Given the nature of its operations, the Group incurs obligations to close, restore and rehabilitate its sites. Closure and rehabilitation activities are governed by a combination of legislative requirements and Group policies. Significant estimates over life of mine and reserves are made by the Group in determining its rehabilitation provision.

The calculation of closure and rehabilitation provisions requires significant judgement due to the inherent complexity in estimating the quantum and timing of future costs and determining an appropriate rate to discount these costs back to their present value.

We performed the following key procedures:

• Tested key controls over the estimation of         closure and rehabilitation provisions and compliance with accounting standards;

• Evaluated the accounting treatment applied to   changes in the closure and rehabilitation provisions including whether the impact is expensed or capitalized;
• Worked with our specialists to assess the reasonableness of estimates of reserve life used by the Group in its closure and rehabilitation provisions;
• Evaluated the competence and objectivity of the Group’s mine closure specialists based on their experience and use of industry accepted methodology;
• Evaluated the economic assumptions used in the calculation, including the discount rate applied to calculate the net present value of the provision and foreign exchange rates utilized in translating the future obligation.

Refer to note 14 ‘Closure and rehabilitation provisions’ (Recognition and measurement) and section 2.13.1 Risk and Audit Committee Report (Significant issues – Closure and rehabilitation provisions).

The carrying value of the Group’s portfolio of assets has been impacted by sustained volatility in commodity prices.

The key area of judgement relates to the Group’s assessment of future cash flows for each Cash Generating Unit (‘CGU’), which is used to assess the recoverable value of property, plant and equipment and intangible assets. The future cash flows use forward looking estimates which are inherently difficult to determine with precision and there is a level of judgement applied in determining other key inputs.

In response to sustained low prices in the oil and gas sector, the Group has recorded pre-tax impairment charges for its US Onshore assets of US$7.2 billion.

We performed the following key procedures:

• Tested the key controls over the valuation of the Group’s assets including those to determine any asset impairments or reversals;
• Assessed the appropriateness of the Group’s identification of CGUs for alignment with our knowledge of the business and its internal reporting structure;
• Evaluated the forecast prices incorporated into the Group’s impairment testing by comparing inputs to available market data and externally available benchmarks;
• Agreed operating and future capital expenditure and reserve life data to the latest approved plans and budgets. We assessed the historical accuracy of the plans and budgets;
• Evaluated the competency and objectivity of experts who produced the reserve statements utilized within the models by considering their professional qualifications and experience;
• Worked with our valuation specialists to compare key assumptions such as commodity prices, discount rates, inflation rates, country risk rates and foreign exchange rates to external market data, and performed sensitivity analysis using a range of these assumptions.

The Group has operations in multiple countries, each with its own taxation regime. The nature of the Group’s activities triggers various taxation obligations including corporation tax, royalties, other resource and production based taxes and employment related taxes. The cross-border nature of the Group’s commodity sales also creates complexities associated with international transfer pricing.

Application of taxation legislation to the Group’s affairs is inherently complex, highly specialized, and requires judgement to be exercised in relation to estimating tax exposures and quantifying provisions and contingent liabilities.

We performed the following key procedures:

• Tested the key controls regarding the accounting for and disclosure of tax related transactions and matters;

• Worked with our tax specialists and made inquiries of management and inspected internally or externally prepared documentation to understand current disputes and uncertain tax positions. We considered documentation from recent similar tax rulings and cases to assess the completeness of tax matters identified, and the Group’s conclusions regarding the status, possible outcomes and associated exposures;

• Tested the assumptions and forecast taxable income supporting deferred tax assets;

• Considered the appropriateness of the Group’s disclosures regarding current tax matters based on our understanding of the recent focus on tax transparency by tax and other regulatory authorities;

• Assessed the consistency of assumptions used in estimating provisions and contingent liabilities, such as the estimated range for potential litigation and settlement outcomes. We compared these assumptions with other related public statements and disclosures made by the Group.

There are a number of complex accounting judgements and disclosures resulting from the Samarco dam failure including:

• The application of equity accounting principles to BHP Billiton Brasil Ltd (BHP Billiton Brasil) investment in Samarco, including recognition of BHP Billiton Brasil’s share of Samarco’s losses, evaluation of the recoverability of BHP Billiton Brasil’s investment in Samarco and related provisioning;

• Determining the legal status of claims made against Samarco and BHP Billiton Brasil and the appropriate accounting treatment;

• Determining whether BHP Billiton Brasil has a legal obligation to provide funding to Samarco and the quantification of any obligation;

• Disclosure of contingent liabilities associated with the various claims and other circumstances that represent exposures to Samarco and BHP Billiton Brasil and that cannot be reliably estimated;

• Tax implications and associated accounting and disclosure of these matters.

