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Credit Risk : It Is Primarily The Loss

Decent Essays
Credit risk: It is primarily the loss which the company faces when the debtor of the counterparty fails to perform under the contractual obligations (Allan et al., 2015). This exposure results from the financial assets including trade & non trade debt receivables, finance lease receivables. The maximum exposure amount is usually the carrying amount of the assets. The risk is considered to be significant in the next year as the company has a huge assets base in the various countries in which it operates as highlighted in figure 2 in Appendix 1. The risk of default cannot be minimized despite the fact that there are certain mitigating actions taken by the business.
The concentration of the credit risk is managed through transactions with
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The liquidity risk for the company is not expected to be significant for the next year as it has got more than sufficient current assets to cover its short term debts as and when they fall due.
In order to mitigate this risk, the business holds stand by facilities and various funding arrangements in place while also maintaining instruments which can be traded in highly liquid markets. Additionally, the exposure is reviewed on a monthly basis through listing of banking facilities, explanation of variances, and the funding positions of oversees entities (Harvey Norman Holding Limited, 2015).
The risk management approach of the company is proactive and focuses on identification and effective management of risk through the assistance of the risk management committee of the board with the purpose of creating long term shareholder value. Risk specific management activities are carried out in core areas including operational risk, strategic risk, and reporting and compliance risk. Besides, the board oversees and approves risk management strategies and policies, internal compliance and internal control (Harvey Norman Holding Limited, 2015).
The company also fulfils the ASX principle 7 – recognize and manage risk recommendations (Allan et
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