NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2007 19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Company’s principal financial instruments comprise cash, short-term deposits and externally managed funds that are invested in a diversified portfolio of Australian equities, listed property trusts, fixed interest products, managed funds (international equities) and cash. Cash and short-term deposits are held primarily to meet the cash flow requirements of the business, while the main purpose of the externally managed portfolio is to prudently manage cash reserves. The Company has various other financial assets and liabilities such as trade and levy receivables and trade payables, which arise directly from its operations. The main risks arising from the Company’s financial instruments are cash flow interest rate risk, market price risk and credit risk. Management reviews and agrees policies for managing each of these risks and they are summarised below. 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, in respect of each class of financial asset and financial liability are disclosed in note 3 to the financial statements. CASH FLOW INTEREST RATE RISK The Company’s exposure to the risk of changes in market interest rates relates primarily to the Company’s holdings of cash, short-term deposits and managed funds. The Company’s policy is to manage its interest income using a mix of internally and externally managed investments and to invest conservatively, to ensure as far as possible that capital is maintained, while diversifying investments across various asset classes to increase returns above the cash rate. CREDIT RISK The Company trades only with recognised, creditworthy third parties. It is the Company’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivables balances are monitored on an ongoing basis with the result that the Company’s exposures to bad debts are not significant. Payment terms are 30 days and a risk assessment process is used for new customers with balances over $50,000. There are no significant concentrations of credit risk within the Company, noting however comments at note 6 regarding transactions with the Commonwealth Government. MARKET RISK (PRICE RISK) The Company has outsourced the management of that portion of cash reserves that is expected to be held for the longer term. The external manager, in conjunction with the Company, has invested these funds in a portfolio of income and growth assets structured to preserve the capital value of funds, while accessing higher income and growth opportunities. The portfolio is diversified across all asset classes and is weighted towards income producing assets. While the growth assets within the portfolio are subject to fluctuations in market prices, this risk is offset largely through diversification.
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