Page 82 - MPA ANNUAL REPORT 2016-2017

DRIVEN BY PASSION AND PRIDE

MAURITIUS PORTS AUTHORITY
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2017

3. FINANCIAL RISK MANAGEMENT (CONTD)

L egal Ris k
Legal risk is the risk that the business activities of the Authority have unintended or unexpected legal consequences.
It include s risk ari sing from :
• Inadequate documentation, legal or regulatory incapacity, insufficient authority of a counterparty and uncertainly
about the valid ity or enforceability of a contract in counterparty insolvency;
• Actual or potential violations of laws or regulations (including activity unauthorised for the Authority and which
may a ttract a c ivil or cri minal fin e or pena lty);
• Failure to protect the Authority’s property (including its intellectual property); and
• The po ssibility of civil c laims (in cluding a cts or ot her even ts which may lead to litigation or other disputes).
The Auth ority iden tifies and manages legal risk through effective use of its internal and external advisers.
Business Risk
Business risk is the risk associated with operations and marketing activities of the Authority. Such risks can be
associated with demand variability, sales price variability, competitor threat, operational leverage, portfolio risk and
product development risks to the extent that they are independent of market risk. Business risk can also arise from
the potential that inadequate information systems, operational problems, breaches in internal controls, fraud or
unforeseen catastrophes will result in unexpected losses. Business risk is closely monitored.

Operatio nal Risk
Operational risk is the risk of direct or indirect losses arising from inadequate or failed internal processes, people and
t echnolo gy and fr om exter nal even ts. Mana gement of opera tional ris k is closely monitored.
Environment and Strategy Risks

Environment and strategy risks arise when there are forces that could either put the Authority out of business or
s ignifican tly chan ge the fundamentals that drive the Authority’s overall objectives and strategies.
E nvironment risk may arise from:
• failure to understand customer needs,
• failure to anticipate or react to actions of competitors and
• over dependence on vulnerable suppliers, etc.
T he asse ssment o f the Env ironmen t and Str ategy risks also included discussions on:
• Changes in laws/regulations and actions by the local regulators can result in increased pressures and
significantly affect the Authority’s ability to efficiently and competitively conduct business.

• Risks which make the industry less attractive as a result of changes in:
- Key factors for competitive success within the industry, including significant opportunities and threats;
- Capabilities of existing and potential competitors; and
- Authority’s strengths and weaknesses relative to present and future competitors.

3.2. Fair value estimation

The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the
reporting period. A market is regarded as active if quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the
Authority is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise
p rimarily quoted e quity in vestments classified as available-for-sale.
The fair value of financial instruments that are not traded in an active market is determined by using valuation
techniques. These valuation techniques maximise the use of observable market data where it is available and rely as
little as possible on specific estimates. If all significant inputs required to fair value an instrument are observable,
t he instru ment is included in level 2 otherw ise they are inclu ded in le vel 3.
The following table shows the Levels within the hierarchy of financial assets measured at fair value on a recurring
basis at 30 June 2017 and 31 December 2015:

80 MAURITIUS PORTS AUTHORITY | ANNUAL REPORT 2016-17