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Annual Report 2015
TEHO INTERNATIONAL INC LTD.
28 FINANCIAL INSTRUMENTS: INFORMATION ON FINANCIAL RISKS
Financial risk management
The main purpose for holding or issuing financial instruments is to raise and manage the
finances for the entity’s operating, investing and financing activities. The main risks arising
from the entity’s financial 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 financial risks. The guidelines set up the short and long term objectives and
action to be taken in order to manage the financial risks. The guidelines include the following:
1. Minimise interest rate, currency, credit and market risks 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 financial risk management activities are carried out and monitored by senior
management staff.
4. All financial 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 them and the hedged items at inception and throughout their life.
2. Ineffectiveness is recognised in profit or loss as soon as it arises.
3. Effectiveness is assessed at the inception of the hedge and at each end of the financial
year ensuring that FRS 39 criteria are met.
4. Only financial institutions with acceptable credit ratings are used as counterparties for
derivatives.
28 FINANCIAL INSTRUMENTS: INFORMATION ON FINANCIAL RISKS (CONT’D)
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 financial 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 financial year. Credit risk on cash balances with
banks, derivative financial instruments and other financial assets is limited because the
counter-parties are entities with acceptable credit ratings. For credit risk on receivables an
ongoing credit evaluation is performed on the financial condition of the debtors and a loss
from impairment is recognised in profit 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 significant 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 financial
statements below.
Other than the cash restricted in use, cash and cash equivalents balances as disclosed in
Note 11 represent short term deposits with a less than 90-day maturity.
As part of the process of setting customer credit limits, different credit terms are used.
The average credit period generally granted to trade receivable customers is about 30 to
90 days (2014: 30 to 90 days). However, some customers take a longer period to settle
the amounts.
Exposure to credit risk
The maximum exposure to credit risk for trade and other receivables at the reporting date
by business segment is set out below.
NOTES TO THE
FINANCIAL STATEMENTS
Year ended 30 June 2015
