Is your treasury a ‘black hole’?
How are the treasury risks aligned with the rest of the business?
Is the currency a one-way bet?
Derivatives and disasters are words that have all too often been quoted together in the financial press. The risks associated with treasury transactions and market exposures are well illustrated by high profile corporate examples. As the financial markets become ever more sophisticated, so can the strategies and instruments utilised by corporations. The latter are not always fully understood by senior management, sometimes with adverse results. At the other end of the spectrum, controls over cash are still one of the bedrocks of prudent financial disbursement. Fund misappropriation via an internal or external source is still one of the most common and high profile corporate frauds.
We are often asked by Audit Committees, Boards, Finance Directors and Treasurers to perform assessments of the financial risk management processes and controls. Our response involves applying established procedures and methodologies to review the management of market, liquidity, re-financing, credit and operational risk.
- Controls and risk reviews
Are the treasury controls adequate and how do we compare to other corporations?
These are a couple of the questions we are most frequently asked. The answer to the first question is subjective and depends on your company’s risk philosophy. Our methodologies enable us to compare you with ‘good practice’ as observed at other corporations, to test the effectiveness of controls, the quality of reporting and of the risk management methodologies. The scope of the reviews can be wide-ranging or tightly focused.
- Assurance services
Sarbanes-Oxley, IAS 39 and national corporate governance requirements are but a few of the standards potentially affecting financial reporting for your company in the area of derivatives and corporate treasury activities. In the context of such continued and rapid change it is vital that you get the best support from your external advisers. The FRS team can provide you with assistance in all aspects of preparing for such change.
- Transaction support
Will debt need to be renegotiated? What are the implications on covenants? Should I worry about the forward foreign exchange or option positions?
These are just a few examples of the questions arising as part of an acquisition or merger. A comprehensive treasury due diligence process is an integral part of any well planned transaction and the treasury risks that can arise should not be underestimated. The risk management policies of any target will have significant implications to the value to your business. Issues to consider will include:
- Fair value of financial instruments versus their book values
- Strength of treasury control environment
- Effect of FX and interest rates on future earnings
- Need to harmonise policy
- Quality of treasury system and people
- Internal audit outsourcing
Corporate treasury operations are often very different from your company’s core business activities. The skill set for performing an effective audit is very different to those required for the rest of your internal audit programme. Our team can work with you to outsource or co-source any internal audit, to maximise the benefit to your company.
- Our experience
The PwC Financial Risk Services team comprises professionals with a broad range of complementary treasury, banking, technology, accounting and programme management skills. Our team has worked with many corporations to support change in treasury practices and has an enviable track record of successful solution-based project work. Over the years, our team has established an extensive knowledge base of the treasury standards of the leading corporations and by combining this knowledge with the multidisciplinary skills of the teams we provide a creative and practical solutions to meet the requirements of our clients.
