first annual period (paragraph 63(c)). These reliefs significantly reduce the burden of first‑time adoption.

There is no duty to restate prior‑period comparatives. The amendments are applied prospectively, not retrospectively, except that the opening balance disclosures for carrying amounts (44H(b)(i)) are required as at the beginning of the annual period in the first year, but not the more detailed sub‑items. This asymmetric treatment means that in year one, users will see opening and closing carrying amounts but only closing data on the portion paid by finance providers and the range of payment due dates. In year two, full comparatives will be required unless further transitional relief is provided.

AASB 2023‑1 is a legislative instrument made under section 334 of the Corporations Act 2001 (Cth). It does not itself prescribe penalties. Non‑compliance with Australian Accounting Standards, however, triggers consequences under the Corporations Act.

For annual financial reports of disclosing entities, section 296 requires that the financial report comply with accounting standards. Failure to comply may result in the directors being in breach of their duties under section 344 (civil penalty provision) and the entity being exposed to an infringement notice from ASIC. The maximum civil penalty for a contravention of section 296 is the greater of 5,000 penalty units (currently $1,565,000 for an individual) or three times the benefit derived (for a body corporate, the penalty is ten times that amount). Criminal liability may arise if the non‑compliance is intentional or reckless (section 1307).

In practice, enforcement for a purely disclosure‑based standard rarely reaches a financial penalty. The more likely consequence is regulatory scrutiny. ASIC may query why certain disclosures are absent or incomplete, may issue a letter of comment, and may require corrective disclosure. If the non‑compliance is material and persistent, ASIC may apply to the Court for an order to prepare corrected financial reports. Auditors will also enforce the standard through their audit opinion: if the disclosures are missing or inadequate, the auditor will qualify the report, which has significant market consequences for listed entities (share price impact, breach of loan covenants that require unqualified accounts, potential suspension of trading).

The amendments increase the likelihood of auditor‑client disputes over the classification of liabilities as part of a supplier finance arrangement. The definition is broad and requires judgement. An entity may argue that a particular facility is merely a credit enhancement (excluded) while the auditor may take a wider view. The standard’s requirement to disaggregate liabilities into those where the supplier has been paid and those where it has not also adds scope for error. If the entity mistakenly includes amounts not yet paid by the finance provider in the “paid” column, it would overstate the portion effectively owed to the finance provider. Such errors could be material and trigger restatement.

From an economic standpoint, the main enforcement effect is through the market and the audit. The disclosure regime is designed to deter entities from using supplier finance arrangements to obscure the true extent of short‑term debt and liquidity risk. If the disclosures are faithfully made, users such as creditors and analysts can adjust their assessment of leverage and cash flow timing. That, in turn, disciplines management’s behaviour. The cost of non‑compliance is therefore largely reputational and financial (higher cost of capital) rather than through government‑imposed fines.

The amendments are part of the hierarchy of Australian Accounting Standards. They amend AASB 107 and AASB 7, which sit under the overall framework set by AASB 1048 Interpretation of Standards and AASB 1057 Application of Australian Accounting Standards. The amendments must be read in conjunction with the remainder of the two amended standards. For example, the disclosure requirements in paragraph 44H supplement the existing requirements in AASB 7 for liquidity risk disclosures (paragraphs 34‑42 and application guidance B10F-B11G). The new factor (j) in paragraph B11F of AASB 7 explicitly lists supplier finance arrangements as a factor to consider when providing quantitative liquidity risk disclosures, ensuring consistency between the two standards.

The amendments do not change the recognition or measurement of liabilities or cash flows. They only add disclosure. Therefore, they do not interact with AASB 9 Financial Instruments classification or AASB 13 Fair Value Measurement. The underlying liabilities remain measured at amortised cost under AASB 9 (unless designated at fair value through profit or loss). Cash flows under supplier finance arrangements continue to be classified in the statement of cash flows according to their nature - operating cash flows if the liability is a trade payable, financing cash flows if the liability is in substance a borrowing. The amendments do not mandate any particular classification; they only require disclosure of the carrying amounts and the line items in which they are presented. This preserves existing classification discretion, although the disclosure may cause users to ask whether the classification is appropriate.

