Red flag over Zim financials

November 25, 2021

 

PHILLIMON MHLANGA

 

Financial experts have raised a red flag over the relevance of financial statements produced in Zimbabwe as they either show gross misstatements  or not making sense, Business Times can report.

They are  concerned that the financials were moving away from fair presentation.

Third parties  such as financiers and suppliers rely on financial statements to engage in business with the entity.

Financial statements are also  useful in making economic decisions.

They are also important  to investors  because they can provide enormous information about a company’s financial health, at a particular point in time, giving insights into its performance, operations, cashflows and overall conditions.

Shareholders also need them to make informed decisions  about their equity investments.

Zimbabwean companies are not able to comply with International Accounting Standards (IAS) 21 as the accounting profession is seized with the currency consideration since the issuance of Statutory Instrument (SI) 33 of 2019, which among others, prescribed the accounting for RTGS balances, bond notes and the United States dollar.

The law, however, clashes with IAS 21.

The mandatory adoption of IAS 29 has also increased complexity in the accounting system.

The complexity is also caused by the difficulties to compare  financials between periods, meaning the prior year comparatives for both monetary and non-monetary  items  are to be restated  in terms of measuring unit current of the end of the latest reporting period.

The other challenge with hyperinflation reporting  is that there is now more work for preparers and more costs for companies as they seek the advice of experts outside the company.

In almost all financial results  published over the past few months, there have been undesired  adverse or qualified audit opinions issued by auditors over the past year owing to departure from generally accepted accounting standards.

Usually, the adverse opinion indicates that financial reports contain gross or material  misstatements.

Such reports  send out a high alert that the company’s financial records have not been prepared according to the general Accepted Accounting Principles.

Financial institutions and investors take this opinion seriously.

Given the complexities, it would be difficult to have clean audits, which would provide reasonable  assurance that the financial statements are free from material error.

Such would guarantee  the entity’s future solvency.

It’s difficult, multiple experts said, to get the market value. There are several exchange rates being used namely the cash, EcoCash, bank, and auction rate.

Alex Makamure, the group finance director of the country’s biggest brewer, Delta Corporation said the situation was dire.

“We are in a quandary as preparers of financial statements with respect to the requirements of International Financial Reporting Standards (IFRS) particularly IAS 21 as far as the exchange rate is concerned. The ultimate question is whether our financials are still relevant to users,” Makamure said.

He added: “What value we are still seeing when we look at these financial statements with respect to legal compliance and IFRS compliance both of which are creating major challenges.”

Makamure said the big question is whether IAS 29 is useful to users. It’s useless because we don’t use the inflation numbers for managing our businesses, he said.

“There are concerns that audit opinions indicate that the  financials in Zimbabwe are misstated. There auditors are placing too many disclaimers. There is now an increasing demand for use of professional advisers in the preparation of financials. This means we now pay additional fees seeking advice.”

Makamure said there were also “too many varied opinions on the same issue as is the case on IAS21”.

“We are getting frustrated as to the amount of work now involved in preparing inflation adjusted accounts. This is not useful.”

“I draw my budget in US$ terms. So, you find that most key decisions are made outside inflation-adjusted financial statements.

Inflation accounting is a big problem.

We now have expansive notes on financials. We have quarterly reviews by auditors. It’s not cheap as they take between 20% and 25% of audit fees.

There is doubt that smaller counters will comply with listing requirements because of costs.”

“There are also concerns about qualifications or modifications arising from area judgment. The questions will be what the value of the financial statements and audit opinions to the user is.

The auction rate is not accessible to market players that have positive nostro balance hence cannot be used as the spot rate for financial reporting in those circumstances. How does one choose the appropriate exchange given the multiple rates in the market?”

Econet Wireless Zimbabwe deputy CEO, Roy Chimanikire, said  there “have been concerns and frustrations with reporting”.

“I meet investors after our results are released. There is little interest in the results, in the numbers. They say, yes, the numbers are there but,  they say use other matrices to value our business,” Chimanikire said.

Lloyd Mlotshwa, a director at IH Group, gave an investor perspective.

He said: “We are using enormous energy preparing financial statements that are not useful to users, including investors.. They (investors) always say ‘give us a dollarised view of your statement.”

The Public Accountants and Auditors Board (PAAB) secretary, Admire Ndurunduru admitted  there are challenges with reporting in Zimbabwe where the law clashes with accounting standards.

“We are going to give market guidance. As a matter of urgency. PAAB is updating the guidance. We have requested all registered accounting professionals to give us all the challenges they are facing. We have a roundtable to interrogate the challenges,” he said.

The PAAB technical committee will review the inputs from preparers, users, other technical committees and other stakeholders. We will then craft a guidance on reporting in the current environment.”

The new framework is expected to help companies to produce credible and comprehensive financial statements.

 

 

 

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