annual report - Harvey Norman Company Reports & Announcements

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
34.
116
Financial Risk Management (continued)
(c) Credit Risk
Credit risk refers to the loss that the consolidated entity would incur if a debtor or other counterparty fails to perform
under its contractual obligations.
Credit risk arises from the financial assets of the consolidated entity, which comprise trade and non-trade debtors,
consumer finance loans and finance lease receivables. The consolidated entity‟s exposure to credit risk arises from
potential default of the counter party, with a maximum exposure equal to the carrying amount of these instruments.
The consolidated entity‟s policies to limit its exposure to credit risks are as follows:
Conducting appropriate due diligence on counterparties before entering into an arrangement with them. It is
the consolidated entity‟s policy that all customers who wish to trade on credit terms are subject to credit
verification procedures including an assessment of their independent credit rating, financial position, past
experience and industry reputation. Risk limits are set for each individual customer in accordance with
parameters set by the Board. These risk limits are regularly monitored; and
For finance lease receivables or non-trade debts receivable from related parties and other unrelated persons,
the consolidated entity obtains collateral with a value equal or in excess of the counterparties‟ obligation to the
consolidated entity.
The consolidated entity minimises concentrations of credit risk by undertaking transactions with a large number of
debtors in various countries and industries. In addition, receivable balances are monitored on an ongoing basis.
The credit risk on liquid funds and derivative financial instruments is limited because the counterparties are banks with
high credit-ratings assigned by international credit-rating agencies.
The major geographic concentration of credit risk arises from the location of the counterparties to the consolidated
entity‟s financial assets as shown in the following table:
C O N S O L I D A T E D
2012 2011
Location of credit risk $000 $000
Australia 992,199 1,043,402
New Zealand 20,973 20,246
Asia 10,362 11,696
Slovenia and Croatia 2,963 2,249
Ireland and Northern Ireland 2,032 2,177
Total
(d) Liquidity Risk
1,028,529
1,079,770
Liquidity risk includes the risk that, as a result of the consolidated entity‟s operational liquidity requirements:
the consolidated entity will not have sufficient funds to settle a transaction on the due date;
the consolidated entity will be forced to sell financial assets at a value which is less than what they are worth; or
the consolidated entity may be unable to settle or recover a financial asset at all.
To help reduce these risks, the consolidated entity:
has readily accessible standby facilities and other funding arrangements in place; and
maintains instruments that are tradeable in highly liquid markets.