93
TEHO INTERNATIONAL INC LTD.
Annual Report 2016
NOTES
TO THE FINANCIAL STATEMENTS
Year ended 30 June 2016
29 FINANCIAL INSTRUMENTS: INFORMATIONON 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.
29 FINANCIAL INSTRUMENTS: INFORMATIONON FINANCIAL RISKS (CONT’D)
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.
Onlyfinancial institutionswith acceptable credit ratings are used as counterparties
for derivatives.
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 entitieswith 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 12 represent short term deposits with a less than 90-day maturity.
