Note 15: Financial Instruments

TORRES STRAIT REGIONAL AUTHORITY

Notes to and forming part of the financial statements for the period ended 30 June 2015

Note 15: Financial Instruments

TSRA holds a portfolio of concessional loans that are provided for business development and home ownership programs.

The net income from financial assets not at fair value from profit or loss is $1,899,000 (2014: $2,059,000)

Note 15C: Net Gains or Losses on Financial Liabilities

There are no gains or losses on financial liabilities for the year ending 30 June 2015 (2014: $Nil)

TORRES STRAIT REGIONAL AUTHORITY

Notes to and forming part of the financial statements for the period ended 30 June 2015

Note 15D: Fair Value of Financial Instruments

The carrying amount of financial instruments matches their fair value in 2014-15 as in 2013-14.

Note 15E: Credit risk

TSRA was exposed to minimal credit risk as the majority of loans and receivables and all held-to-maturity financial instruments are cash or high quality trade receivables. TSRA also holds a portfolio of concessional loans that are provided for business development and home ownership programs. The maximum exposure to credit risk is the risk that arises from potential default of a trade debtor or a concessional loan holder. This amount is equal to the total amount of trade and loan receivables (2015: $5,583,000 and 2014: $5,454,000)

In relation to the housing loans, TSRA holds mortgages as sole mortgagor over the properties for which the loans are provided. TSRA receives market advice from a qualified valuer or market expert on the value of a property prior to the loan being approved. In relation to Business Funding Scheme loans, from 2007-08 TSRA has required that inexperienced business owner(s) successfully complete an approved business course and submit a business plan prior to the loan being approved. These policies mitigate against credit risk for the TSRA's loans portfolio.

TSRA has assessed the risk of the default on payment and has allocated $106,295 in 2015 (2014: $111,529) to an allowance for impairment. Security underpinning this impairment includes a 5 bedroom house, which was independently valued in June 2015 at an estimated total value of $550,000.

Credit quality of financial instruments not past due or individually determined as impaired

Ageing of financial assets that were past due but not impaired for 2015

Ageing of financial assets that were past due but not impaired for 2014

TORRES STRAIT REGIONAL AUTHORITY

Notes to and forming part of the financial statements for the period ended 30 June 2015

Note 15F: Liquidity Risk

TSRA's financial liabilities were trade creditors and accruals and grant liabilities. The exposure to liquidity risk was based on the notion that TSRA will encounter difficulty in meeting its obligations associated with financial liabilities. This was highly unlikely due to Government funding and mechanisms available to TSRA and internal policies and procedures put in place to ensure there were appropriate resources to meet its financial obligations.

Maturities for non-derivative financial liabilities in 2015

Maturities for non-derivative financial liabilities in 2014

TSRA receives funding from its Portfolio Department. TSRA manages its budgeted funds to ensure it has adequate funds to meet payments as they fall due. In addition, the TSRA has policies in place to ensure timely payments are made when due and has no past experience of default.

The entity had no derivative financial liabilities in either 2015 or 2014.

TORRES STRAIT REGIONAL AUTHORITY

Notes to and forming part of the financial statements for the period ended 30 June 2015

Note 15G: Market Risk

TSRA holds basic financial instruments that did not expose TSRA to certain market risks such as 'currency risk and 'other price risk.

Interest Rate Risk

Interest rate risk refers to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. TSRA is exposed to interest rate risk primarily from cash deposits and concessional loans.

Interest earned on cash at bank and term deposits after they mature may be effected by changes in market interest rates. The following table represents the effect to the statement of comprehensive income (and corresponding effect to the cash value in the balance sheet) when the current market interest rate is varied by 0.40%. 0.40% is anticipated to be a reasonable estimate of the maximum movement in market interest rates in financial year 2015-16.

Sensitivity Analysis of the risk that the TSRA is exposed to for 2015-16 with respect to cash at bank and term deposits

The value of concessional loans is derived by applying the amortised cost using the effective interest method. Because the loan portfolio is valued at net present value using market interest rates, movements in market interest rates will impact on the value of the loan portfolio and the income statement. The following table represents the effect to the income statement (and corresponding effect to the loan portfolio value in the balance sheet) when the current market interest rate is varied by 0.40%. 0.40% is anticipated to be a reasonable estimate of the maximum movement in market interest rates in financial year 2015-16.

Sensitivity Analysis of the risk that the TSRA is exposed to for 2015-16 with respect to concessional loans

Assets past due and impaired are represented by loans individually assessed to be at high risk of default.