We performed the following key procedures:

• Evaluated BHP Billiton Brasil’s accounting policies relating to the treatment of its share of Samarco’s losses, the impairment of BHP Billiton Brasil’s investment in Samarco and the recognition of a provision attributable to BHP Billiton Brasil’s potential legal obligations;

• Assessed the existence of any legal or constructive obligations under the Samarco shareholders’ agreement, Brazilian law or the public statements made by the Group, and determined if these have been disclosed in the Financial Statements in compliance with accounting standards;

• Evaluated the liquidity forecasts for Samarco, which included consideration of a range of alternative scenarios identified by BHP Billiton Brasil and the Directors’ assessment of the most likely outcome;

• Tested the key assumptions used to determine the provision recorded by BHP Billiton Brasil in relation to its potential funding obligation.

This included analysis of the amount and timing of forecast cash flows, discount rate, inflation and foreign exchange rates;

• Assessed the completeness of the disclosures relating to contingent liabilities through review of the Group’s internal legal documentation, inquiry of legal personnel and senior management and review of documentation provided by external counsel;

• Evaluated BHP Billiton Brasil’s assumptions regarding the tax treatment of the Samarco related costs and associated provisions, the recoverability of deferred tax assets that were supported by BHP Billiton Brasil’s share of Samarco’s profits, and the deferred tax  liabilities attributable to undistributed earnings of Samarco;

• Tested the key controls established in relation to the accounting and disclosures associated with the dam failure;

• Instructed Samarco’s auditor to undertake procedures in relation to Samarco’s net loss for the year (of which the Group has recorded BHP Billiton Brasil’s 50 per cent share), which included all costs identified by Samarco attributable to the dam failure.

Glencore trades a diverse portfolio of commodities and utilizes a wide variety of trading strategies in order to profit from volatility in market prices, differentials and spreads whilst maximizing flexibility and optionality.

The classification of contracts relating to the Group’s marketing operations is a judgmental area, particularly distinguishing sales contracts where the Group physically delivers its own production to a third party (“own use”), from those which form part of the Group’s marketing operations.

Differences in classification affect recognition of associated gains and losses as contracts which are “own use” are exempt from mark-to-market accounting.

Refer to notes 25 and 26.

We obtained an understanding of the trading strategies and associated product flows within the Group’s marketing departments using financial instrument experts embedded within the audit team with experience in commodity trading.

We analyzed the trade books to identify incidents where contracts were not physically delivered (“net settled”), which may indicate tainting of the “own use” criteria.

Where a contract had been net settled, we checked that the contract was appropriately ring-fenced from the “own use” trade book and mark-to-market reflecting the underlying facts and circumstances.

We assessed the adequacy of related disclosures in the financial statements in accordance with the requirements of IFRS.

The Group is exposed to credit and performance risk arising from the Group’s global marketing operations and trade advances, particularly in markets demonstrating significant price volatility with limited liquidity and terminal markets.

This risk is heightened in times of increased price volatility, where suppliers may be incentivized to default on delivery and customers are unable to make payments.

At 31 December 2016, total Advances and loans and Accounts receivable amounted to $3,483 million and $20,066 million respectively.

Refer to notes 10, 12 and 24.

We undertook internal control testing of the Group’s centralized and local credit and performance risk monitoring procedures.

We challenged management’s assessment of the recoverability of aged and overdue receivables, loans and advance payments with delayed or overdue deliveries, considering historical patterns of trading and settlement as well as recent communications with the counterparties and other post balance sheet date evidence.

In addition, we challenged the valuation of significant fixed price positions in commodities across the Group at year-end given the high price volatility during the year, particularly with respect to base metals and coal where the risk of non-performance is higher.

Determination of fair values of marketing inventories, financial assets and liabilities is a complex and subjective area often requiring significant estimates, particularly where valuations utilise unobservable inputs (e.g. credit risk assessments, market volatility and forecast operational estimates). At 31 December 2016, total Level 3 Other financial assets and liabilities amounted to $558 million and $612 million respectively.

