Zim firms scramble to meet new IFRS rules

CLOUDINE MATOLA

Local companies are scrambling to prepare for International Financial Reporting Standard 18 (IFRS 18), as gaps in reporting systems, technical expertise and implementation planning threaten to complicate the transition to a sweeping overhaul of financial reporting, it has been learnt.

Taking effect on January 1, 2027, IFRS 18 will change how companies present and explain their financial performance, placing fresh demands on preparers, reporting systems and corporate processes.

For entities with December year-ends, the transition has effectively begun, as they must prepare comparative figures for 2026 under the new standard.

The looming deadline is forcing businesses to reassess how they classify income and expenses, upgrade reporting systems and reconcile the performance measures they communicate to investors with figures presented in their audited financial statements.

The Institute of Chartered Accountants of Zimbabwe (ICAZ) has warned that companies yet to begin preparations must act urgently, stressing that the transition goes beyond simply changing the format of financial statements.

“The biggest challenge is timing. Because comparative figures must be restated under IFRS 18, the transition year is already under way for December year-end entities,” ICAZ chief executive William Mandisodza told Business Times.

“Many accounting systems are not yet set up to classify income and expenses into the new categories. Zimbabwe’s multi-currency environment adds complexity, since exchange differences must generally be classified according to the items that gave rise to them.

“Some entities also face skills shortages, implementation costs and the parallel demands of sustainability reporting. Finally, where companies publish their own performance measures, such as adjusted EBITDA, they must now explain and reconcile them in a note to the audited financial statements. This may also have implications for loan covenants and bonus schemes.”

Mandisodza said Statutory Instrument 137 of 2026 prescribes IFRS Accounting Standards in Zimbabwe, with IFRS 18 to be applied as issued.

“ICAZ has been supporting preparedness through webinars and technical workshops that raise awareness and build members’ capacity. Readiness at entity level will still vary according to each organisation’s size, systems and resources.

“Entities that started early are better placed, and those that have not yet begun need to act urgently, because the 2026 comparative year is already under way,” he said.

Public Accountants and Auditors Board (PAAB) secretary Donald Mangenje said preparedness varied across organisations.

“IFRS 18 Presentation and Disclosure in Financial Statements represents a significant development in financial reporting. It replaces IAS 1 and introduces new requirements aimed at improving the transparency, consistency and comparability of financial statements,” Mangenje told Business Times.

The changes include a more structured statement of profit or loss, new defined subtotals, enhanced disclosures of management-defined performance measures and improved aggregation and disaggregation of financial information.

Mangenje said the standard was developed through an extensive consultation process led by the International Accounting Standards Board (IASB), in which PAAB Zimbabwe had participated extensively.

Locally, PAAB had supported regulated professional accountancy organisations in undertaking capacity-building initiatives to familiarise accountants and auditors with the new requirements.

“Our assessment is that Zimbabwe has established a reasonable foundation for implementation, but the remaining period must be used to ensure that awareness translates into actual operational readiness,” he said.

Mangenje urged companies not to wait until the effective date to begin making the necessary changes, advising them to review accounting policies, reporting structures and financial statement formats, particularly the classification of income and expenses under the new operating, investing and financing categories.

He said some organisations would need to modify their accounting systems, charts of accounts, reporting templates and internal controls to capture the information required by the standard, potentially creating greater challenges for entities with limited technical resources or less sophisticated reporting systems.

Issued by the IASB in April 2024, IFRS 18 replaces International Accounting Standard 1 (IAS 1), marking one of the most significant changes to financial statement presentation in recent years.

The standard responds to longstanding investor concerns about inconsistencies in how companies report operating performance and limited transparency around management’s own measures of profitability.

At its core is a more structured statement of profit or loss, including mandatory operating profit and profit before financing and income taxes subtotals. It also establishes defined categories for income and expenses and strengthens requirements governing how financial information is grouped, separated and disclosed.

For investors, the objective is to make it easier to compare companies, assess the sources of earnings and distinguish operating performance from financing and other activities.

For corporate finance teams, however, achieving greater consistency could require substantial technical and operational work before the first reporting periods under the new framework.

Companies frequently supplement statutory earnings with measures such as adjusted earnings before interest, tax, depreciation and amortisation (EBITDA), which management believes better reflect underlying performance.

Under IFRS 18, certain subtotals used in public communications to convey management’s view of financial performance will qualify as management-defined performance measures. These must be disclosed in a dedicated note to the financial statements and reconciled to specified IFRS-defined amounts.

The requirement brings greater scrutiny to measures that have often sat outside audited financial statements, narrowing the gap between reported accounting results and the figures management emphasises in investor presentations and other public communications.

It could also affect lending agreements, loan covenants and executive remuneration arrangements where adjusted performance measures determine compliance or bonuses. The actual implications will depend on the wording of individual contracts and incentive schemes.

Emma Gibbs of EY Africa Corporate Reporting Services said the transition offered companies an opportunity to improve how they communicate financial performance rather than treating the new requirements purely as a compliance exercise.

“The adoption of IFRS 18 provides a unique opportunity for preparers to revisit their communication strategy in their financial statements,” she said.

Gibbs said stronger guidance on aggregation, disaggregation and labelling would enable companies to tailor financial statements more effectively to investors’ information needs.

Bringing management-defined performance measures into audited disclosures could also help companies explain their strategic priorities and long-term value creation more credibly, while giving investors greater visibility into how management assesses performance.

Greater consistency in income and expense categories and subtotals should, in turn, strengthen comparisons across companies and sectors, reducing the risk that differences in presentation obscure meaningful performance trends.

For Zimbabwean businesses seeking capital, the changes could prove particularly important. More transparent reporting can help investors and lenders assess earnings quality, compare performance and understand the relationship between management’s narrative and the financial results underpinning it.

However, the benefits will depend on the quality of implementation. Companies that delay the technical work risk avoidable pressure as reporting deadlines approach, while those that prepare early will have more time to resolve difficult accounting judgements and improve the reliability of their disclosures.

Apparently, neither ICAZ nor PAAB is imposing a separate mandatory dry run before implementation, although both bodies have emphasised the importance of early preparation and assessing the impact of the new requirements.

ICAZ strongly encourages companies to conduct their own tests, particularly because comparative information for 2026 must be prepared under the new framework.

“ICAZ is a professional body, so it does not enforce dry runs. However, ICAZ strongly encourages entities to run their own,” Mandisodza said.

“Because comparative figures must be restated, every entity will eventually need an IFRS 18 version of its 2026 results. Doing that work early, alongside the normal 2026 close, allows problems to be identified and resolved with auditors before the first 2027 interim reports, which will be the first public test of the new standard.”

Mandisodza urged companies to complete a gap analysis, update their charts of accounts and reporting systems, agree key accounting judgements with auditors early and brief their boards on the implications of the changes.

“This is a governance matter, not merely a formatting change,” he said.

ICAZ will continue building on its webinars and workshops through targeted technical training and practical implementation guidance.

“IFRS 18 does not change profit, but it changes how performance is presented and explained. The work must happen now,” Mandisodza said.

Mangenje weighed in saying PAAB was not imposing a separate mandatory dry-run exercise ahead of the effective date, noting that existing accounting standards already required entities to disclose the expected impact of new standards in their financial statements before those standards became effective.