Channel financing is an upcoming financing arrangement wherein working capital loan is provided to channel partners such as distributors, dealers or buyers who enter into a contract of purchase of goods or service with a corporate entity. Such arrangement includes three parties: a company that supplies the goods or services (supplier), a channel partner purchasing those goods or services (distributor) and a financial institution. The arrangement typically allows the company (supplier) to be paid by the financial institution at a date earlier than when the channel partner pays to the financial institution. In this regard, the supplier should evaluate the principles of derecognition of a financial asset under Ind AS 109, Financial Instruments, to determine whether to extinguish the amount received from the financial institution with the amount receivable from the distributor or create a new liability. Recently, the Expert Advisory Committee (EAC) of the Institute of Chartered Accountants of India (ICAI) deliberated on the classification and presentation of the amounts received by an entity under the channel financing arrangement. This edition of our Accounting and Auditing Update (AAU) carries an article on the topic of channel financing arrangement to highlight the key factors to be considered while accounting and presenting funds received by a supplier in a channel financing arrangement.

This publication also carries an article on the topic - Key accounting and financial reporting issues provisions and contingent liabilities. In certain cases, the provision may not be significant in amount however the circumstances to which it relates can be of great significance to investors owing to the levels of estimation uncertainty, judgements involved, or the forward-looking information could provide information about a company’s exposures. Such circumstances could give rise to provisions and contingent liabilities that could likely to have an impact over medium to long-term, such as climate change and other environmental obligations, or significant to the assessment of future business performance, for example, onerous contracts and regulatory penalties or compensation. This article provides an overview of some of the key areas that regulators have highlighted and provided improvement points in the area of provisions, contingent liabilities and contingent assets.

As is the case each month, we have also included a regular round-up of some recent regulatory updates in India and internationally.

We would be delighted to receive feedback/suggestions from you on the topics we should cover in the forthcoming editions of the AAU.

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