Trading commodities has been the foundation of human economic activity through the ages, fundamental for our survival as individuals and fundamental for the sustainability of our economic and social systems. It is understandable that the attention and interest of civil society in the way we manage these important resources is increasing.
With the sharply increasing demand from newly industrialized countries such as China and India, and uncertainty as to whether the supply of commodities may be under threat due to changing weather conditions and the depletion of natural resources, has come an awareness of the important role commodities play in many of today’s challenges. A growing population and the aspiration of millions to access the lifestyles that drive consumption put a strain on scarce resources and exacerbate imbalances that already exist.
KPMG has recently re-issued a publication covering risk management and financial reporting challenges for commodity trading, with the ambition to support the need for a better understanding of how trading commodities works; to unveil some of the activities, often misunderstood, but used by traders to manage risk and to explain how the financial results of these activities are put together and reported. In doing so KPMG wants to support the trend towards greater transparency and a better understanding of this industry.
The publication highlights the following points:
- How the commodity trading industry is evolving
- The basics of commodity markets
- The elements of risk management
- Aspects of the financial statements that are unique for commodity trading companies
- How to recognize and measure transactions and commodity inventory positions
- How to apply fair value accounting for external reporting
- The specific requirements for derecognition of assets
Find out more in our publication “Evolving Markets, Sustainable Results: Risk management and financial reporting for commodity trading”