(a) Financial risk management objectives
The consolidated entity’s activities expose it primarily to the fi nancial risks of changes in foreign currency exchange rates, interest rates and credit risk. The Board of Directors takes responsibility for managing the fi nancial risks relating to the operations of the consolidated entity.
(b) Significant accounting policies
Details of the signifi cant 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 fi nancial asset, fi nancial liability and equity instrument are disclosed in note 1 to the fi nancial statements.
(c) Foreign currency risk management
The group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fl uctuations arise. At present, all revenue and inventory transactions are denominated in US dollars and as such the directors do not consider a formal hedging strategy to be required until such point as the commercialization of its products reaches a signifi cant level. The directors will continue to monitor and take advice on the exposure of the consolidated entity until such point as a formal strategy is deemed to be required.
(d) Interest rate risk management
The consolidated entity is exposed to interest rate risk as it places funds at both fi xed and fl oating interest rates. The risk is managed by maintaining an appropriate mix between fi xed and fl oating rate products which also facilitate access to money.
Maturity profile of financial instruments
The following tables detail the consolidated entity’s exposure to interest rate risk as at 30 June 2006 and 30 June 2005
(d) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in fi nancial loss to the consolidated entity. The consolidated entity has adopted a policy of only dealing with creditworthy counterparties and obtaining suffi cient collateral where appropriate, as a means of mitigating the risk of fi nancial loss from defaults. The consolidated entity’s exposure to, and the credit ratings of its counterparties are continuously monitored. Credit exposure is controlled by counterparty limits that are reviewed and approved by the audit committee annually. The consolidated entity measures credit risk on a fair value basis.
The consolidated entity does not have any signifi cant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.
(e) Fair value of financial instruments
The directors consider that the carrying amount of fi nancial assets and fi nancial liabilities recorded in the financial statements approximates their
fair values (2005: net fair value).
The fair values and net fair values of fi nancial assets and fi nancial liabilities are determined in accordance with generally accepted pricing models based on discounted cash fl ow analysis.
(f) Liquidity risk management
The consolidated entity manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash fl ows and matching the maturity profi les of fi nancial assets and liabilities.
The consolidated entity changed its accounting policies on 1 July 2005 to comply with Australian equivalents to International Financial Reporting Standards (‘A-IFRS’). The transition to A-IFRS is accounted for in accordance with Accounting Standard AASB 1 ‘First-time Adoption of Australian Equivalents to International Financial Reporting Standards’, with 1 July 2004 as the date of transition.
An explanation of how the transition from superseded policies to A-IFRS has affected the company and consolidated entity’s financial position, financial performance and cash fl ows is set out in the following tables and the notes that accompany the tables.
