| Foreign Exchange Accounting Treatment | | | | result of poor financial control (Bowden et. al, 2001). |
| Introduction | | | | Inadequate credit assessment of potential trade and |
| This manual is written to advise on an approach to | | | | other debtors as well as low debtors' turnover can |
| managing risk, with regards to procedures to follow in | | | | be a poor reflection of the company's strategy and |
| conducting risk analyses and treatment. | | | | objectives. |
| Background of my Organisation | | | | 3. Operational risk, such as poor practices and routine |
| I will focus my attention on the management of risks | | | | actions, as a result of poor human actions (Bowden |
| for my company in general. My company is involved | | | | et. al, 2001). Non-conformity to the organization's safe |
| in the trading of steel products, mainly for | | | | practices or even willful actions by employees can |
| construction purposes, as well as the sales and | | | | create potential operational and financial losses to the |
| purchases of agricultural products such as beans, | | | | company. Foreign Exchange Accounting Treatment |
| maize and rice. With regards to these products, | | | | 4. Technical risk, such as equipment and infrastructure |
| letters of credit (LCs) have to be initiated regularly | | | | breakdown and fire destruction, as a result of failure |
| for such products to be sold overseas. As part of | | | | of physical assets (Bowden et. al, 2001). Such risks |
| the accounting and finance function, my | | | | can be prevalent in my organization if appropriate |
| responsibilities are not only in the proper accounting | | | | actions are not taken to prevent these technicalities. |
| treatment of such transactions, but also as part of | | | | Unfortunately, many organizations tend to focus too |
| the team involved in a new trade financing project to | | | | much on the performance and cost dimensions of |
| ensure the smooth flow of these transactions from | | | | technical risk and manage them too heavily (Smith |
| the opening of LCs, the financing as well as the | | | | and Reinertsen, year unknown). |
| delivery of these products. Such a flow will involve | | | | 5. Market risk, such as inadequate market research, |
| the cooperation of both the operations and the | | | | which is the risk of not meeting the needs of the |
| accounting and finance departments. Foreign | | | | market, assuming that the specification has been |
| Exchange Accounting Treatment | | | | satisfied (Smith and Reinertsen, year unknown). This |
| Purpose of Risk Management | | | | risk may be more important compared to others, |
| Business risk relates to exposure to certain events | | | | however it is less manageable due to the risk being |
| that will have a negative impact on the strategies | | | | less objective and quantifiable compared to say |
| and objectives of the company. Hence business risk | | | | technical risk |
| is due to two factors: the probability of an event | | | | As a result of such risks mentioned above, coupled |
| occurring as well as the seriousness of the | | | | with the advancement in technology and competitive |
| consequences (Bowden, Lane and Martin, 2001). | | | | pressures, risk management has taken a more |
| There are several risks that are more specific to my | | | | important role in the existence of businesses today |
| organization, and are shown as follows: | | | | (Bowden et. al, 2001). Risk management relates to |
| 1. Strategic risk, such as poor marketing strategy and | | | | the logical and systematic way of establishing |
| poor acquisition strategy, as a result of poor planning | | | | context, identifying risks, analyzing risks, evaluating |
| (Bowden et. al, 2001). Poor marketing and acquisition | | | | risks and lastly, treating risks. This approach also |
| of different grades of steel and agricultural products | | | | involves communicating and consulting the findings as |
| can prove the downfall of the organization. | | | | well as monitoring and reviewing the treatment of |
| 2. Financial risk, such as lack of credit assessment and | | | | risks. This approach to managing risks is known as |
| poor receivables and inventory management, as a | | | | the AS 4360 method (Bowden et. al, 2001). |