The amendments do not affect tax law. The Tax Assessment Acts and the Australian Taxation Office’s rulings on cash flow and financing are independent of accounting disclosure. However, the enhanced transparency may affect credit assessments by lenders and rating agencies, which can indirectly influence an entity’s cost of debt.

The instrument is made under section 334 of the Corporations Act, which gives the AASB power to make accounting standards. The legislative instrument commences on 31 December 2023, which is the date of registration on the Federal Register of Legislation. The application date for reporting periods (1 January 2024) is later, consistent with standard practice.

The amendments derive from the IASB’s Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7, May 2023). Australian Accounting Standards Board policy is to maintain IFRS convergence unless a case is made for a local modification. No such modification has been made here. Therefore, entities that prepare IFRS financial statements will face identical requirements from periods beginning on or after 1 January 2024. This alignment reduces the compliance burden for multinational entities that report under both IFRS and Australian Standards.

AASB 2023‑1 was issued by the Australian Accounting Standards Board on 22 June 2023, signed by Chair Keith Kendall. It was registered as a legislative instrument on the Federal Register of Legislation on a date that resulted in a commencement of 31 December 2023 (the standard legal default for instruments not specifying a different commencement). The Board had earlier issued an exposure draft, ED 320 Supplier Finance Arrangements, in November 2022, which invited comment. The final standard reflects the IASB’s May 2023 amendments.

The amendments are the first in the AASB’s 2023 series. They amend two standards:

• AASB 107 Statement of Cash Flows (August 2015), adding paragraphs 44F-44H and amending the heading before paragraph 53.
• AASB 7 Financial Instruments: Disclosures (August 2015), adding paragraph 44JJ and amending paragraph B11F.

No other paragraphs in those standards are affected. No other AASB standards are amended. The standard does not introduce any new interpretations or appendices; it refers to the IASB’s implementation guidance and Basis for Conclusions, which are available on the AASB website but are not reproduced in the instrument.

The transition provisions are contained in paragraphs 62-63 of AASB 107 (as amended) and paragraph 44JJ of AASB 7. The transition is essentially prospective: entities apply the disclosures for the first time to the annual period beginning on or after 1 January 2024, with the relief described above. There is no requirement to restate prior periods. The instrument does not create a new transition option for entities that choose early adoption; they simply apply the amendments to the earlier period and disclose that fact.

The amendment history within AASB 107 itself is minimal. AASB 107 has been amended several times previously, including by AASB 2016‑1 (classification of interest and dividends) and AASB 2022‑1 (disclosure of non‑cash changes). The supplier finance arrangement disclosures are a new addition. AASB 7 has a longer amendment history, but the new paragraph 44JJ and the amendment to B11F are its most recent changes as at the date of the instrument.

As of the knowledge cut‑off, there is no reported litigation in Australia specifically concerning AASB 2023‑1. The instrument came into effect only for periods beginning on or after 1 January 2024, so the first set of financial statements subject to the requirements will be due in early 2025 for most entities with a calendar year end. It is possible that disputes may arise before then, perhaps between entities and their auditors over the scope of the definition or the adequacy of disclosures.

Internationally, there has been some regulatory attention to supplier finance arrangements. The U.S. Securities and Exchange Commission has issued comment letters to companies with large reverse factoring programmes, asking them to disclose more detail. The Australian equivalent would be ASIC queries in the course of reviewing financial reports. If an entity and its auditor disagree on whether a particular facility meets the definition, and financial statements are filed without the required disclosure, ASIC may issue a public announcement or require corrective disclosure. That could lead to litigation if the entity resists.

Potential litigation risks include:

• Shareholder class actions alleging misleading or deceptive conduct if an entity discloses incomplete or inaccurate information about its supplier finance arrangements, and the correct information would have revealed a higher level of short‑term debt or liquidity risk.
• Disputes under contracts that reference accounting standards, such as loan covenants that require compliance with Australian Accounting Standards. If an entity fails to include the required disclosures, its auditor may qualify the report, potentially triggering a covenant breach. That could lead to litigation between the entity and its lenders.
• ASIC enforcement action under the Corporations Act for failing to comply with accounting standards, which is a strict liability offence for directors.

