76 TE PŪRONGO 2013
Financial value hierarchy disclosures
For those instruments recognised at fair value on the statement of financial position, fair values are determined according to
the following hierarchy:
• Quoted market price - Financial instruments with quoted prices for identical instruments in active markets.
• Valuation technique using observable inputs - Financial instruments with quoted prices for similar instruments in
active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments
valued using models where all significant inputs are observable.
• Valuation techniques with significant non-observable inputs - Financial instruments valued using models where one or
more significant inputs are not observable.
Financial instrument risks
Te Wānanga o Aotearoa has policies to manage risks associated with financial instruments. Te Wānanga o Aotearoa is risk
averse and seeks to minimise exposure from its treasury activities. The policies do not allow any transactions that are
speculative in nature to be entered into.
(a ) Market Risk
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in
foreign exchange rates.
Te Wānanga o Aotearoa has only limited exposure to foreign currency risk. Te Wānanga o Aotearoa purchases library items
from overseas and also attends overseas conferences which exposes it to currency risk.
Fair value interest rate risk
Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest
rates. Investments issued at fixed rates of interest create exposure to fair value interest rate risk. Te Wānanga o Aotearoa
does not actively manage its exposure to fair value interest rate risk.
Cash flow interest rate risk
Cash flow interest rate risk is the risk that the cash flows from a financial instrument will fluctuate because of changes in
market interest rates. Investments issued at variable interest rates create exposure to cash flow interest rate risk
Te Wānanga o Aotearoa manages cashflow interest rate risk by reducing the cash on call balance to either 1% of total
revenue or $1,500,000 whichever is greater based on our Treasury Management Policy.
(b) Credit risk
Credit risk is the risk that a third party will default on its obligation to Te Wānanga o Aotearoa causing Te Wānanga o
Aotearoa to incur a loss. Due to the timing of its cash inflows and outflows, Te Wānanga o Aotearoa invests surplus cash into
term deposits and government bonds which gives rise to credit risk.
In the normal course of business, Te Wānanga o Aotearoa is exposed to credit risk from cash and term deposits with banks,
debtors and other receivables and government bonds. For each of these, the maximum credit exposure is best represented
by the carrying amount in the statement of financial position.
With the exception of tauira fees, the group trades only with recognised and creditworthy third parties.
Receivable balances are monitored on an on-going basis with the result that the group’s exposure to bad debts is not
significant as a result of the ability to withhold graduation from tauira who do not pay their fees.
Te Wānanga o Aotearoa holds no collateral or other credit enhancements for financial instruments that give rise to credit
risk.
Credit quality of financial assets
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to Standard and
Poor’s credit ratings (if available) or to historical information about counterparty default rates.
17. Financial instruments (continued)
Notes to the financial statements (continued)
