LensCrafters 2011 Annual Report Download - page 203

| 127 >CONSOLIDATED FINANCIAL STATEMENTS - NOTES
(b) Price risk
The Group is generally exposed to price risk associated with investments in bond securities
which are classified as assets at fair value through profit and loss. As of December 31,
2011 and 2010, the Group investment portfolio was fully divested. As a result, there was
no exposure to price risk on such dates. The investment portfolio, in accordance with
contractual obligations, must not exceed a value at risk (VAR) of 2 percent with a confidence
level of 99 percent. The Group will periodically monitor the VAR level.
(c) Credit risk
Credit risk exists related to accounts receivable, cash, financial instruments and deposits in
banks and other financial institutions.
c1) Credit risk exists in relation to accounts receivable, cash, financial instruments and
deposits in banks and other financial institutions. The credit risk related to commercial
counterparties is locally managed and monitored by a group credit control department
for all entities included in the Wholesale distribution segment. Credit risk which
originates within the Retail segment is locally managed by the companies included in
the Retail segment.
Losses on receivables are recorded in the financial statements if there are indicators
that a specific risk exists or as soon as risks of potential insolvency arise, by determining
an adequate accrual for doubtful accounts.
The allowance for doubtful accounts used for the Wholesale segment and in
accordance with the credit policy of the Group is determined by assigning a rating to
customers according to the following categories:
• “GOOD” (active customers), for which no accrual for doubtful accounts is recorded
for accounts receivable overdue for less than 90 days. Beyond 90 days overdue
a specific accrual is made in accordance with the customer’s credit worthiness
(customers “GOOD UNDER CONTROL”);
• “RISK” (no longer active customers), for which the outstanding accounts receivable
are fully provided. The following are examples of events that may fall into the
definition of RISK:
a. significant financial difficulties of the customers;
b. a material contract violation, such as a general breach or default in paying
interest or principal;
c. the customer declares bankruptcy or is subject to other insolvency proceedings;
d. all cases in which there is documented proof certifying the non-recoverability
of the receivables (i.e. the inability to trace the debtor, seizures).
The Group does not have significant concentrations of credit risk. In any case, there
are proper procedures in place to ensure that the sales of products and services
are made to reliable customers on the basis of their financial position as well as
past experience and other factors. Credit limits are defined according to internal
and external evaluations that are based on thresholds approved by the Board of
Directors.