ICAZ to hold IAS29 workshops

Published: 17 October 2019
Zimbabwe's economy is now considered hyperinflationary for accounting purposes under International Financial Reporting Standards, a determination that requires companies to account, monitor inflation and implement special procedures for reporting in local currency.  

Under the classification, companies have to change their accounting and reporting practices and train staff to process adjustments for inflation in addition to restating comparative figures in financial reports to reflect the loss of purchasing power of the Zimbabwe dollar.

According to a pronouncement from the Public Accountants and Auditors Board, there is broad market consensus within the accounting and auditing professions that the factors and characteristics to apply Financial Reporting in Hyperinflationary Economies Standard (IAS 29) in Zimbabwe have been met.

"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." said the PAAB in Pronouncement 01/2019.

At present, historical cost figures are less meaningful than they are in a low inflation environment and render comparables useless while overall holding gains on non-monetary assets that are reported as operating profits do not represent real economic gains.

The classification comes as market observers are of the opinion that auditors have so far been reactive to the current economic situation. For IFRS purposes, it was acknowledged that the Zimbabwean RTGS dollar was practically in existence as a separate currency from 1 October 2018 when foreign currency deposits were segregated from Zimbabwean RTGS dollar deposits. As a result, a reassessment of functional currency would have been required from this time.

By his own admission, the newly elected president of the Institute of Chartered Accountants of Zimbabwe said; "There is a school of thought that as an Institute,  we came to the functional currency party a bit too late, more like the invited guests instead of the hosts. You see my fellow colleagues, what good does it do us to claim to be the pre-eminent profession body, but fail to deliver. What good does it do us if we are labelled as cowards in some circles and fail to rise to the occasion when required."

Zimbabwe was previously classified as a hyperinflation economy for accounting purposes as early as 2003 and IAS29 provisions were applied.  IAS 29 requires the implementation of financial capital maintenance in units of constant purchasing power in terms of the monthly published CPI. Criticism at that time was that the use of IAS29 at that time was ineffective as the requirements did not result in actual capital maintenance in units of constant purchasing power since that can only be achieved with following all changes in the general price level; i.e., at least daily changes. Commentary at that time noted that: "The ineffectiveness of IAS 29 was clearly demonstrated with its implementation during the final 8 years of hyperinflation in Zimbabwe. IAS 29 had no positive effect in Zimbabwe: the Zimbabwean economy imploded on 20 November 2008 with full implementation of IAS 29."

ICAZ says it will soon hold IAS29 workshops,

Latest data implied from the Zimstat monthly inflation figures puts annual inflation at 285%.

PAAB said that preparers of financial statements exercise professional judgement in considering the presentation of historical financial information as supplementary information alongside the primary IFRS financial statements which would be inflation-adjusted in terms of the requirements of IAS 29. Where historical financial information is presented alongside IFRS financial statements adjusted for IAS 29, it must be made quite clear which represents the primary financial statements.

This Pronouncement shall apply to all entities that report based on the International Financial Reporting Standards (IFRSs). Entities that report based on the International Financial Reporting Standards for Small and Medium Enterprises (IFRS for SMEs) and International Public Sector Accounting Standards (IPSASs) financial reporting frameworks are expected to apply the equivalent standards in those frameworks.
- finx
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