D-Link 2014 Annual Report Download - page 83

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55
D-LINK CORPORATION AND SUBSIDIARIES
Notes to the consolidated financial statements
(Continued)
(i) Accounts receivable
The credit risk exposure of the Consolidated Company arises from the operations and
financial conditions of each customer and the demographics of the Consolidated
Company’s customer base, including the default risk of the industry and country in which
customers operate in. However, the Consolidated Company operates worldwide, and thus,
risk is diversified. As of December 31, 2014, and 2013, revenue from each foreign
customer does not exceed
5% of the Consolidated Company’s revenue and therefore, there
is no concentration of credit risk.
The Consolidated Company has completed in setting the credit risk management policies,
and has established Institutional Credit Review Committee and Credit Risk Management
Department, which are responsible for managing credit policies and client’s credit risk.
Based on the global risk management, credit rating and analysis are required to customers
on credit in advance and granted credit limits. For customers who made their payments
other than cash, regular reviews on credit limits are required to ensure the creditworthiness
of customers.
Allowance for bad debt is set based on the credit rating of each customer. In order to
mitigate the risk of default, the Consolidated Company has purchased guarantees, with
appropriate insured amount for customers in high risk countries. High risks customers
without insurance should make their payments in advance or provide sufficient credit
guarantees. In addition, when the creditworthiness of customers worsens, they should be
placed on a restricted customer list. The credit rating for these customers should be
downgraded and the transactions on sales credit should be restricted.
The Consolidated Company has set the allowance for bad debt account to reflect the
possible losses on account and other receivables. The allowance for bad debt account
consists of specific losses relating to individually significant exposure from customers with
financial difficulties or operating conflicts. The allowance for bad debt account is based on
historical collection record of similar financial assets or the possibility of breaching the
contracts.
(ii) Investment on securities and derivative financial instruments
The credit risk exposure bank deposits, fixed income investments and derivative financial
instrument are measured and monitored by the Consolidated Company’s finance
department. As the Consolidated Company will select financial institutions with good
credit ratings as its counterparties and diversify its investment in different financial
institutions, and do not expect to have any default risks and significant concentration of
credit risk.
(iii) Guarantees
Pursuant to the Consolidated Company’s policies, it is only permissible to provide financial
guarantees to subsidiaries. As of December 31, 2014 and 2013, the Consolidated
Company has not provide any guarantees to a third party.