Royal Botanic Gardens Victoria Annual Report 2018-19

7. RISKS, CONTINGENCIES AND VALUATION JUDGEMENTS
The net holding gains or losses disclosed above are determined as follows:
h
h
for cash and cash equivalents and financial assets at amortised cost, the net gain or loss is calculated by taking the movement in
interest income minus any impairment recognised in the net result; and
for financial liabilities measured at amortised cost, the net gain or loss is equal to the interest expense incurred during the reporting
period.
7.1.5
Financial risk management objectives and policy
As a whole, the Board’s financial risk management program seeks to manage these risks and the associated volatility of its financial
performance.
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the
basis on which income and expenses are recognised, with respect to each class of financial asset and financial liability above, are
disclosed in Note 7.2 to the financial statements.
The main purpose in holding financial instruments is to prudentially manage the Board's financial risks within the requirements of the
Royal Botanic Gardens Act 1991 and the government's policy parameters.
The Board’s main financial risks include credit risk, liquidity risk and interest rate risk. The Board manages these financial risks in
accordance with its financial risk management policy.
The Board uses different methods to measure and manage the different risks to which it is exposed. Primary responsibility for the
identification and management of financial risks rests with the Finance and Audit Committee of the Board.
Financial instruments - credit risk
Credit risk refers to the possibility that a borrower will default on its financial obligations as and when they fall due. The Board’s exposure
to credit risk arises from the potential default of a counter party on their contractual obligations resulting in financial loss to the Board.
Credit risk is measured at fair value and is monitored on a regular basis.
Credit risk associated with the Board's contractual financial assets is minimal, especially in relation to its sale of goods and services
receivables due to the adoption of stringent credit establishment and collection policies and procedures. In addition, the Board does not
engage in hedging for its contractual financial assets and mainly obtains contractual financial assets that are on fixed interest, except for
cash and deposits, which are mainly cash at bank. As with the policy for debtors, the Board’s policy is to only deal with banks with high
credit ratings.
Provision of impairment for contractual financial assets is recognised when there is objective evidence that the Board will not be able to
collect a receivable. Objective evidence includes financial difficulties of the debtor, default payments, debts which are more than 60 days
overdue, and changes in debtor credit ratings.
The carrying amount of contractual financial assets recorded in the financial statements represents the Board’s maximum exposure to
credit risk without taking account of the value of any collateral obtained.
There has been no material change to the Board’s credit risk profile in 2018-19.
Contractual receivables at amortised cost
The Board applies AASB 9 simplified approach for all contractual receivables to measure expected credit losses using a lifetime expected
loss allowance based on the assumptions about risk of default and expected loss rates. The Board has grouped contractual receivables
on shared credit risk characteristics and days past due and selected the expected credit loss rate based on the Board’s past history and
existing market conditions, as well as forward looking estimates at the end of the financial year.
On this basis, the Board determines the opening loss allowance on initial application date of AASB 9 and the closing loss allowance at end
of the financial year as follows:
2019 Current Less than 1
month
1 - 3 months 3 months - 1
year
1 - 5 years
Total
Expected loss rate
Gross carrying amount
Loss allowance
0% 0% 0% 0% 0%
460,896 2,414 28,184 2,498 - 493,992
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ROYAL BOTANIC GARDENS BOARD VICTORIA — ANNUAL REPORT 2018–19 101
Royal Botanic Gardens Board Victoria 2018-19 Financial Report Page 24