AIESEC INTERNATIONAL NOTES TO THE FINANCIAL STATEMENTS AS AT MAY 31, 2020

15. Financial instruments

The Organization is exposed to various risks through its financial instruments. The main risks are broken down as follows:

(a) Credit risk

Credit risk is the risk that one party to a financial asset will cause a financial loss for the Organization by failing to discharge an obligation. The Organization's credit risk is mainly related to accounts receivable from member committees.

An analysis is made at the end of each financial year to determine the level of provision that should be made for non-payment of debts by member committees. The Global Compendium states that once debt levels reach either one year of fees or exceeds €5,000 at the beginning of the financial year, the membership fees are frozen and collectively taken over by other member committees. Therefore, maximum level of debt by any member to the Organization is the lower of one year of membership fees or €5,000.

Management also reviews partnership receivables during and at the end of the financial year with regular reminders sent to debtors. Partners are mainly AAA or AA rated public organizations and the risk of default is minimal. However, the Organization maintains regular communications with partner organizations to remain fully informed of developments, which may affect the partnership or the partners' ability to pay. As all partnership receivables are within one year, no allowance is currently made for bad debts from partnership.

(b) Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Organization realizes revenues and expenditures in foreign currency. Consequently, some assets and liabilities are exposed to foreign exchange fluctuations. As at May, 31, 2020, assets and liabilities denominated in foreign exchange and converted into Canadian dollars are the following:

(c) Liquidity risk

Liquidity risk is the risk that the Organization will encounter difficulty in meeting obligations associated with financial liabilities. The Organization is exposed to this risk mainly in respect of its accounts payable and accrued liabilities.