Hyperinflation poser: Companies set up pricing committees

PHILLIMON MHLANGA

THE devasitating hyperinflation that has engulfed Zimbabwe has crippled local firms and has also left the accountancy profession in a quandary over which index to use for hyperferinflation reporting under International Accounting Standard (IAS) 29 in the absence of official annual inflation rate.

The development comes at a time government banned the publishing of official annual inflation data, which has been skyrocketing. Government, in 2008, did the same, stopping publishing inflation figures when they no longer making sense. Despite the ban, independent economists continue making estimates, which have gone close to 300%.

Hyperinflation is ravaging the economy and the issue of price hikes on a daily basis is making planning difficult for local companies. This has created serious headache for local accountants . Without official inflation data, accountants can use exchange rate index or calculate own CPI index.

But, several accountants who spoke at the Institute of Chartered Accountants of Zimbabwe (ICAZ) hyperinflation reporting meeting held in the capital this week on Tuesday expressed disquit saying they want convergence, some market index to use. They said it won’t be credible and dangerous to use own index for hyperinflation reporting, as recently directed by the Public Accountants and Auditors Board (PAAB), a body that regulates the accountancy profession in Zimbabwe.

To worsen the situation for local firms, Anesu Daka, the group chief executive officer of Chartered Accountants Academy, who spoke at the ICAZ hyperinflation reporting workshop warned companies to brace for hefty audit fees as the economy grapples with the crippling hyper inflation. He said auditors were set to charge increased fees because of the amount of work now involved due to hyperinflation reporting.

“Expect increases 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 warned.

Asked if the market was out of the woods in terms of modified opinions is concerned, given the PAAB directive, Daka said: “The audit issues are still there because of the issue of the functional currency. There is likely to comply with IAS 29 But, what can still hold us comply with IAS 21.”

He said choosing a hyperinflation rate will be contentious. Under hyperinflation, Daka warned that companies should set up systems that quickly pick up issues, so that they do not lose value. “There are pressures on future plans,” Daka said.

“Unemployment rises because some companies close, and some down size. There will be high staff turnover, business suffer as costs rises, savings are eroded.”

The ravages of the hyperinflation has caused most companies to establish Pricing Committees to check on prices on a daily basis to avoid losing out both on the supply side and the demand side “Because figures do not make sense anymore, many companies have set pricing committees to check and track prices every day to see if you are not losing value,” Daka said.

His remarks were echoed by several accountants who spoke to Business Times on the sidelines of the meeting, who confirmed the development saying indeed, they have set up pricing committees in their companies to deal with the issue. Some said the Committee comprises the finance director or accountant, marketing manager, purchasing manager or technical manager.

In the absence of an official inflation index, Zimbabwe Accountants are in a fix. According to IAS29, the restatement of financial statements requires the use of a price index that reflects changes in general purchasing in hyper inflation environment. Now that government has banned the publishing of annual inflation rate, Accountants now grapple with which index to use between the CPI and the forest index. Accountants said they need guidance on the index to use.

Daka said there was a big issue here, but, a decision has to be made. “One can use month on month inflation figures convent into annual or pick the statistics from the RBZ, which of course is not the normal place to get such statistics. Apart from CPI, one can choose the exchange rate index. It’s not really available because of the willing seller willing buyer issue.

“But, one can get the rate from RBZ. It’s a form of judgment, which need to be disclosed however, “ he added. Gloria Zvaravanhu, ICAZ chief executive said the institute would come up with guidance soon.

“We have heard your concerns,in two weeks time the guidance will be out,” Zvaravanhu said.

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