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

Glencore plc – Annual report – 31 December 2021

Industry: mining

1. Accounting policies (extract)

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

Critical accounting judgements (extract)

(ii) Classification of transactions which contain a financing element (notes 21, 22 and 25)

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 flows with a corresponding trade payable in the statement of financial position. As at 31 December 2021, trade payables include $8,565 million (2020: $7,178 million) of such liabilities arising from supplier financing arrangements, the weighted average of which extended settlement of the original payable to 77 days (2020: 91 days) after physical supply and are due for settlement 33 days (2020: 46 days) after year end. There was no significant exposure to any individual financial institution under these arrangements. These payables are not included within net funding and net debt as defined in the APMs section.