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Hyperinflation accounting headache for local firms

Institute of Chartered Accountants of Zimbabwe chief executive officer Gloria Zvaravanhu says the country’s currency problems are making it difficult for companies to meet international financial reporting standards.

Zvaravanhu (GZ) told Alpha Media Holdings chairman Trevor Ncube (TN) on the platform In Conversation with Trevor that hyperinflation  accounting came with a lot of challenges.

She also spoke about her rise in the corporate world. Below are excerpts from the interview.

TN: Apologies I can never pronounce ‘zva’, I keep on trying. Chief executive officer of the Institute of Chartered Accountants of Zimbabwe, welcome to In Conversation With Trevor.

GZ: Thank you, Trevor, I feel very honoured to be here. I am a keen follower of your conversations, so it’s such an honour to be here.

TN: Thank you so much for the support, Gloria. I want us to start with some heavy lifting stuff relating to the state of the accounting profession. What is the state of the accounting profession at the moment?

GZ: Okay, Trevor. Over the past two or three years we have been battling with ‘qualified opinions’, if I can put it that way.

The reason for those qualified opinions is because of certain things that are happening in our economy that are not well aligned to the international financial reporting standards.

So this country, in terms of standards according to the public accountants and auditors board, we are supposed to adhere to international financial reporting standards.

So when auditors audit, they audit against that standard that was set for us.

So one of the key standards, or one of the key standards that we have not been adhering to is the one relating to foreign exchange rates.

It is called IS-21.

We have got official exchange rates, and we also have got alternative exchange rates, and people get these monies from the two different markets.

It is very difficult now for reporting to be to be fully compliant depending on which market you are obtaining your funds from. So as a result, most organisations got their financials qualified on IS-21.

Then we also have IS-29, which is inflation accounting.

Most companies do adhere to inflation accounting, but a few are having some challenges  that  are also linked to the IS-21 which is the foreign exchange standard.

So because of that the complications that arise from those two standards, saw a lot of the organisations, if not all, struggling, except those that have their functional currency as the United States dollar because then they do not have to battle with an exchange rate and converting.

That is the main challenge that we have been facing on reporting.

Hyperinflation accounting in itself comes with a lot of work, you know you do a lot of work to produce a different or separate set of accounts, which are hyper-inflated, and when you really look at it, it is productive time that is being spent to do the work double.

Historical financials and then inflation-adjusted accounts, but because we are in hyperinflation we have to do that so that we comply with the international financial reporting standards.

TN: What is the impact of the qualification of the accounts to the client?

GZ: So the beauty about a qualification is that there is also an opinion paragraph, where it states exactly where you are not adhering.

So it does not necessarily mean that your accounts are totally disregarded, it simply means that you did not comply to a particular aspect.

So if you go to the basis of the  opinion you will then be able to see what exactly it is that one has not adhered to.

A reader of financial statements will then be able to make their own judgement as to the basis of opinion and they see whether or not they can rely on certain things in the set of financials.

What is important is for as long as these financials are being checked against the international financial reporting, so they are comparable, so someone who picks it from the United Kingdom or from South Africa can compare because they know it is the same standard that has been applied, except this particular aspect was not adhered to.

So they are not rendered useless, but it just provides information so someone knows exactly what particular aspect is not complied with.

TN: And the cost of hyperinflation accounting to the client? And to the audit firms? Talk to me about that?

GZ: So first time adoption, like when we did the 2020 financials, 2019 rather, I think is when we first adopted hyperinflation.

The time that it takes to train the people that actually do the hyperinflation accounts, and the time that the auditors take to check is long.

So it tends to lengthen the audit process.

TN: And the fees of course?

GZ: Naturally the fees will increase.

Also, you would find that most corporates do not actually have accountants within their system, who have actually done hyperinflation before.

I mean it is not really taught to a great extent, and we last had fortunately we have had, I do not know if I should call it fortunate, because it is rather an unfortunate thing to be in hyperinflation but we have had it before.

Back in 2006/07.

So there were certain accountants who had done this before, but come 15 years later or so, and most of those accountants were no longer doing those kinds of works, it was the newer accountants who had never seen this thing, they had never learnt it.

So the time that it took them for training just for them to get the hang of it, but this year I think it was definitely much easier because once you have the models it is easier, so it then tends to need less time and probably less costs as well.

TN: So like I said, you are the chief executive officer of the Institute of Chartered Accountants of Zimbabwe.

You have spent 18 years in financial management.

You have spent 14 of those I think at executive management level.

Your career starts with KPMG, and then you go to First Mutual, Nicoz-Diamond.

I want to ask you, what as far as those places that you have been to, which one impacted on you the most?

On recollection when you look back, which one did you impact on the most?

GZ: Right. As far as impacting me, Trevor, I think all of them had some impact on me.

At KPMG I was still very young, I was just coming out of school, this was my first job and when you are auditing you are going into clients and you are going into the big offices.

You are going to see the chief executive and you are just a young girl, who had just come out of university.

What it gave me was confidence, that you can actually knock on any door and you can get your answers, that when you are there you are not Gloria, but you have the power of being the auditor.

So you can come to Trevor and ask Trevor questions, and Trevor must give you the answers.

So that gave me a lot of confidence in that there is no door that I should not be able to knock, and there is no person that I should not be able to have a conversation with or ask questions.

So that was KPMG.

Then I moved into First Mutual.

Now I was out of a professional set-up, straight into industry.

You know in the profession you are protected, all the professional values adhered to, and then when you go into industry it is a different environment.

TN: The real world.

GZ: Into the real world. It is a different environment, you have different professions.

In insurance there are actuaries there, and you have got other professions, which you have to start to relate with.

So I think that environment was really a growth environment for me, just getting to know the real life, getting to know how to cooperate and how to interact with others that are not necessarily from the same profession as you and understanding the business as well because you cannot account for something that you really do not know.

That gave me that sort of growth.

I started off as the group finance manager, and within a year I was then promoted to be the finance executive or finance director of their biggest subsidiary.

That in itself was a huge thing for me, but it also meant that it came with a lot of growth because I had to quickly grow because I was only 27 years old and there I was as an FD of a life assurance company and I had to grow.

TN: You must have been one of the youngest FDs in the country, hey?

GZ: I think so. I must have been the youngest and I think at that time everywhere that I went I was always the youngest, it was always the youngest this, the youngest that and so on.

All the same there was a lot of growth that happened there.

There was also a lot of faith that was placed in me, because here I was very young and they saw something and they put their faith in me and they put me in that position.

So I learnt about just giving others a chance.

I learnt that sometimes you do not need to find someone who has got experience into those positions, but you need to look at potential.

Even for my own journey, when I look at getting people into positions, I always think about how somebody else had faith in me when I did not have much experience and I always give people the benefit of doubt and allow them to be who they are for as long as the potential is shown.

TN: And then Nicoz-Diamond?

GZ: Nicoz-Diamond was where I spent most of my time.

I went into general management, so it was no longer just finance, I was now responsible for information communication technology, for human resources, for treasury, for administration, so I grew.

I literally grew. This is where I think I was groomed into leadership, and working with someone like Grace Muradzikwa was such an amazing opportunity for me because she would really let the light shine on you.

She would give you the opportunity to be who you are, and grow as much as you can.

So that environment at Nicoz-Diamond really made me the leader that I am.

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