CPA Annual Report : CPA Annual report 2012
9. Financial risk management Financial instruments consist of amount due from the Institute and bank balances. e Charitable Fund carries as little risk from financial instruments as practicable. e Charitable Fund is exposed to various financial risks which are discussed below: a. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. e Charitable Fund's exposure to interest rate fluctuations is limited to interest receivable on its bank savings accounts at the end of the reporting period. Management considers that the Charitable Fund has limited exposure to interest rate risk relating to the Charitable Fund's bank balances as the changes in interest rate for these items over the period until the end of the next annual reporting period are expected to be minimal. Any fluctuation in the prevailing levels of market interest rates will have an impact on the interest income alone as the Charitable Fund did not borrow any interest bearing loans. e Charitable Fund manages the interest rate risk by monitoring closely the movements in interest rates in order to limit potential adverse impact on interest income. 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 Charitable Fund raises donations for general charitable purposes and donations are either collected from the Institute or other parties in advance for subsequent allocation to respective charitable organizations. e Charitable Fund's surplus cash has been deposited with reputable and creditworthy banks. Management considers there is minimal risk associated with the bank balances. 10. Capital management e Charitable Fund operates by allocating its receipts and therefore is not exposed to any capital deficiency risk. In the event of capital needs, the Institute will make donations to the Charitable Fund to ensure its capital adequacy.