CFOs Brace for Increased Scrutiny from FY26, ETCFO
The Ministry of Corporate Affairs (MCA), in consultation with the National Financial Reporting Authority (NFRA), has amended Ind AS 7 (Statement of Cash Flows) to require companies to disclose supplier finance arrangements, commonly called supply chain finance or reverse factoring. The rule, part of the Companies (Indian Accounting Standards) Second Amendment Rules, 2025, takes effect from April 1, 2025.
Experts say the amendment will expose supplier financing that was earlier shown as trade payables, forcing companies to distinguish between true operating liabilities and financing arrangements. This will give investors a clearer view of leverage and liquidity, reshape working-capital optics, and make CFOs rethink the use of such programs as board and rating-agency scrutiny intensifies.
WHAT IT MEANS FOR CFOS
According to senior auditors, CFOs must track and disclose granular details of supplier finance programs, reassess their impact on balance sheet optics, and prepare to answer sharper investor questions. Experts caution that boards will judge CFOs on whether such arrangements are worth the disclosure risk, given the increased visibility into liquidity and leverage.
BALANCE SHEET EFFECT
Former ICAI president Amarjit Chopra said such programs were never separately reported earlier.
“On the balance sheet, trade payables still appeared outstanding even though a third party had already paid the supplier, sometimes on your guarantee or reputation. Now companies must disclose which liabilities are financed by others, so readers know if there is a continuing liability or a pricing advantage gained.”
LIQUIDITY IN FOCUS
Another former ICAI president, Ranjeet Kumar Agarwal, said the move will change how boards view liquidity.
“This amendment clearly distinguishes between normal trade payables and financing liabilities. With liabilities now properly classified, borrowing, dividend policy, and capital allocation will be guided by a truer picture of liquidity. It will strengthen stakeholder confidence and enforce disciplined cash flow planning.”
ICAI President CA. Charanjot Singh Nanda tells ETCFO that the recent amendments to Indian Accounting Standards (Ind AS) mark a significant shift in financial reporting. How will supplier finance disclosures, stricter loan covenant norms, and global minimum tax rules reshape the way India Inc CFOs plan and report? Here is his message and instruction to corporate finance leaders.
TRANSPARENCY VERSUS EXPOSUREAudit leaders see both benefits and challenges.
Parveen Kumar, National Head – Assurance, ASA & Associates LLP, said, “Companies will have to disclose terms, carrying amounts, due dates, and even non-cash changes. This gives investors better decision-making information but also risks exposing commercially sensitive data that competitors can read.”
Siddharth Talwar, Partner, Grant Thornton Bharat, noted, “The new rules directly respond to investor concerns about opacity. Disclosures must now cover structure, guarantees, liabilities already paid by finance providers, and payment due date ranges. This improves the usefulness of financial statements and increases scrutiny of CFO decision-making.”
CFOS UNDER PRESSURE
Experts agree that finance chiefs will be most affected.
Sai Venkateshwaran, Partner, KPMG in India, said, “CFOs must collect granular data, often from finance providers themselves, and prepare for investor interpretation. They may even need to reconsider use of such programs given how exposures will now be viewed.”
Veteran CA Keyur Dave called the change a turning point, “Until now, supplier financing quietly boosted working-capital ratios. From April 2025, investors and rating agencies will see exactly how much liquidity is tied to these programs. CFOs will face tougher questions on whether aggressive supplier financing is worth the reputational risk.”
The government has amended Indian Accounting Standard (Ind AS) 1 on Presentation of Financial Statements, mandating that from FY26 loans must be reclassified as current if covenant breaches exist, even when waivers are obtained later. The change raises two questions: how will CFOs adapt disclosures, and renegotiate terms before the rule kicks in? Experts said while the amendment may dent reported ratios in the short term, it will strengthen India’s alignment with global reporting norms, boost lender confidence, and enforce stronger covenant discipline.
INVESTOR LENS
Prateek Agarwal, Partner, Nangia & Co LLP, said the amendment will make visible a company’s reliance on supplier finance, “These disclosures allow investors to judge how such financing affects operations and liquidity. They bring Indian practice in line with what is being demanded internationally.”
Atul Gala, Partner, Bhuta Shah & Co LLP, added, “This is a critical step to identify hidden financial leverage and ensure disclosures that boost investor, regulator, and board confidence.”
