CPA Annual Report : CPA Annual report 2012
b. Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. e Group and the Institute have designed their credit policies with an objective to minimize their exposure to credit risk. e Group's and the Institute's "Receivables", other than the amounts due from subsidiaries, are very short term in nature and the associated risk is minimal. Subscriptions, fees, income from examinations, seminars, courses, rental income and other activities are collected in advance. Sale of goods is made in cash or via major credit cards. Income from advertisements placed in the journals is derived from vendors with an appropriate credit history. Further quantitative data in respect of the exposure to credit risk arising from receivables are disclosed in note 7 to the financial statements. e Group's and the Institute's surplus cash has been deposited with a number of reputable and creditworthy banks. Management considers there is minimal risk associated with the bank balances. c. Liquidity risk Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. e Group and the Institute manage liquidity risk by maintaining adequate reserves. e Group and the Institute perform periodically cash flow forecasts to monitor future cash flows. e subscription fees and registration fees are growing steadily and provide a stable source of funds to the Group and the Institute. e current financial strength of the Group and the Institute poses no threat of liquidity to the Group and the Institute. d. Foreign currency risk e Group and the Institute are not exposed to any material foreign currency risk as the majority of the transactions, monetary assets and monetary liabilities are denominated in respective entities' functional currencies. 22. Capital management e Group's and the Institute's objectives when managing capital are: • to safeguard the Group’s and the Institute’s ability to continue as a going concern to enable their obligations under the Professional Accountants Ordinance, the Companies Ordinance and the trust deeds are fulfilled; • to develop and maintain the qualifcation programme and continuing professional development programme for students and members; and • to provide capital for the purpose of strengthening the Group’s and the Institute’s operational efciency. e Group and the Institute regularly review and manage their capital to ensure adequacy for both operational and capital needs. All surpluses are transferred to the general fund for future operational needs which are non-property related. e Group charges an annual capital levy on its members and students, which is transferred directly to the capital fund (note 11). e capital fund is maintained to ensure sufficient resources are available to finance the purchase, improvement and/or expansion of the Group's office facilities.