2015-10-14 Audit & Risk Committee Meeting - Draft Annual Financial Statements

NOOSA SHIRE COUNCIL


Notes to the financial statements
For the year ended 30 June 2015


28 Financial instruments - continued
         Market risk
              Market risk is the risk that changes in market prices, such as interest rates, will affect the Council's income or the value
              of its holdings of financial instruments.


         Interest rate risk
              Noosa Shire Council is exposed to interest rate risk through investments with QTC and other financial institutions.
              The Council has access to a mix of variable and fixed rate funding options through QTC so that interest rate risk
              exposure can be minimised.

         Sensitivity
              Sensitivity to interest rate movements is shown for variable financial assets and liabilities based on the carrying amount
              at reporting date.


              The following interest rate sensitivity analysis depicts what effect a reasonably possible change in interest rates (assumed
              to be 1%) would have on the profit and equity, based on the carrying values at the end of the reporting period. The
              calculation assumes that the change in interest rates would be held constant over the period.
              Consolidated
              2015
                                                                   Net carrying Change in profit & (loss) from          Change in equity from
              Financial assets and liabilities that are             amount        1% increase     1% decrease        1% increase        1% decrease
              held at variable interest rates total:                    $               $               $                  $                  $
                QTC cash funds                                     27,742,381         277,424          (277,424)           277,424           (277,424)
                Other investments                                    6,973,517         69,735           (69,735)               69,735         (69,735)
                Loans - QTC                                        (39,380,545)       (393,805)         393,805           (393,805)          393,805
                Net total                                           (4,664,647)        (46,646)          46,646            (46,646)           46,646
              2014
                QTC cash funds                                     25,118,125         251,181          (251,181)           251,181           (251,181)
                Other investments                                    5,926,935         59,269           (59,269)               59,269         (59,269)
                Loans - QTC                                        (41,177,025)       (411,770)         411,770           (411,770)          411,770
                Net total                                          (10,131,965)       (101,320)         101,320           (101,320)          101,320


              In relation to the QTC loans held by the Council, the following has been applied:

              *QTC Generic Debt Pool - the generic debt pool products approximate a fixed rate loan. There is a negligible impact
              on the interest sensitivity from changes in interest rates for generic debt pool borrowings.

              The sensitivity analysis provided by QTC is currently based on a 1% change but this is subject to change.

         Fair Value
              The fair value of trade and other receivables and payables is assumed to approximate the value of the original transaction,
              less any allowance for impairment.


              The fair value of borrowings with QTC is based on the market value of debt outstanding. The market value of a debt
              obligation is the discounted value of future cash flows based on prevailing market rates and represents the amount required
              to be repaid if this was to occur at balance date. The market value of debt is provided by QTC and is discussed below and
              disclosed in note 18.


              QTC applies a book rate approach in the management of debt and interest rate risk, to limit the impact of market value
              movements to clients' cost of funding. The book value represents the carrying value based on amortised cost using the
              effective interest method.




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