Listed firms flout reporting standards

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ZIMBABWE Stock Exchange-listed firms have admitted to flouting international reporting standards as a result of the country’s recently introduced monetary reforms.
This comes as government in February gazetted Statutory Instrument 33 of 2019 (SI 33), which gave effect to the introduction of the RTGS dollar as legal tender and prescribed that “for accounting and other purposes”, certain assets and liabilities on the effective date would be deemed to be RTGS dollars at a rate of 1:1 to the US dollar and would become opening RTGS dollar values from the effective date.
However, company results that have been reported since the Public Accountants and Auditors Board (PAAB) published its reporting and auditing guidance on currency considerations three weeks ago show that compliance with SI 33, which the board recommended, has significantly inhibited companies’ ability to comply with accounting standards.
Proplastics said its financials for the year ended December 31, 2018 were prepared on this basis in line with the statutory instrument “but contrary to the requirements of International Financial Reporting Standards (IFRS), which requires consideration of substance over legal form”.
“The board has assessed the impact of the group’s inability to comply with the requirements of the IFRS, and concluded that this has had a significant impact on the group’s financial statements,” the piping products manufacturer said in a note accompanying its financial results.
Zimplow Holdings (Zimplow), which manufactures and markets a diverse range of products for the construction, infrastructure and agricultural sectors, said “while full compliance with IFRS has been possible in the previous periods, only partial compliance has been achieved for 2018, because it has not been possible to comply with International Accounting Standard 21 ‘The Effects Of Changes In Foreign Exchange Rates’ (IAS21)”.
The IFRS conceptual framework requires that in applying fair presentation to financial statements, entities should go beyond the consideration of the legal form of transactions and any other factors that could have an impact on them.
This frameworks also requires an entity to make certain judgements, where applicable, regarding appropriate exchange rates between currencies where exchangeability through a legal and market exchange mechanism is not achievable.
“In the opinion of the directors, the requirement to comply with SI 33 created inconsistencies with IAS 21, as well as the principles embedded in the IFRS conceptual framework.
“This has resulted in the adoption of accounting treatment in the current year’s financial statements, which is at variance from that which would have been applied if the group had been able to fully comply with IFRS,” Zimplow said in its results published last week.
Masimba Holdings (Masimba), a listed company in engineering and infrastructure solutions to various sectors, and CABS, a building society, are some of the notable companies that have reported results since the PAAB published its guidance on March 21. Both companies said their financial statements were affected in the same way.
“The continued constrained exchangeability between the United States Dollars and Real Time Gross Settlement or Bond notes and coins required application of IAS 21.
“However, the group was not able to comply with the requirements of this standard due to the need to adhere to the requirements of S.I. 33 of 2019,” Masimba said last week in its results.
CABS said its “directors and management have been unable to produce financial statements which in their view would be true and fair and urge users of the financial statements to exercise due caution”.
The PAAB had however warned that this would happen.
“SI 33 of 2019 may present challenges in terms of compliance with IFRSs due to possible conflict with IAS 21 for some entities,” the board said, but still recommended compliance with the statute.
“Preparers of financial statements are expected to comply with the laws and regulations of the country although that decision is of course the sole prerogative of the directors and or those charged with governance of the respective entities,” read the guidance.
Tapiwa Chizana, the Institute of Chartered Accountants of Zimbabwe (ICAZ) president told The Financial Gazette that “the PAAB’s guidance have simply formally and publicly highlighted the challenges companies will face in trying to comply with both SI 33 of 2019 and IFRSs, neither of which were authored by PAAB”.
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