THE Institute of Chartered Accountants of Zimbabwe (ICAZ) says government’s decision for companies to adopt hyperinflation reporting will help with planning.
The Public Accountants and Auditors Board (PAAB) last week approved the presentation of financial statements using the hyperinflationary economies standard IAS 29 — in a development that confirmed Zimbabwe is now officially in hyperinflation.
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“This public pronouncement covers the preparation and presentation of financial statements of entities operating in Zimbabwe for the financial periods ended on or after 1 July 2019.”
Zimbabwe last used hyperinflation reporting in 2008 when the country was experiencing its worst ever economic crisis.
McDonald Chitauro, ICAZ’s technical manager, said the previous arrangement, where companies were reporting in the local currency without any adjustments, had limited the usefulness of the exercise.
“In a hyperinflationary economy such as ours, money loses purchasing power at such a rate that comparison of amounts from transactions and other events that have occurred at different times, even within the same accounting period, is misleading.
“The conclusion, therefore, is that reporting of operating results and financial position in the local currency without a special form of accounting would render the financial information not useful,” Chitauro said in emailed responses to The Financial Gazette.
Chitauro said hyperinflation accounting attempts to make financial information produced by an entity reporting in a hyperinflationary economy useful through the restatement of the some of the information, including comparative information.
“The restatement will result in financial statements being expressed in units of the functional currency as at the end of the reporting period.
“This restatement to current units of currency is made using the change in a general price index,” he said.
The PAAB said its pronouncement came after extensive consultative work.
For the reporting period ended June 30, 2019, companies had published results in historical terms but some had raised concern over the usefulness of the information calling for hyperinflation reporting.
Last month, Old Mutual said it had to provide complimentary financial statements to demonstrate the impact of hyperinflation.
The group reported financial results on historical cost for the half-year ended June 30, 2019 showing a 671 rise in pre-tax profit to $509 million, from $66 million during the comparable period in 2018.
However, supplementary hyperinflation adjusted financial statements showed the firm posted a loss.
“Given official year-on-year inflation figures realised by the government for June 2019 of 175,7 percent, the group made and assessment on whether Zimbabwe is now a hyperinflationary economy based on some of the outlined in IAS29,” the listed assurer said.
With year-on-year inflation galloping towards 200 percent at the end of June, before government discontinued reportage of the same, many argued that Zimbabwe had already plunged into hyperinflation.
This comes only a decade after the country suffered one of the worst episodes of hyperinflation recorded in history. In 2008 July, government reported annual inflation at 231 million percent before it discontinued reportage for the rest of the year.
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