Final answer:
Companies selling receivables with recourse must disclose the nature and details of the arrangement, the carrying amount of the transferred receivables, and any related liabilities. This is key for financial statement transparency and helps users understand the company's liquidity and associated risks.
Step-by-step explanation:
When selling receivables with recourse, companies are generally required to disclose the details about the arrangement. The disclosure must include the nature of the arrangement, the carrying amount of the transferred receivables, and the amount of any liability incurred due to the recourse provisions. Moreover, the company must also disclose any gains or losses recognized on the sale. The financial statements should clearly narrate the situation, providing users with the information necessary to understand the impact of the sale on the company's financial position and cash flows.
The importance of this disclosure is significant as it ensures transparency in financial reporting, which is critical for users of the financial statements, such as investors and creditors. It provides insights into the company's liquidity situation and the risks associated with the receivables sold. Given that the company is still at risk due to the recourse provision, it's vital for the users to be aware of this continued potential liability.