Home' Annual Report : Annual Report 2016 Contents 22. FINANCIAL RISK MANAGEMENT,
OBJECTIVES AND POLICIES
The Consolidated Entity’s activities expose it primarily
to the financial risks of changes in foreign currency
exchange rates, interest rates and equity markets.
The purpose of the Investment policy is to ‘protect and
grow’ the capital base within a defined risk tolerance
over the medium to long-term and to generate an
annual return that is in excess of what could be achieved
through a risk adverse strategy. The policy allows
CPA Australia to invest directly or via Managed Funds in
both Australian and international equities, fixed interest
investments including corporate debt and cash.
CPA Australia's financial instrument s consist mainly of
bank bills, cash, equities, bonds and hybrids that are
traded in an ac tive market. The main purpose of these
financial instruments is to invest surplus member funds
in order to maximise returns while not exposing the
organisation to a high level of risk. Investment of funds
is in line with CPA Australia's investment policy.
Other financial assets and liabilities are trade
receivables and trade payables which arise directly
from the Consolidated Entity’s operations. Policies for
managing the main risks are summarised below:
A. FOREIGN CURRENCY RISK MANAGEMENT
It is not CPA Australia policy to utilise off-balance sheet
derivative instruments as a means of managing exposure
to fluc tuations in foreign exchange rates. Foreign exchange
exposure is continuously monitored by the Consolidated
Entity’s finance business unit and repor ted to the relevant
operation of the Consolidated Entity through management
reports which analyse exposures by degree and magnitude
of risks. In 2016, the weakening of the Australian Dollar
against the currencies where substantial cash is held
resulted in a foreign exchange loss of $0.6m for the full year.
B. CREDIT RISK EXPOSURES
Credit risk refers to the risk that a counterpar ty will default
on its contrac tual obligations resulting in financial loss to the
Consolidated Entity. The Consolidated Entity has adopted
a policy of only dealing with creditwor thy counter par ties
as a means of mitigating the risk of financial loss from
defaults. The Consolidated Entity’s exposure is continuously
monitored and limits reviewed annually. Trade receivables
consist of a large number of members and customers,
spread across diverse industries and geographical areas.
The Consolidated Entity does not have any significant
credit risk exposure to any single party or any group of
counter parties having similar characteristics. The credit
risk on liquid funds and bank bills is mitigated by ensuring
the authorised deposit taking institutions have a minimum
S&P credit rating of BBB+ (or Moody's / Fitch equivalent).
The credit risk on financial asset s of the Consolidated
Entity which have been recognised on the Statement of
Financial Position is generally the carrying amount, net of
any provisions for loss. Use of off balance-sheet financial
instruments is not par t of current policy. Trade receivables
are concentrated in Australia and the concentration of
credit risk arises mainly in the following industries:
• Advertising and sponsors
• Accounting practices
• Credit services
C. INTEREST RATE RISK EXPOSURES
Exposures to interest rate risk are limited to assets
and liabilities bearing variable interest rates. The
majority of financial asset s are equities and bank bills
held to maturity with fixed interest rates and term.
D. CAPITAL RISK MANAGEMENT
The Consolidated Entity manages its capital to
ensure that the Consolidated Entity will be able to
continue as a going concern. The Consolidated Entity’s
overall strategy remains unchanged from 2015.
The capital struc ture of the Consolidated Entity consists
of equity comprising reserves and retained earnings.
The Consolidated Entity is not subject to any
externally imposed capital requirements.
E. MATURITY PROFILE OF FINANCIAL INSTRUMENTS
The maturity profile of financial asset s and liabilities held
by the Consolidated Entity are detailed on page 96.
F. NET FAIR VALUE OF FINANCIAL
ASSETS AND LIABILITIES
The Directors consider that the carrying amount of
financial assets and financial liabilities recorded in the
financial statements approximates their fair value.
G. LIQUIDITY RISK MANAGEMENT
Ultimate responsibility for liquidity risk management rests
with the Board of Directors, who have built an appropriate
liquidity risk management framework for the management
of the Consolidated Entity’s short, medium and long-term
funding and liquidity management. The Consolidated Entity
manages the liquidity risk by maintaining adequate cash
reserves, and by continuously monitoring forecast and actual
cash flows while matching the maturity profiles of financial
asset s and liabilities. CPA Australia invests in equities that
are traded in an active market on the Australian Securities
Exchange and that can be readily disposed of. All financial
liabilities, namely trade and other payables, are due for
settlement within three months and are non-interest bearing.
Given the current surplus cash asset s, liquidity risk is minimal.
CPA AustrAliA 2O16 integrAted rePOrt
Links Archive Annual Report 2015 Navigation Previous Page Next Page