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Zim in hyperinflation as listed companies adopt IAS 29

BY FIDELITY MHLANGA

ZIMBABWE is now firmly embedded in hyperinflation as stock exchange-listed companies have begun to implement IAS 29 — a hyperinflation financial reporting standard reflecting the true financial position of companies by way of recording
inflation-adjusted figures, Standardbusiness has established.

This comes after the Public Accountants and Auditors Board (PAAB) advised companies that the conditions for adopting the international accounting standard were ripe effective from July 2019. As such, companies were instructed to deploy both historic cost and inflation adjusted financial figures in line with the requirements of the international financial reporting standards (IAS 29).

The IAS 29 lists factors that indicate an economy is in a hyperinflationary cycle. One of the indicators of hyperinflation arises when cumulative inflation over a three-year period approaches, or is in excess of 100%.

Companies that produced financial results last week had their financials reflecting the hyperinflation reporting standard.

Delta Corporation, a blue chip company which recently  reported a 2% decline in revenue to $1,5 billion but posted  a  45% increase in  profit of  $382,4 million  for the period ended September 30, 2019, attested to the fact that it adopted IAS 29 when reporting.

As recommended by the standard the company has two columns  on its financial statements, one for historic cost and another one showing  inflation adjusted figures.

“The condensed consolidated interim financial results have been prepared under the current cost basis in line with the provisions of International Accounting Standard (IAS) 29-financial reporting in hyperinflation economies. The directors have applied the guidelines provided by PAAB and the accounting bodies and made various assumptions to produce the inflation-adjusted financial information. The conversion factors have been computed from the consumer price index (CPI) data prepared by the Zimbabwe Central Statistical Office as reported on the Reserve Bank of Zimbabwe website,” said the company’s chairman Canaan Dube.

In June last year, government made a surprise announcement of the return of the Zimbabwe dollar, as the sole legal tender, and Treasury suspended the production of annualised inflation figures putting the accounting profession in a dilemma as to which index to use when preparing inflation-adjusted results.
 
The Institute of Chartered Accountants of Zimbabwe  in its hyperinflation reporting guideline unveiled last November  recommended companies to use the Zimbabwe National Statistics Agency (Zimstats) as the official source of all national statistics including inflation figures and the CPI index for the application of restatement of figures. Preparers are advised to refer to the Reserve Bank of Zimbabwe (RBZ) website which has been publishing implied annual rate based on month-on-month inflation figures from Zimstats.

As of November, the annual inflation rate was at 480%.

Telecoms giant Econet Wireless Zimbabwe Limited posted a significant loss for the half year ended August 31, 2019 of $1,28 billion, blamed on the Zimdollar devaluing and forex losses
The company pointed out that it employed hyperinflation reporting standard.

“These results have been prepared in accordance with IAS 29 as if the economy had been hyperinflationary from 1 March 2019 being the commencement date of the current financial year and the immediate date after the adoption of the Zimbabwe dollar as the functional reporting currency by the group. In order to account for the rapid loss in purchasing power of the local currency, hyperinflation accounting principles require transaction and balances to be stated in terms of the measuring unit current at the end of the reporting period,” said the company’s chairman James Myers.

Furthermore, Econet said post the demerger of Cassava Smartech Zimbabwe Limited prior year comparatives had been adjusted to separately disclose Cassava Smartech as a demerged operation.

“The inflation-adjusted figures have been indexed for comparative purposes by applying to the prior year historic cost numbers inflation indices prevailing at the time,” said Myers.

Cassava SmartTech, which was unbundled from Econet in November 2018, recognised a profit of $3,2 million for the six-month period ended August 31 on a hyperinflation-adjusted basis.

“Following the suspension of the release of annualised inflation rate data, the accounting profession has been in a fix as to which index to use for reporting.

However, last November the Institute of Chartered Accountants unveiled a set of guidelines for implementing financial reporting in  hyperinflation reporting (IAS 29) in which financial statements preparers are expected to refer to implied annual inflation rate as well as the prevailing exchange rate as an index,” said Cassava chairperson Sheree Shereni.

Last Friday National Tyre Services Limited produced a circular to the effect that it had delayed producing its financials as it was still reviewing them to match  with hyperinflation reporting standards.

“National Tyre Services Limited hereby notifies its shareholders and other stakeholders that it has delayed the publication of the unaudited financial statements for the half year ended 30 September 2019. These were supposed to be published by 31 December 2019. The company will present
inflation-adjusted financial statements as its primary financial statements and these are still undergoing the necessary review processes,” said the company’s secretary Stewart Mandimika.

The company said it had been granted an extension of up to January 31 by the Zimbabwe Stock Exchange.

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