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TEHO INTERNATIONAL INC LTD Annual Report 2012 57
Notes to the
Financial Statements
30 June 2012
28. Financial Instruments: Information on Financial Risks (Continued)
28B. Financial Risk Management
The main purpose for holding or issuing fnancial instruments is to raise and manage
the fnances for the entity’s operating, investing and fnancing activities. The main risks
arising from the entity’s fnancial instruments are credit risk, liquidity risk and market risk
comprising interest rate and currency risk exposures. The management has certain
practices for the management of fnancial risks. The guidelines set up the short and
long term objectives and action to be taken in order to manage the fnancial risks. The
guidelines include the following:
1. Minimise interest rate, currency, credit and market risk for all kinds of transactions.
2. Maximise the use of “natural hedge”: favouring as much as possible the natural
off-setting of sales and costs and payables and receivables denominated in the
same currency and therefore put in place hedging strategies only for the excess
balance. The same strategy is pursued with regard to interest rate risk.
3. All fnancial risk management activities are carried out and monitored by senior
management staff.
4. All fnancial risk management activities are carried out following good market
practices.
5. When appropriate consideration is given to investing in shares or similar
instruments.
6. When appropriate consideration is given to entering into derivatives or any other
similar instruments solely for hedging purposes.
With regard to derivatives, the policies include the following:
1. The management documents carefully all derivatives including the relationship
between then and the hedged items at inception and throughout their life.
2. Ineffectiveness is recognised in proft or loss as soon as it arises.
3. Effectiveness is assessed at the inception of the hedge and at each end of the
reporting year ensuring that FRS 39 criteria are met.
4. Only fnancial institutions with acceptable credit ratings are used as counterparties
for derivatives.
28C. Fair Value of Financial Instruments
The fnancial assets and fnancial liabilities at amortised cost are at a carrying amount
that is a reasonable approximation of fair value.
28. Financial Instruments: Information on Financial Risks (Continued)
28C.1.Fair value measurements recognised in the statement of fnancial position
The fair value measurements are classifed using a fair value hierarchy that refects the
signifcance of the inputs used in making the measurements. The levels are: Level
1: quoted prices (unadjusted) in active markets for identical assets or liabilities; Level
2: inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 inputs for the asset or liability that are not based on observable market data
(unobservable inputs).
The quantitative disclosures for the fair value measurements using a fair value hierarchy
that refects the signifcance of the inputs used in making the measurements are
disclosed below:
Group: Level 2
At 30 June 2011: $
Financial Liabilities:
Fair value loss on interest rate swap included in other payables 89,399
28D. Credit Risk on Financial Assets
Financial assets that are potentially subject to concentrations of credit risk and failures
by counterparties to discharge their obligations in full or in a timely manner consist
principally of cash balances with banks, cash equivalents and receivables. The maximum
exposure to credit risk is: the total of the fair value of the fnancial instruments; the
maximum amount the entity could have to pay if the guarantee is called on; and the full
amount of any loan payable commitment at the end of the reporting year. Credit risk on
cash balances with banks, derivative fnancial instruments and other fnancial assets is
limited because the counter-parties are entities with acceptable credit ratings. For credit
risk on receivables an ongoing credit evaluation is performed of the fnancial condition
of the debtors and a loss from impairment is recognised in proft or loss. The exposure
to credit risk is controlled by setting limits on the exposure to individual customers and
these are disseminated to the relevant persons concerned and compliance is monitored
by management. There is no signifcant concentration of credit risk, as the exposure
is spread over a large number of counter-parties and customers unless otherwise
disclosed in the notes to the fnancial statements below.
Other than the cash restricted in use, cash and cash equivalents balances as disclosed
in Note 22 represent short term deposits with a less than 90 day maturity.