Phillimon Mhlanga
The Public Accountants and Auditors Board (PAAB), the country’s accounting profession regulator, has unveiled new financial reporting and auditing guidance for the financial year beginning January 2018. The new framework is expected to help companies to produce credible and comprehensive financial statements.
Investors were finding it difficult to deal with the numbers coming out of Zimbabwe because they were not making sense, according to analysts who spoke to Business Times on the sidelines of the Institute of Chartered Accountants of Zimbabwe (ICAZ) meeting held in the capital yesterday to discuss to review the 2019 monetary policy.
The confusion resulted in foreign companies adjusting the Zimbabwean financials for consolidation purposes by factors ranging from 2.5 to 4. The adjustment was based on the impact that Zimbabwean entities were not able to comply with the international accounting standards 21 (IAS 21).
The accounting profession was seized with the currency consideration since the issuance of SI 33 of 2019, which, among others, prescribed the accounting for RTGS balances, bond notes and the US dollar.
Under the new rules, although the decision will be the sole prerogative of directors of respective entities, preparers are expected to disclose separately and in columnar form the elements of the statement of financial position.
This will be in three categories, namely monetary assets and liabilities (Nostro FCA US dollar), monetary assets and liabilities (RTGS dollars) and non-monetary assets and liabilities (whose underlying values or amounts are denominated in US dollars. The total amounts for each line item should be reconciled to the amounts presented in the primary statement of financial position.
The new rules also entail that preparers should disclose key assumptions made by the management in the preparations of the statements as well as explaining that the amounts presented may therefore not reflect the opening balances in RTGS dollars, going forward.
Since there was no official local currency prior to February this year, the presentation currency will be in US dollars as at the end of December 2018.
The notes to the financial statements dealing with the functional and presentation currencies will also be expanded to include a detailed description of currency.
The new rules require that events after the reporting date be reported.
Auditors are now also required to express an unmodified opinion when the auditor concludes that financial statements are prepared in all material respects, in accordance with IFRS.
The auditor is also expected to provide information on whether the entity complied with the Companies Act, Banking Act, and other relevant laws and regulations to the extent applicable to his or her audit report and requirements of the ISAs.
PAAB chairperson, Brian Njikizana, said the new guidelines will not take away the international financial reporting standard (IFRS). Thus, directors still have the responsibility of selecting the appropriate accounting policies.
“We are dealing with something which is live and revolving,” Njikizana said. “Every time we deal with it, issues keep developing and coming. With distortions in the market, it was difficult for companies to come up with fair presentations, resulting in the figures presented really not making sense.
“There was no market consensus or convergence. There were a number of rates in the market, for example the Old Mutual rate, the Simbisa rate and the black market rate. We have come up with these guidelines to enable firms to produce credible financial statements. These guidelines will enhance financial reporting and covers 2018 financials only.”
Njikizana added: “Of course we didn’t take away discretion and decision from the directors. It remains a matter or the sole prerogative of directors or those charged with the governance of companies. IFRS is actually there, it is not going to be replaced, meaning the framework remains.”
He said PAAB was working on guidelines for the March, June and September reporting seasons.
“Now that we have taken the 2018 reporting period out of the way, March and June year ends are on the horizon. We are currently working on the March, June and September reporting seasons,” he said.
Macdonald Chitauro, the ICAZ technical manager, concurred, saying: “It was complex because some companies were in a US dollar economy while others were in a RTGS economy. The aim is not to replace the IFRS and ISAs, there are still applicable. The responsibility still remains with directors to apply the guidelines or not. It’s a complex environment, which need preparers and auditors to apply professional judgment.”
Zimbabwe adopted a multi-currency system in 2009 after ditching the Zim dollar due to hyperinflationary pressures. Many companies adopted the US dollar as the functional and presentation currency.
The country witnessed significant monetary and exchange control policy changes between 2016 and 2019 that resulted in continued economic challenges, including foreign currency shortages.
In response, the government promulgated several exchange control guidelines and compliance framework, including the introduction of bond notes and coins, the separation of FCA RTGS from FCA Nostro accounts, and the RTGS dollars and the interbank foreign exchange market.
The financial environment became complex for Zimbabwean companies, resulting in PAAB introducing new guidelines.
But, several accountants, who are preparers, raised red flags saying the new guidelines had many grey areas, especially on taxation implications. Preparers were also concerned that they were moving away from fair presentation.
One accountant who preferred anonymity said: “There are distortions in the tobacco industry because of the nature of the business. Statements appear profitable because sales come in at 2.5 while costs are at 1:1 basis.”
There will be tax challenges under the new guidelines. They said without new tax tables, it would be difficult to implement. There will be reporting implications.
ZIMRA technical manager, Agnes Huvaya said: “We are going to come up and map the way forward. Given the development, we are looking at coming up with new tax tables to cover for the RTGS. There will also be challenges with capital allowances, which is something we are looking at. We will issue statements on this.”
With the new guidelines, other accountants said, it would be difficult for companies to have clean audit opinions. Njikizana conceded the fact, but said companies should work hard to achieve clean audit opinions.
