ENRA Group Berhad | Annual Report 2022 159 NOTES TO THE FINANCIAL STATEMENTS 31 MARCH 2022 36. FINANCIAL INSTRUMENTS (CONT’D) (c) Fair value hierarchy (Cont’d) Level 3 fair value The significant unobservable input used in determining the fair value measurement of Level 3 financial instruments as well as the relationship between key unobservable inputs and fair value, is detailed in the table below: Financial instruments Valuation technique used Significant unobservable inputs Inter-relationship between key unobservable inputs and fair value Financial liabilities RCPS Discounted cash flows method Discount rate 5.00% The higher the discount rate, the lower the fair value of the liabilities would be. Contingent consideration for business acquisition Discounted cash flows method Discount rate 9.31% The higher the discount rate, the lower the fair value of the liabilities would be The ability of ICE achieving its profit target The fair value is derived with the assumption that ICE will achieve its profit target for the entire Guarantee period. The fair value will be lower in the event ICE could not achieve its profit target. 37. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The financial risk management objective of the Group is to optimise value creation for shareholders whilst minimising the potential adverse impact arising from fluctuations in interest rates and the unpredictability of the financial markets. The Group operates within an established risk management framework and clearly defined guidelines that are regularly reviewed by the Board of Directors and does not trade in derivative financial instruments. Financial risk management is carried out through risk review programmes, internal control systems, insurance programmes and adherence to the Group financial risk management policies. The Group is exposed mainly to credit risk, interest rate risk, liquidity and cash flow risk and foreign currency risk. Information on the management of the related exposures is detailed below. (i) Credit risk Cash deposits and trade receivables may give rise to credit risk, which requires the loss to be recognised if a counter party fails to perform as contracted. It is the Group’s policy to monitor the financial standing of these counter parties on an ongoing basis to ensure that the Group is exposed to minimal credit risk. The Group’s primary exposure to credit risk arises through its trade receivables. The credit period is generally for a period of 30 days to 60 days. The exposure to credit risk is monitored on an ongoing basis.
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