PHILLIMON MHLANGA
Zimbabwe should brace for perpetual undesired qualified or modified opinions issued by auditors on account of non-compliance with International Accounting Standards (IAS) as experts said financial statements have become meaningless.
There has been a departure from the generally accepted accounting standards especially IAS 29 and IAS 21.
Auditors, whose opinions provide a picture of a company’s financial performance in a given financial year, express various professional judgmental assumptions after examining a company’s financial statements to alert the public, investors, government or other users of the financial statements on the reliability, transparency and accountability of companies’ financial status.
Apparently, investors are particularly interested in the audit opinion as it reflects the integrity of the audit report and projects an image of the company.
However, the bulk of the listed companies that published their half year financial results to June 30, 2022 or full year results in the past few weeks, received qualified or adverse audit opinions on the issues of functional currency and departure from IAS 29 and 21.
For an auditor to issue a qualified or adverse opinion, he or she will be concerned with matters such as gross mistakes, misappropriations and misstatements, depending on the level of materiality. Experts said these opinions should be avoided at all costs, because these are negative opinions about a company’s financial status.
Auditors may also issue an adverse opinion when they are not satisfied with the financial statements or discover a high level of material misstatements or irregularities. Users of financial statements especially investors, government and bankers will not trust the company’s financial statements which received adverse audit opinions.
Such reports send out a red flag that the company’s financial records have not been prepared according to the generally accepted accounting principles (GAAP).
An unqualified opinion is a clean audit report, which is the best a company can get, meaning the books of accounts are free from errors and are in accordance with GAAP.
This is, however, rare in Zimbabwe companies’ financial statements as the bulk receive qualified or adverse audit opinions.
Zimbabwe’s biggest brewer, Delta Corporation’s group finance director, Alex Makamure said local companies’ financial statements were no longer making sense.
He expects more qualified or modified opinions for at least three more years.
“Its [qualified or modified audit opinions] now a default position. There is no easy way out. We are in a situation where the financials are not making sense in any way. The historical or inflation adjusted financial statements in Zimbabwe dollars do not give a true and fair view. The financials are a mixture of exchange rates and inaccurate consumer price index,” Makamure said at a recent a recent Institute of Chartered Accountants meeting on IAS 21.
He said qualified or modified audit opinions are a burden on issuers and it would take at least three years to “circle out of this situation”.
Makamure said analysts were relying more on management presentations and other non-financial indicators of performance.
The other problem is that of reporting versus functional currency, there is a conflict between laws and the IFRS, he said.
Esther Antonio, a partner at PWC said there was no “no easy way out (from qualified or modified audit opinions)”.
“There are discussions happening at the Public Accountants and Auditors Board (PAAB) about this as a regulator,” Antonio said.
Contacted for a comment, Elles Makunyudze of PAAB told Business Times yesterday that: “There is no discussion and we are not even thinking about moving away from IFRS. What I can say is there is always a lot of room on how companies can apply accounting to move out of qualified and adverse audit opinions.”
