The Board and Audit & Risk Committee has overall responsibility to manage the impact of significant business risk by ensuring that adequate management policies, procedures and controls are in place.
Our Risk Management Policy is subject to annual review and revised where considered necessary. This policy sets out our policies and procedures for managing risks such as those relating to markets, credit, price, operating, safety, health, environment, financial reporting and internal control. The Risk Management Policy has been adopted by the board.
Alumina Limited is exposed to risks, both indirectly through its investment in Alcoa World Alumina and Chemicals (AWAC), and directly as a separately listed public company.
Responsibility for risk management
Direct responsibility for the implementation of risk management activities is delegated to executive management.
Risk management oversight
Ultimately the directors oversee risk identification and management through the Audit & Risk Committee. It is also the direct responsibility of Alumina's Audit & Risk Committee to review the assessment of business risk across the Group to see that there is appropriate coverage in the internal audit plans.
Audits are conducted by independent parties. Both Internal and External Auditors report their findings to the Audit Committee. The Audit & Risk Committee meets annually with both the internal and external auditors to review their audit plans and approve all external audit services to be provided.
Internal audit is responsible for assessing that appropriate internal controls and risk management procedures are established and functioning and to report significant risks and instances of non-compliance. Accounting firm Deloitte Touche Tohmatsu provides Internal Audit services on a contract basis to Alumina Limited.
External Audit is conducted by PricewaterhouseCoopers (PwC). PwC have agreed to rotate the audit engagement partner on a 5 year basis. The current partner was appointed in 2012.
Alumina Limited recognises and supports the fundamental principle of maintaining auditor independence. Alumina Limited has a policy controlling the provision of non-audit services by the auditors. Auditors are not prohibited from supplying non-audit services provided those services are subject to independent approval in accordance with the Audit & Risk Committee Charter.
AWAC business risk
Alcoa is the manager of the AWAC joint venture and has direct responsibility for managing the risks associated with the AWAC business. Alumina Limited is subject to those risks and Alcoa utilises its policies and management systems to identify, manage and mitigate those risks. Alcoa's Audit Committee discusses with management, the internal auditors and the outside auditors the Company's policies with respect to risk assessment and risk management. This discussion should include the Company's major financial risk exposures and the steps management has taken to monitor and control these exposures.
Alumina Limited reviews the management and mitigation of AWAC risks through its participation on the AWAC Strategic Council and the boards of the key operating entities within AWAC.
Business Risk management
Alumina Limited uses appropriate internal controls and formulation of, and adherence to, risk management policies appropriate for its risks as an independent corporate entity.
Alumina's most significant risks are to the Australian dollar and US dollar exchange rate and the aluminium price. Alumina Limited's risk exposures are significant through AWAC's exposure to foreign currency and aluminium prices.
Alumina Limited's current financial position is strong and debt levels are modest. AWAC's operations are low cost and long life, generating substantial positive net cash in-flow. AWAC's revenues are underpinned by medium and long-term sales contracts with high quality industry participants with whom AWAC has long-standing relationships.
Given this strong underlying business position, shareholders' interests are best served by Alumina Limited and AWAC remaining exposed to aluminium price and exchange rate risk and not seeking to manage that risk through the use of derivative instruments.
When managing interest rate risk, Alumina Limited seeks to reduce the overall cost of funds. A preference for floating rate exposure will be sought in light of the cash-generating capacity of AWAC and the continued strength of Alumina Limited's financial position.