As the Group’s marketing inventories and other financial assets and liabilities are measured at fair value at each reporting date, these fair value measurements significantly impact the Group’s results.

Refer to “Key estimates and assumptions” within note 1 and additionally notes 25 and 26.

We performed internal control testing over management’s processes for determining inputs to fair value measurements and performed detailed substantive testing on a sample basis of the related fair value measurements.

We specifically tested the evidence supporting significant unobservable inputs utilised in Level 3 measurements in the fair value hierarchy as outlined in note 26 to the financial statements, which included reviews of broker quotes, recent transactions and other supporting documentation.

Based on the results of our testing, we are satisfied that the Level 3 fair value measurements were supported by reasonable assumptions in line with externally verifiable information where possible.

We have reviewed the financial statement disclosures on fair value measurements in note 26 and found them to be adequate.

The carrying value of the Group’s non-current assets, which includes intangible assets, property, plant and equipment, investments in associates and joint ventures, amounted to $81,188 million at 31 December 2016.

The volatility in expected future prices of certain commodities key to the Group (particularly oil, copper, zinc and coal) and foreign exchange rates, requires management to closely monitor non-current asset carrying values.

Given the nature of the Group’s industrial assets, developments concerning geology, production or distribution of the Group’s products may also trigger a need to consider impairment.

The outcome of impairment assessments could vary significantly were different assumptions applied. Refer to “Key estimates and assumptions” within note 1 and additionally notes 4, 5 and 9.

In total, impairments amounting to $1,268 million (note 5) and $345 million (note 9) were recognized in the year ended 31 December 2016 relating to oil and coal assets primarily resulting from a reduction in management’s long-term oil price assumptions, specific production and reserve related issues.

We reviewed management’s assessment of the indicators of impairment and challenged the significant assumptions used.

Where significant indicators of impairment were identified, we utilized Deloitte mining valuation specialists to assess the appropriateness of management’s recoverable value models, which included the underlying model inputs and significant assumptions.

We challenged the significant inputs and assumptions used in impairment testing for intangible assets, property, plant and equipment, associates and joint ventures, specifically the commodity price, foreign exchange, assumed production levels, operating costs and discount rate assumptions, including consideration of the risk of management bias.

Our challenge included comparing inputs and significant assumptions, such as commodity price, foreign exchange, and discount rates, to third party forecasts, Deloitte developed discount rates, production to life of mine and hydrocarbon extraction plans and reserves and resources estimates, assessing whether macro assumptions had been applied on a consistent basis across the Group.

Operating costs and production levels were compared to the current period actual results, management approved budgets and life of mine models.

We challenged management’s sensitivity analysis by performing independent sensitivity analyses on selected assets, including those which were not identified as having indicators of impairment but have a higher risk of impairment due to lower available headroom in fair value models, volatility in key pricing assumptions or the existence of operational circumstances which may indicate potential for impairment.

We also assessed the adequacy of impairment related disclosures in the financial statements, including the key assumptions used and the sensitivity of the financial statements to these assumptions.

There is significant judgement around accounting for income taxes particularly in light of the number of jurisdictions in which the Group operates, including judgements concerning residency of key corporate operations and holding companies, provisioning for tax exposures, application of transfer pricing rules, the recognition of deferred income tax assets and the taxation impacts of any corporate restructurings.

This gives rise to complexity and uncertainty in respect of the calculation of income taxes and deferred tax assets and consideration of contingent liabilities associated with tax years open to audit.

As at 31 December 2016, the Group has recorded a tax expense of $638 million, $3,904 million of net deferred tax liabilities (see note 6) and has disclosed its assessment of tax-related provisions in note 20.

We undertook a specific assessment of the material components impacting the Group’s tax expense, balances and exposures and performed detailed audit procedures in relation to these.

We considered the appropriateness of management’s assumptions and estimates in relation to the likelihood of generating future taxable profits to support the recognition of deferred tax assets with reference to forecast taxable profits and consistency of these forecasts with the
Group’s budgets.

We reviewed and challenged management’s assessment of uncertain tax positions and conclusions on complex tax arrangements through discussions with the Group taxation department, reviewing correspondence with local tax authorities, reviewing third party expert tax opinions and utilizing Deloitte tax specialists, where appropriate, to assess the adequacy of associated provisions and disclosures.

