15 March 2019

Zimbabwe: Listed Entities Stick to Usd Reporting Standards

Zimbabwe Stock Exchange listed companies that have released their financial results to date, have resorted to the use of old reporting standards as they await detailed guidelines from various regulators, Business Weekly has established.

The need to change reporting standards was necessitated by the long awaited decision by the Reserve Bank of Zimbabwe (RBZ) to abandon the long held 1:1 parity between local bond notes, including RTGS balances, with the US dollar.

In its 2019 Monetary Policy Statement, the RBZ said the continued use of the USD as a unit of account in the economy, when its value has drifted away from the value of the RTGS denominated money supply had brought forth a number of challenges including but not limited to multi-tier pricing by business, valuation and accounting difficulties, and asset-liability mismatches.

"The current monetary arrangements, if maintained, could pose the risk of a costly re-dollarisation of the economy, which will move the economy into a recession," said the central bank.

The change in monetary arrangements has also necessitated the need for new financial reporting guidelines to be used by reporting firms.

Old Mutual Plc took a more than a billion rand knock in its earnings after adjusting for currency changes for its Zimbabwe operations.

"The second thing that was impacting on our results is that we were required, for the first time, to account for Zimbabwe differently, and we've had to change the functional currency with Zimbabwe for all transactions in that country.

"The impact of changing the Zimbabwe currency on our income statement was a R1.5 billion negative adjustment," said the insurance giant.

The Public Accountants and Auditors Board, which functions in terms of the Public Accountants and Auditors Act Chapter 27:12, is the accounting and auditing standards setter as well as the independent regulator for the accountancy profession in Zimbabwe.

However, the PAAB, is yet to issue reporting guidance for business entities and practitioners in Zimbabwe for their use for the 2018 reporting and some have now decided to use the old financial statements reporting standards.

"These interim financial statements are presented in a currency consistent with previous annual financial statements," reads a statements which accompanied results for ZSE listed entities Innscor and National Foods. In separate statements, both companies said: "Following the Monetary Policy Statement on 20 February 2019, we await detailed guidance from our various regulators as to a standard methodology to be adopted in the presentation of future financial statements."

Sister company, Simbisa Brands, said for the reporting period, "there was no official local currency in Zimbabwe and the quasi-currency instruments were officially valued at a rate of 1:1."

"These developments have triggered all stakeholders to consider the appropriateness of maintaining the US dollar as the reporting and functional currency and for the measurement and fair presentation of transactions and monetary balances denominated in local dollars.

"The accountancy profession in Zimbabwe is currently looking into the matter and as at the date of this report had not yet reached a consensus. The results for the six-month period have therefore been presented consistent with prior year and we have for these reasons maintained the US dollar as the Group's reporting and functional currency," Simbisa said.

On its part, through Statutory Instrument 33 of 2019, Government had said that for accounting purposes, all assets and liabilities that were, immediately before the effective date, valued and expressed in US dollars (other assets and liabilities referred to in section 44C(2) of the principal Act) shall on and after the effective date be deemed to be values in RTGS dollars at a rate of one-to-one to the United States dollar.

After that effective date, "any variance from the opening parity rate shall be determined from time to time by the rate at which authorised dealers under the Exchange Control Act, exchange the RTGS dollar for the US dollar on a willing seller willing-buyer basis."

However, a senior financial executive, who cannot be named for professional reasons said it was wrong to use SI33 of 2019 for accounting purposes.

"S1 33 (of 2019) is wrong. We will follow IAS 21. The cost of PPE will be translated on October 1 , 2018, from US dollars to RTGS dollars. A translation reserve account will be repository of all exchange gains or losses on the translations to be done on October 1, 2019," said the financial executive.

"Equally and even more revealing, foreign liabilities should be translated on 1 October from US dollars to RTGS dollars. If an entity owes US$1000 on September 30, 2018, this should be 3 500 RTGS dollars,' he said.

"An asset that cost US$1 000 and being depreciated over 5 years. Should now cost RTGS$3 500. lf already depreciated over 2 years means account depreciation also translated to RTGS$1 400. Hence it will have net book value of RTGS$2 100 on October 1, 2018."

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