Firms struggle with accounting standards

IAS21 speaks to the Effects of Changes in Foreign Exchange Rates and International Accounting Standard while IFRS 13 defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements.

THE majority of Zimbabwean businesses still struggle to adhere to international accounting standards, despite the Public Accountants and Auditors Board (PAAB) providing guidance in 2019, businessdigest can report.

As a result, the local firms have been getting adverse opinions from their audit firms.

An adverse opinion is an opinion made by an auditor indicating that a company's financial statements are misrepresented, misstated or inaccurate.

The firms are largely failing to comply with the International Accounting Standard 21 (IAS 21) and International Financial Reporting Standards 13 (IFRS 13).

IAS21 speaks to the Effects of Changes in Foreign Exchange Rates and International Accounting Standard while IFRS 13 defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements.

This makes it difficult for investors to make investment decisions regarding a company resulting in capital flight.

IAS 21 also requires all foreign currency transactions to be recorded, on initial recognition in the functional currency by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

Experts argue that if financial information is to be useful, it must be relevant and faithfully represent the substance of the economic phenomenon it purports to represent.

However, a series of events that have happened in Zimbabwe have made full compliance with these standards difficult, if not impossible.

A look at independent auditors’ reports accompanying financial results for the financial year 2023 show that non-compliance to these standards was the basis for issuance of adverse opinions for a number of listed companies.

Issuing an adverse opinion for brick manufacturer Willdale limited, BDO Zimbabwe said audit evidence obtained was sufficient and appropriate to provide a basis for its opinion.

“The company did not comply with IAS 21 in the determination of its functional currency,” the report reads in part.

“Whilst the company assessed and determined that its functional currency changed from ZWL (Zimbabwe dollar) to USD (United States dollar) during the period based on the indicators stated in IAS 21, the company did not effect the change in functional currency as management was still monitoring the legal and macroeconomic developments in the country.

“The financial impact of the non-compliance with IAS 21 could not be determined but it is considered to be material to the financial statements.”

Wildale also failed to comply with IFRS 13 as the valuer valued the property, plant and equipment and investments in United States dollars and the values were converted to ZWL using the official exchange rate.

This, BDO added, did not give a reasonable indication of fair value as defined by IFRS 13.

On the other hand, Grant Thornton, who are the auditors of ART Holdings Limited said had the company’s financials been prepared in accordance to the requirements of   IAS 21, many elements would have been materially affected.

“As a result, the impact of the group’s inability to comply with IAS 21 has been determined as significant. The effects on the financial statements on non-compliance with IAS 21 are considered material and pervasive to the financial statements taken as a while,” the auditor said.

Baker Tilly also flagged material misstatements for CFI Holdings’ financial statements due to non-compliance with IAS 21.

The group also failed to comply with IFRS 13.

“We noted that property, plant and equipment for the group has an active market and market prices are determinable,” Baker Tilly said.

“Consumer price indices do not reflect the assumptions that market participants would use when pricing the assets and do not take into account the condition and location of the assets.

“Property, plant and equipment is a significant element of CFI Holdings Limited’s financial statements and thus the impact of the noncompliance was considered material for the year ended 30 September 2023. The consumer indices do not represent the true fair value of the assets.”

However, expressing an unmodified opinion for  Nampak,  Deloitte and Touché said: “In our opinion, the condensed consolidated inflation adjusted financial statements are consistent, in all material respects, with the audited inflation adjusted financial statements of the group, in accordance with International Financial Reporting Standards (IFRSs) as disclosed in the basis of preparation and the requirements of the Companies and Other Business Entities Act (Chapter 24:31) and the relevant statutory instruments (SI33/99 and SI62/96) as applicable to condensed consolidated inflation adjusted financial statements.”

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