Notes to the financial statements
Year ended 31 March 2016
31 Financial risk management (continued)
Overview of risk management
Risk management is integral to the whole business of the Group. The Manager of the Trust has a system of controls in
place to create an acceptable balance between the benefits derived from managing risks and the cost of managing
those risks. The Manager also monitors the Group’s risk management process closely to ensure an appropriate balance
between control and business objectives is achieved. Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group’s strategic direction.
The Audit Committee of the Manager oversees howmanagement monitors compliance with the Group’s risk management
policies and procedures and reviews the adequacy of the risk management framework in relation to the Group’s exposure
to those risks. The Audit Committee’s oversight role is assisted by an internal audit function which is outsourced to an
independent professional firm (“Internal Audit”). Internal Audit undertakes both regular and ad-hoc reviews of risk
management controls and procedures, the results of which are reported to the Audit Committee.
Credit risk
Credit risk is the potential financial loss resulting from the failure of tenants or counterparties of the Group, to settle its
financial and contractual obligations, as and when they fall due.
The Manager has an established process to evaluate the creditworthiness of its tenants and prospective tenants to
minimise potential credit risk. Credit evaluations are performed by the Manager before lease agreements are entered
into with prospective tenants. Security in the form of bankers’ guarantees, corporate guarantees or cash security deposits
are obtained upon the commencement of the lease.
The Manager establishes an allowance account for impairment that represents its estimate of losses in respect of trade
and other receivables. The main component of this allowance is estimated losses that relate to specific tenants or
counterparties.
The allowance account is used to provide for impairment losses. Subsequently when the Group is satisfied that no
recovery of such losses is possible, the financial asset is considered irrecoverable and the amount charged to the
allowance account is then written off against the carrying amount of the impaired financial asset.
Cash at bank and fixed deposits are placed with financial institutions which are regulated.
As at the reporting date, there is no significant concentrations of credit risk. The maximum exposure to credit risk is
represented by the carrying value of each financial asset, including derivative financial instruments, on the Statements
of Financial Position.
Liquidity risk
The Manager monitors and maintains a level of cash and cash equivalents deemed adequate to finance the Group’s
operations and to mitigate the effects of fluctuations in cash flows. Typically, the Group ensures that it has sufficient
cash on demand to meet expected operational expenses for a reasonable period, including the servicing of financial
obligations.
The Group strives to maintain available banking facilities at a reasonable level to meet its investment opportunities. The
Group has in place various bilateral banking credit facilities and a Multicurrency Medium Term Note Programme with a
programme limit of $5.0 billion (Note 15).
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A-REIT ANNUAL REPORT
2015/2016
