Adverse audit opinions stalk firms

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ZIMBABWEAN firms will continue to receive “unclean” audit reports on their results into the near future due to issues arising from conflicts between the country’s legislation and accounting standards, as well as the unavailability of reliable financial data, it has emerged.
Since February, when government gazetted Statutory Instrument (SI) 33 of 2019, which dictated a 1:1 conversion of United States dollar balances to the then ‘RTGS$’, companies have been getting adverse audit opinions due to the statutes conflict with IAS 21, the accounting standard that deals with the effects of changes in foreign exchange rates.
An adverse opinion is a professional opinion made by an auditor indicating that a company’s financial statements are misrepresented, misstated and do not accurately reflect its financial performance and health.
SI 33 expired in July, but its main tenets were codified into law through the Finance Act of 2019.
“So we still have the accounting issues that we had for the 2018 reporting period, which arose from SI 33,” Lewis Hussein, a partner at PKF, told delegates at the Institute of Chartered Accountants of Zimbabwe’s (ICAZ) summer school conference last week.

“In a way the Finance Act is forcing us to present accounts that are not fairly stated.”
And recently, the Public Accountants and Auditors Board approved the presentation of financial statements using the hyperinflationary economies accounting standard IAS 29, which requires the presentation of restated financial statements, where the “general price index” is referenced.
Hussein said some issues have also arisen from this that may lead to “unclean” audit opinions.
“The main issue being that the index for inflation is questionable.
“And while the standards allow for the use of the exchange rate instead, we also have challenges with that rate.”
Accounting standards state that the exchange rate to be used as a reference is “that rate for immediate delivery of currency”.
“However, the interbank, for most companies does not immediately deliver currency and it automatically becomes an inappropriate rate.
“The alternative rates are the street rate and the Old Mutual Implied rate, both of which lack in appropriateness.
“So we are looking at a situation where whatever rate you use, the auditor will still face an uncertainty that will prevent them from giving a clean opinion. I am not sure if there is a pathway to a clean audit opinion in these circumstances,” Hussein said.
Vulindlela Ndlovu, a past president and council member of ICAZ has also said that companies “cannot get clean audit opinions this year because there are comparatives to consider”.
“The base where we are starting from is when we had issues with the currency so I do not see how we can get clean opinions,” the CIMAS chief executive told a business workshop last week.
“IAS 29 is the best that we have got in a hyperinflationary environment but it can only do so much.”