Reverse factoring, IAS 7, IAS 1 para 122, significant judgement, and disclosure of financial effects

Glencore plc – Annual report – 31 December 2018

Industry: mining

  1. Accounting policies (extract)

Critical accounting judgements and key sources of estimation uncertainty (extract)

(ii) Classification of transactions which contain a financing element (notes 20, 21 and 24)

Transactions for the purchase of commodities may contain a financing element such as extended payment terms. Under such an arrangement, a financial institution may issue a letter of credit on behalf of Glencore and act as the paying party upon delivery of product by the supplier and Glencore will subsequently settle the liability directly with the financial institution, generally from 30 up to 90 days after physical supply. Judgement is required to determine the most appropriate classification and presentation of these transactions within the statements of cash flows and financial position. In determining the appropriate classification, management considers the underlying economic substance of the transaction and the significance of the financing element to the transaction. Typically, the economic substance of the transaction is determined to be operating in nature as the financing element is insignificant and the time frame in which the original arrangement is extended by, is consistent and within supply terms commonly provided in the market. As a result, the entire cash flow is presented as operating in the statement of cash flow with a corresponding trade payable in the statement of financial position. As at 31 December 2018, trade payables include $5,152 million (2017: $6,673 million) of such liabilities arising from supplier financing arrangements, the weighted average of which have extended the settlement of the original payable to 59 days (2017: 80 days) after physical supply and are due for settlement 29 days (2017: 42 days) after year end.