No case law currently interprets the term “supplier finance arrangement” in an Australian context. The IASB’s Basis for Conclusions and the AASB’s staff guidance, if any, will be persuasive but not binding. Courts will apply the standard’s text. The definition’s exclusion for “solely credit enhancements” and “instruments used to settle directly” may be contested. For example, a letter of credit that is used to guarantee payment to a supplier and also provides extended terms may not be “solely” a credit enhancement, and thus may fall within scope. The boundary between a facility that is a supplier finance arrangement and one that is a plain factoring arrangement (where the supplier initiates the process) could also be disputed.

Given the newness of the standard, litigation is unlikely until the first full year of application ends. However, the potential for auditor‑client disputes is high, and some may escalate to the Accounting Professional and Ethical Standards Board or to ASIC for a ruling.

Several aspects of the amendments are easily misunderstood or overlooked.

First, the definition of supplier finance arrangements (paragraph 44G) excludes “arrangements that are solely credit enhancements for the entity” and “instruments used by the entity to settle directly with a supplier the amounts owed (for example, credit cards).” An arrangement that provides both a credit enhancement and extended payment terms is not “solely” a credit enhancement. If a bank issues a standby letter of credit to the supplier but also agrees to pay the supplier on the buyer’s behalf with the buyer repaying later, that arrangement likely falls within scope. The word “solely” is strict. Entities cannot argue that because a facility has a guarantee element, it is entirely outside the definition.

Second, the disclosure of the range of payment due dates for both arrangement liabilities and comparable trade payables (paragraph 44H(b)(iii)) requires stratification if ranges are wide. “Wide” is not defined. An entity with a range of 30-180 days may need to break that into sub‑ranges. But the standard also requires the entity to disclose “explanatory information about those ranges.” An entity that simply says “30-180 days” with no explanation may be in breach if a user cannot understand why such a wide range exists. The entity must also ensure that the ranges for arrangement liabilities and comparable trade payables are presented on a comparable basis (e.g., both in days from invoice date).

Third, the transition relief is generous but has a trap: paragraph 63(b) excuses the entity from disclosing the information in paragraph 44H(b)(ii)-(iii) as at the beginning of the annual reporting period in which it first applies the amendments. But it does not excuse the entity from disclosing the carrying amounts in paragraph 44H(b)(i) as at the beginning of that period. Therefore, for the first year, the entity must provide opening and closing carrying amounts, but only closing data for the sub‑items. Users will see opening and closing totals but cannot compare the opening and closing composition of those totals fully. This asymmetry may lead to misleading trends if the entity uses the opening carrying amounts without the corresponding breakdown. The entity should consider voluntarily providing the breakdown to avoid misinterpretation.

Fourth, the requirement to disclose the carrying amounts of liabilities for which suppliers have already received payment from the finance providers (paragraph 44H(b)(ii)) requires knowledge of the finance provider’s payment status. The entity may need to obtain reports from the finance provider to know which invoices have been paid at the reporting date. If the entity has multiple finance providers, obtaining timely and accurate data could be operationally challenging.

Fifth, the non‑cash changes disclosure (paragraph 44H(c)) overlaps with the existing reconciliation requirement in paragraph 43 of AASB 107 (reconciliation of liabilities from financing activities). Entities must ensure consistency between these two reconciliations. Any non‑cash change disclosed under the supplier finance arrangement note should align with the financing activities reconciliation.

Sixth, the amendments apply to all entities that apply AASB 107 and AASB 7, including those that never have supplier finance arrangements. There is no materiality threshold in the standard itself, though general materiality concepts apply. An entity with a de minimis arrangement might opt not to disclose because it is immaterial, but the burden of assessing whether an arrangement falls within scope still exists. An entity that incorrectly concludes no arrangement exists faces the same penalty as one that fails to disclose.

Finally, the standard requires disclosure “in aggregate” but with separate disclosure for arrangements with dissimilar terms and conditions. An entity that has one large arrangement with 30‑day terms and another with 180‑day terms must disclose the terms and conditions of each separately. The aggregation in other disclosures (carrying amounts, ranges) may also need to be disaggregated if the different arrangements affect different line items or have different risk profiles. The entity should not assume that all arrangements can be lumped together.

Compliance involves a systematic process of identification, data gathering, and disclosure.

