ITFA publishes IFRS 9 guide for trade and supply chain finance industry

ITFA has published a guide to accounting and legal issues under International Financial Reporting Standard (IFRS) 9 for the trade receivables and supply chain finance industry.

Promulgated by the International Accounting Standards Board (IASB), IFRS 9 came into force on January 1, 2018. ITFA’s publication is the first set of guidelines on the standards aimed solely at the trade and supply chain finance industry.

“This is something that every trade and supply chain finance banker needs to know,” says Sean Edwards, Chair of ITFA. “We are providing clarity for our members where precious little guidance exists.”

The publication covers the following products and techniques:

• Non-payment insurance
• Unfunded sub-participations
• Funded sub-participations with transfer of an ownership interest
• Funded sub-participations without such a transfer
• Novation and assignment

“We’ve looked at all these products, which are essentially all about risk distribution in trade, and explained how they are treated under IFRS 9,” says Edwards.

“For banks, the big change under IFRS 9 has been that it’s now much clearer for them what provisions they have to create for expected losses – which is something that we touch on in the paper. But equally significant is how you de-recognise sales – what the balance sheet impact is if you’re using risk participations, insurance, and so forth. Achieving a legal ‘true sale’ can also be critical and we deal with that in the paper – it’s important to realise, however, that you can have de-recognition without a true sale in the strict legal sense.”

Because non-payment, or credit, insurance is a relatively new credit risk mitigant, Edwards explains that it was critical to examine whether or not there was an impact under IFRS 9 when these products are used.

The publication was produced by ITFA in partnership with a big four accounting firm and the association’s legal advisor, Sullivan & Worcester.

It forms the latest in the association’s suite of publications focused on how to originate, distribute and manage trade risk and debt in supply chain finance – an area which has become more complex as a result of recent changes in accounting and banking capital standards.

A copy of the guide is available to all ITFA members, and can be found in the member area of the ITFA website. Login details are required.

ITFA will be providing its members with related training at its Annual Conference in September and various regional meetings throughout the year.