Professional Documents
Culture Documents
Liquidity risk
Liquidity risk may be mitigated by careful forecasting of cash flows and by maintaining unused, committed funding lines in anticipation of future requirements or contingencies, or by spreading out future re-financing requirements. Maintaining close relations with bankers and keeping them fully informed of the state of the business and potential funding needs will help to ensure that loans are available to meet contingencies. Questions Does the organisation prepare regular cash flow forecasts and use them to plan new and replacement funding requirements? Are variances measured against actuals to identify permanent or timing differences? How far ahead does the organisation plan new and replacement funding requirements? Are these plans reviewed for effectiveness?
funding risk
Funding risk may be mitigated by building and maintaining a profile as an investor-friendly issuer of securities. This can be achieved by maintaining issuance continuity, keeping the market informed on overall issuance strategy, taking investor preference features into consideration and issuing in a widely acceptable form. The board and management should take into account the potential effect of their decisions on ratings. Questions Are prospective lenders widely distributed or is there a concentration of lending sources? Are debt-equity ratios monitored for compliance with internal targets or undertakings given to external parties? Are likely new and replacement funding requirements actively measured and reported and subjected to sensitivity analysis? Are processes in place for maintaining up-to-date knowledge of alternative funding sources? How effective is the organisations relationship with its bankers? Do they understand the business? Can they supply the types and volumes of funding required? Are they supportive? Are funding maturities spread out to minimise the need for concurrent re-financing?
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operating risks
An organisation can manage its internal systems to minimise business/operating risks, frequently by tightening controls. This is much more difficult, although not impossible, where there is a reliance on external systems. Questions Are tasks properly allocated and adequately resourced with appropriately skilled staff? Is there a proven track record of satisfactory performance or have audits or reviews evidenced operating risks? Does the organisation have a disaster recovery plan, including computer back-up, that would enable the treasury activity to continue without financial loss or risk in the event of a disaster? Has the culture of compliance with controls and policies been encouraged? Is it actively applied by all staff? Has advantage been taken of any insurance available against fraud or malpractice (e.g. fidelity insurance for staff), public and product liability, loss of profits through business interruptions and professional indemnity? Are staff required to take at least two consecutive weeks of annual leave every year?
This fact sheet series has been developed by CPA Australia. For further information visit cpaaustralia.com.au
CPA46579 11/06