PHILLIMON MHLANGA
A number of Zimbabwe companies, which are operating under severe hyperinflation environment, are struggling to come to term with the complexities provided by the mandatory application of the International Accounting Standard 29 (IAS 29).
Recently, the Public Accountants and Auditors Board (PAAB) directed public companies to apply IAS 29 in their financial reporting. Currently, public firms with December year-ends are working on their financials as the Zimbabwe Stock Exchange (ZSE) listing rules stipulates that companies should release audited results by March 31 every year.
But several chartered accountants who spoke to Business Times highlighted that the mandatory adoption of IAS 29 is associated with increased complexity in the accounting system.
The complexity is also caused by the difficulties to compare between periods, meaning the prior year comparatives for both monetary and non-monetary items are to be restated in terms of the measuring unit current of the end of the latest reporting period.
The other challenge with hyperinflationary reporting, companies said, is that there will also be more work.
There were adverse opinions in the 2018/19 accounts. Now, given the complexities several analysts said it would be difficult to have clean audits for the year to December 2019. Companies are currently preparing for the forthcoming reporting season to end March 31,2020.
Clean audits, which are doubtful in this case, would provide reasonable assurance that the financial statements are free from material error and fraud.
This guarantees the entity’s future solvency. Third parties like financiers and suppliers rely on information from audited financial statements to engage in business with an entity.
Financial statements are useful in making economic decisions. The impact is that there is pressure on future plans.
Already several companies listed on the Zimbabwe Stock Exchange are sweating over hyperinflation reporting.
They have been forced to defer publication for their financial saying IAS 29 was harder to implement.
This week, Nampak Zimbabwe Limited managing director, John Van Gend, advised shareholders and the investing public that the company had deferred the publication of its financial results due to complexities of the IAS 29.
He said the financial statements would be published before 29 February 2020, until which time an extension has been granted by the Zimbabwe Stock Exchange.
“By order of the board it is further advised that a trading update will be published before mid-February 2020 covering the first quarter period from October to December 2019,” Gend said.
The devastating hyperinflation that has engulfed Zimbabwe has crippled local firms and has also left the accountancy profession in a quandary over hyperinflation reporting under IAS 29.
The decision by PAAB came at a time when government banned the publishing of official annual inflation figure data, which has been skyrocketing.
Finance and Economic Development Minister Mthuli Ncube said 2019 prices were not comparable with those that prevailed in 2018.
He said annual inflation figures will only be released next month because prices are no longer measured in United States dollars but in the Zimbabwean dollar, making the figures incompatible.
Despite the ban, independent economists continue making estimates, which have gone more than 500% in December.
Hyperinflation is ravaging the economy and the issue of price hikes on a daily basis is making planning difficult for local companies.
Another listed firm, Mashonaland Holdings also delayed the publication of its full year financial results due to the complexity of the accounting and audit processes required in terms of the IAS 29 which guides financial reporting in hyperinflationary economies.
The firm had hoped to publish its delayed financial statements by the end of December 2019, according to the Zimbabwe Stock Exchange (ZSE) listing rules.
But, these have now been put on hold and will now be released before the end of this month, according to company secretary Batanai Peresuh.
CFI also advised that its 2019 financials would only be released this month, 30 days after its scheduled release.
Falcon Gold and National Tyre Services also deferred publishing their financials due to complexities in applying hyperinflationary reporting.
National Tyre Services company secretary Stewart Mandimika said the unaudited financial statements for the half year ended September 30, 2019, which was supposed to be published by December 31, 2019, had been deferred.
“The company will present inflation-adjusted financial statements as its primary financial statements and these are still undergoing the necessary review processes,” Mandimika said.
Under these harsh economic conditions, the general population prefers to keep wealth in non monetary assets or in a relatively stable foreign currency such as the United States dollar.
Prices are also USD-linked. This has created serious headache for local accountants.
Without official inflation data, accountants can use exchange rate index or calculate own CPI index.
Asked if the market was out of the woods after adopting IAS 29, Chartered Accountants Academy group chief executive officer, Anesu Daka, said the audit issues are still there because of the issue of the functional currency.
“The problem is that there is no official year on year inflation figures currently, how do you pick consumer price index (CPI)? The absence of a general price index is an issue,” Daka said, adding the restatement of financial statements in accordance with the standard requires the use of a price index that reflects changes in general purchasing.
Now, the question is which index to use- the CPI or the exchange rate based index.
The choice of CPI will be contentious and it’s a form of judgement disclosure. The decision on index to use is very important.
There are expected hyperinflationary disclosures. There is need to restate figures.
If you don’t, you need to disclose why you did not restate. Figures don’t make sense until you restate.”
He added: “Key issues include have companies set up systems that quickly picks up issues.
If you don’t, you will only realise when you have lost value. If you are not able to put these systems, you are in trouble.”
Daka warned companies to brace for hefty audit fees as the economy grapples with the crippling hyperinflation, adding that auditors were set to charge increased fees due to the amount of work now involved due to hyperinflation reporting.
“Companies should expect increase in audit fees because now auditors can’t charge the same as they did on historical accounting.
Now, they are dealing with two balance sheets. It means more work,” Daka said. “The standard does not say anything about current tax.
There is also no guidance for statement of cash flows.”
Lewis Hussein, a partner at PKF Chartered Accountants said: “Uncertainties may affect opinion.
In other words, nonclean opinion may arise.
The issue is that comparatives may contain misstatement.” A partner at BDO Chartered Accountants, Jonas Jonga, said it “will be difficult to have clean audits.”