Step 1: Identify all supplier finance arrangements. The entity must review all creditor‑payment and funding arrangements across the business. This includes contracts with banks, fintech firms, and other financial intermediaries that offer to pay suppliers on the entity’s behalf. Typical names include “supply chain finance”, “reverse factoring”, “payables finance”, “confirmation”, “approved payables”, and “dynamic discounting” if the discount is funded by a third party. Also consider arrangements where the entity sells its payables to a factor but still manages collections. The definition focuses on arrangements where the finance provider pays the supplier, and the entity pays later. If the entity directly settles with the supplier using a credit card or bank transfer funded by a line of credit, that is excluded only if the instrument is used by the entity to settle directly (e.g., a corporate credit card). If the entity uses a payment platform that involves a third‑party lender paying the supplier, it likely falls within scope regardless of the branding.

Step 2: Determine the terms and conditions of each arrangement. Record the payment terms (e.g., invoice date plus 90 days), any security or guarantees provided (e.g., the entity’s receivables or inventory as collateral), the finance provider’s identity, the fee structure, and any recourse provisions. If arrangements have dissimilar terms, they must be disclosed separately. Group arrangements with similar terms for aggregate disclosure.

Step 3: Gather carrying amounts. At each reporting date (and at the beginning of the first annual period of application for the total carrying amount), determine the carrying amount of the financial liabilities that are part of each arrangement. These are the amounts owed by the entity under the arrangement, typically classified as trade payables, other payables, or borrowings. Note the line item in the statement of financial position where each amount is presented. This may require discussions with treasury, accounts payable, and the finance provider to confirm which invoices have been accepted into the programme at the reporting date.

Step 4: Determine which liabilities have been paid by the finance provider. For each arrangement, at the beginning and end of the reporting period, identify the portion of the carrying amount for which suppliers have already received payment from the finance provider. This is the amount the entity now effectively owes to the finance provider rather than to the supplier. Obtain a report from the finance provider showing invoices paid up to the reporting date.

Step 5: Determine ranges of payment due dates. For the arrangement liabilities, calculate the range of days from invoice date to the date on which the entity must pay the finance provider. For comparable trade payables not part of any supplier finance arrangement, calculate a similar range. Use the definition of comparable: same line of business or jurisdiction. If ranges are wide (e.g., 30-150 days), consider stratifying into sub‑ranges (30-60, 61-90, 91-150) and provide explanatory comments.

Step 6: Identify non‑cash changes. Reconcile the opening and closing carrying amounts of arrangement liabilities. Adjust for cash payments (which decrease the liability) and new invoices added (cash inflows). Identify non‑cash changes such as business combinations (acquisition of a subsidiary with arrangement liabilities), foreign exchange differences (if the liability is in a foreign currency), or other non‑cash transactions (e.g., conversion into equity). Disclose the type and effect of each.

Step 7: Draft the disclosures. Present the information in the notes to the financial statements. The standard requires aggregate disclosure but allows separate disclosure for dissimilar arrangements. Follow the order and content of paragraph 44H. Consider including a narrative explanation of the business purpose of the arrangements. Ensure the liquidity risk disclosure in the AASB 7 note cross‑references the supplier finance arrangement note, referencing the new factor in paragraph B11F(j).

Step 8: Apply transitional relief. In the first year of application, do not restate comparative periods (paragraph 63(a)). Do not disclose paragraph 44H(b)(ii)-(iii) information as at the beginning of the first annual period (paragraph 63(b)). Do not apply the requirements to interim periods within the first annual period (paragraph 63(c)). However, do disclose the carrying amounts under paragraph 44H(b)(i) as at the beginning and end of the period. Document the transition elections made.

Step 9: Engage auditors early. The new disclosures will be a focus area for auditors. Discuss the definition, scope, and data sources well before year‑end. Provide the auditor with access to contracts and reports from finance providers. If the entity is applying early adoption, ensure the disclosure of that fact is clear.

Step 10: Monitor for changes. The AASB may issue further guidance or application examples. The IASB may also publish clarifications. Stay updated. If finance providers change their systems or reporting formats, the entity must ensure it can still obtain the required data.

By following these steps, an entity can comply with the amendments efficiently and minimise the risk of misstatement or regulator action. The ongoing cost of compliance includes the time to gather data from multiple finance providers at each reporting date. Entities that negotiate with finance providers to provide standardised reports in a timely manner will reduce this burden. Over time, the disclosures may become routine, but the initial effort should not be underestimated.