For the year ended 30 June 2012 Notes to the financial statements (cont’d) 4  Risk management Financial risk IOOF risk management framework The financial risk management objectives, policies and  processes and the quantitative data about the exposure to risk  at the reporting date, as set out in the remainder of this note,  excludes the benefit funds and the controlled unit trusts. This  is because the risks associated with financial instruments held  by the benefit funds and controlled trusts are borne by the  policyholders and members of those funds and trusts, and not  the shareholders of the Group. There is no direct impact on  the net profit or the equity of the Group as a consequence of  changes in markets as they apply to financial instruments held  by those funds and trusts at the reporting date. Risk is defined by IOOF as any event which hinders the  sustainable achievement of Group objectives and results,  including a failure to exploit opportunities. The Group’s  strategy to manage risk involves the identification of risks by  type, impact and likelihood, implementation of controls to  mitigate risks, and continuous monitoring and improvement of  the procedures in place. The Group’s objective is to satisfactorily manage its risks in  line with the Group’s Risk Management Policy set by the  Board, and this aligns to International Standard ISO 31000  Risk Management. Procedures are put in place to control and  mitigate the risks faced by the Group and vary depending  on the nature of the risk. The Group maintains a framework  to ensure regulatory compliance obligations are managed  in accordance with Australian Standard 3806 Compliance  Programs. The Group’s exposure to all material risks is  monitored by the Head of Risk and this exposure, and any  anticipated risk exposure, is regularly reported to the Risk and  Compliance Committee, and the Board. Similarly the objectives, policies and processes for managing  the risks of the Group are separate and distinct from those for  the benefit funds and trusts. The funds and trusts are managed  under extensive regulatory requirements, and in accordance  with specific investment guidelines, risk management  strategies, risk management plans, and product disclosure  statements. The Group is managed under a set of separate  corporate policies and review processes that are directed  toward the interests of the shareholders of the Group. Information in relation to financial risks associated with the  benefit funds and controlled trusts is available in their Product  Disclosure Statements and the individual annual financial  reports of those trusts. The Group’s income and operating cash flows are indirectly  impacted by changing market conditions. Its exposure is  through the impact of market changes on the level of funds  under management and administration, and consequently  management fee and service fee revenue. Information has  been provided below only on the direct impact of changing  market conditions to the Group’s income and operating cash  flows. Further information in relation to the Australian Accounting  Standards requirement to consolidate the benefit funds and  controlled trusts in the consolidated financial statements of the  Group is available in Note 3(a) Basis of consolidation. The following table shows the value of financial instruments  held directly and actively managed by the corporate entities  within the Group in relation to its shareholder interests. It  shows the financial instruments, as reported in the notes to the  financial statements, excluding any elimination entries made  upon consolidation with the funds and trusts. The adjustment  of these eliminations has the effect of identifying the inter- entity financial instruments that are also actively managed by  the Group. The financial condition and operating results of the Group are  affected by a variety of financial and non-financial risks. The  key non-financial exposures are to operational risk and a failure  to meet regulatory compliance obligations. The nature of the  financial risk exposures arising from financial instruments, the  objectives, policies and processes for managing these risks,  and the methods used to measure them are detailed below. page 72