No clean bill of health for listed firms
PHILLIMON MHLANGA
Despite local firms producing decent financial results published over the last three months, all audit firms have passed a ‘no clean bill of health’ for companies audited for failing to present a true and fair reflection of their financial positions.
They look fine but, in reality, companies’ financials are riddled with inaccuracies, according to several auditing firms, with the majority of them passing adverse opinions or qualified opinions, meaning the majority of investors are not getting any real returns from their investments. Adverse audit opinions, which is a professional opinion indicating that a company’s financial statement is misrepresented, misstated and do not accurately reflect its financial performance and health.
This means the financial statements, which are integral to making an informed assessment of companies’ financial information, may not be useful because they are based on unreliable and inaccurate recordings of transactions.
An adverse opinion is detrimental to companies because they imply wrongdoing or unreliable accounting practices, according to basic accounting principles.
Financial statements are what banks, investors, and creditors look for when companies come forward to them for loans or investments.
They rely on these for decision making.
Zimbabwe auditors passed adverse opinions on almost all financial statements because they did not comply with International Accounting Standard 21 (IAS 21).
This has resulted in qualified audit opinion on the 2019/20 financial statement, with respect to opening balances.
Financial statement users rely on financial statements for varied reasons. An adverse opinion would generally mean that it will not be advisable to rely on financial statements based on the reasons highlighted in the basis of opinion paragraph. It means, users would need to assess the impact of the reasons for the adverse opinion
before determining whether or not to rely on the financial statements of any particular entity.
For instance, Deloitte Chartered Accountants Zimbabwe issued a qualified opinion on the country’s biggest brewer Delta Beverages
which published its full year results last week, with respect to noncompliance with International Accounting Standard 21 on the effects of changes in foreign exchange rates as it relates to the opening balances that were translated from US$ functional currency to Zimbabwe dollars as guided by Statutory Instrument 33 of 2019
as well as the incorrect treatment of the change in functional currency reserve in prior final year.
Zimbabwe’s economy faced a multitude of headwinds resulting in government responding with a myriad of fiscal and monetary policy,
including the re-introduction of the Zimbabwe dollar, which fuelled the economic meltdown.
The authorities have, however, allowed the use of foreign currency for domestic transactions. It said this should facilitate trading, mitigate some of the effects of an unstable currency and the associated hyperinflation.
Delta Beverages board chairman, Canaan Dube said: “While the company strives to comply with IFRS at all times, it is acknowledged that the peculiarities of the policy and economic environment in Zimbabwe makes it difficult to achieve full compliance and fair reporting at the same time.”
P r i c e w a t e r h o u s e C o o p e r s Chartered Accountants Zimbabwe which audited the Zimbabwe Property investment Limited also
issued an adverse opinion due to noncompliance with accounting standards.
ZPI was not able to comply with IAS 21 due to the need to comply with the laws and regulations stemming from Statutory Instrument 22 of
2019 and SI 142 of 2019.
‘These abridged inflation adjusted financial statements should read in conjunction with the complete set of inflation adjusted statements for
the year ended December 31, 2019.
A modified audit opinion has been issued which also includes a section on key audit matters.
Institute of Chartered Accountants of Zimbabwe (ICAZ) chief executive officer, Gloria Zvaravanhu said adverse audit opinions means statements were not presenting true and fair reflection of the financial position.
She said it was, however, important to appreciate the reasons for qualification of entities’ financials statements.
“An adverse audit opinion in simple terms means that an auditor will be informing the financial statement users that the financials are not presenting a true and fair reflection of the financial position of the entity in line with IFRS or other requirements. The reason for such an
opinion will be provided in the basis of opinion paragraph and this will vary from entity to entity,” she said.
In Zimbabwe the audit opinions of most companies were in the recent past, generally qualified for noncompliance with IAS21, effects of
changes in Foreign Exchange Rates.
It is however necessary to appreciate the reasons for qualification entity by entity as there could be some other issues over and above the general qualification on IAS21 that prevailed in Zimbabwe.
Financial statement users rely on financial statements for varied reasons. An adverse opinion would generally mean that it will not
be advisable to rely on financial statements based on the reasons highlighted in the basis of opinion paragraph. Users would need to assess the impact of the reasons for the adverse opinion before
determining whether or not to rely on the financial statements of any particular entity.
Former ICAZ president, Martin Makaya said the financial statements were not ‘useless’ because that was the “best the accounting profession
could do under the circumstances.”
“The financial statements will be useful now and in the future first for compliance and second as a basis for future accounts. Currently, these
financial statements being published are the best indicator of performance available despite the shortcomings emanating from the environment,”
Makaya said.
“If you ask if investors still use the accounts for investment decisions I will say yes. For all intents and purposes, the published accounts still give all that investors need from financial information.”
