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32.
FINANCIAL INSTRUMENTS
(continued)
32.1
Risk management overview
(continued)
The primary purposes of the Bidcorp Group audit and risk committee in respect of risk are:
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to establish and maintain a common understanding of the risk universe (framework), which needs to be addressed in order to meet
Bidcorp’s objectives;
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to identify the risk profile and agree the risk appetite of the group;
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to satisfy the risk management reporting requirements;
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to coordinate the group’s risk management and assurance efforts;
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to report to the Bidcorp board of directors on the risk management work undertaken and the extent of any action taken by management
to address areas identified for improvement; and
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to report to the Bidcorp board of directors on the company’s process for monitoring compliance with laws and regulations.
Bidcorp has, due to the diversity of its operations in terms of geographical spread, determined that is better to have an in-house
strategy for risk management, as opposed to adopting a recognised strategy and forcing its operations to adapt to the constraints of
the strategy selected. Bidcorp has determined that utilising a common framework for the identification of risk assists the divisions to
reduce the implementation time and cost, and give some assurance that all inherent identified risks have been considered. The group’s
risk management policies are established to identify and analyse the risks faced by the group, to set appropriate risk limits and controls,
and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market
conditions. Bidcorp aims to develop a disciplined and constructive control environment in which all employees understand their roles and
responsibilities.
Each division has an audit and risk committee, which subscribes to the same philosophies and practices as the group audit and risk
committee. The divisional audit committees report to the group audit and risk committee. The divisional audit committees oversee how
divisional and operational management monitors compliance with the group’s policies and guidelines in respect of the financial reporting
process, the system of internal control, the management of financial risks, the audit process (both internal and external) and code of
business conduct. The divisional audit committees are assisted in their oversight role by the internal audit department. Divisional internal
audit undertakes both regular and ad hoc reviews of financial and operational risk management controls and procedures, the results of which
are regularly reported to the relevant divisional audit committee.
32.2 Credit risk
Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the group’s receivables from customers, cash and cash equivalents and investments.
The board has implemented a “delegation of authority matrix” which provides guidelines to the divisions as to the level of authorisation
required for various types of transactions.
The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses amounting to
R20 205 million (2015: R15 238 million), represents the group’s maximum exposure to credit risk after taking into account the value
of any collateral obtained.
This includes carrying values, net of impairment allowances, of R13 945 million (2015: R11 246 million) for trade receivables (refer to
note 20), R5 506 million (2015: R3 632 million) for cash and cash equivalents and R754 million (2015: R360 million) for investments (refer
to note 18).
The impairment allowance account in respect of trade receivables is used to record impairment losses unless the group is satisfied that
no recovery of the amount owing is possible. At that point, the amount which is considered irrecoverable is written off directly against the
respective assets.
Impairments of investments classified as available-for-sale or held-for-trading are written off against the investment directly and an
impairment allowance account is not utilised.
Bidcorp Limited Annual integrated report 2016 |
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Financial overview