Revenue recognition has been identified as a risk primarily relating to the following:

Marketing operations:

• The completeness and accuracy of the capture of trades within the trade book and the timing of revenue recognition for commodity sales with deliveries occurring on or around year-end

• Judgement is required to determine when risks and rewards have transferred under certain contractual arrangements with third parties

• Due to the significant volume of transactions and the complexity of the supporting IT systems, minor errors could, in aggregate, have a material impact on the financial statements

Industrial assets:

• Substantially all output from industrial assets will be sold by the Group’s marketing divisions. For direct third party sales, a key risk relates to the consideration of embedded derivatives in sales contracts, particularly in commercial transactions with provisional pricing terms.

We have reviewed Glencore’s revenue recognition policies for compliance with the requirements of IAS 18 Revenue (“IAS 18”).

For marketing operations we:

• evaluated the design, implementation and operating effectiveness of key controls over revenue and the trade cycle;

• assessed general IT controls surrounding major technology applications and critical interfaces over revenue recognition and completeness and accuracy of  trade capture; and

• agreed, on a sample basis, deliveries occurring near 31 December 2016 to supporting documentation to assess that the IFRS revenue recognition criteria were met for recognized sales and obtained third party confirmations where relevant to check completeness and accuracy of trade books.

For industrial assets we:

• assessed the design and implementation of controls around the methodology adopted by management to identify the provisional pricing terms and the determination of estimates of metal in concentrate sold;  and

• reviewed key new contracts for the existence of embedded derivatives and performed valuation testing as appropriate.

We also performed testing on journal entries using computer assisted profiling techniques to test for any management override of internal controls related to revenue recognition.

Following the September 2015 announcement of a number of measures to preserve capital and reduce debt by 31 December 2016, the Group’s initiatives are now completed with Net Funding reduced to $32,619 million as at 31 December 2016.

Due to the bespoke nature of some of the specific reduction measures undertaken and the resultant market focus on them, we identified a heightened key audit risk relating to potential management override and earnings management with respect to fair presentation and disclosure of financial performance and position.

Key measures delivered in 2016 include:

• sale of interests in the Agriculture Products business (“Glencore Agri”) and the Ernest Henry Mining operations (“EHM”), disposal of Glencore Rail (NSW) Pty Ltd (“GRail”) and the Antapaccay streaming transaction;

• reduction in capital expenditure to $3,497 million from $5,957 million in 2015; and

• working capital management.

Fair presentation and disclosure is achieved when the transactions underpinning the announced measures have been recorded:

• when the transaction has occurred (occurrence and existence);
• in accordance with the substance of the transaction (rights and obligations and classification);
• in the correct amount in the appropriate accounting  period (measurement and cut-off); and
• in accordance with the requirements of IFRS including appropriate presentation and disclosure (presentation and disclosure).

Refer to “Key judgements” within note 1 and additionally notes 10, 12, 19, 22 and 23.

To scope our audit and respond to the risks associated with the announced measures we have:

• undertaken a detailed assessment of each of the measures to assess how it may impact the Group and therefore our audit response;

• enhanced our Group and component audit approach and risk assessment to address the risk of material misstatement and potential management bias associated with transactions underlying these measures, particularly where significant judgements, estimates and assumptions are applied;

• for individually material transactions relating to the announced measures that were completed during the year ended 31 December 2016, reviewed and tested these with reference to supporting documentation (e.g. contractual agreements) and assessed the associated accounting treatment focusing on fair presentation and disclosure;

• reviewed long-term advances (including streaming transactions) received and working capital movements to understand significant non-routine transactions impacting the year-end financial position and reviewed the associated accounting for compliance with IFRS and for evidence of potential management override and earnings management; and

• continued to monitor operations where production was curtailed or suspended through on-going focus on impairment of assets (see “Impairments” below).

Our testing noted no significant bias in the accounting judgements, estimates and assumptions made by management on each of the significant transactions underpinning the measures and we concur with the accounting positions adopted.

We reviewed the disclosures of the sale of interests in Glencore Agri and EHM, the Antapaccay streaming transaction and the disposal of GRail transactions in notes 19 and 23 and found them to be in line with the relevant IFRS requirements.

Significant sales and purchase transactions affecting working capital and containing a financing element have been accounted for in line with IFRS requirements and the Group accounting policies as stated in note 1 of the financial statements.