Zimbabwe’s currency situation and chop and change policies have been bad enough on the economy. In addition to this they’ve presented accounting challenges that range from headaches to nightmares. In light of the Monetary Policy Statement and the changes it brought to the currency situation the Public Accountants and Auditors Board has presented guidelines on the preparation of financial accounts. The advice spans financial years beginning on or after 1 January 2018.
The report gives a complete backdrop of the prevailing situation prior to the monetary policy statement. From 2009 dollarisation to the introduction of Bond notes and the separation of bond note and US dollar balances in October 2018. Then it goes on to state accounting treatment of topical issues based on the new set of monetary rules. Here are some highlights;
Effects of changes in foreign exchange rates
International Accounting Standard 21 provides for the effects of exchange rate changes on accounting information. It simply recommends the use of a spot rate, effective rate at the time. At better times this would’ve been 1:1 for entities but may have changed over time or with varying instances. The problem comes in the form of SI 33 of 2019 which mandated a 1:1 exchange rate for balances, assets and liabilities denominated in US dollars where IAS 21 would account for the exchange rate using a spot rate (somewhere between the opening interbank rate of 2.5 and 4.15 as the parallel market had it at the time). Because SI 33 was issued in terms of section 2 of the Presidential Powers Act it prevails over any other law to the contrary. Preparers are expected to comply with the law and assess the impact of the entity’s inability to comply with IAS 21.
Events after the reporting date
International Accounting Standard 10 provides advice on how events that occur after the reporting date are treated in the financial statements for accounting purposes. Events that arose after the reporting period. For those companies whose financial year ended before the Monetary Policy Statement was announced the events related to the statement would qualify as being events after the reporting date. The important thing to note here is that when the report was created, or at least the information it contains was measured, the information was relevant. Events after reporting have changed the relevance of the information but not the information itself.
Because the events are likely to have a significant effect on the information in financial statements, the Board recommends IAS 10 paragraph 21 disclosures.
Non-adjusting Events after the Balance Sheet Date
21 If non-adjusting events after the balance sheet date are material, non-disclosure could influence the economic decisions that users make on the basis of the financial statements. Accordingly, an entity shall disclose the following for each material category on non-adjusting events after the balance sheet date:
(a)the nature of the event; and
(b)an estimate of its financial effect, or a statement that such an estimate cannot be made.
These include a three column format which accounts for assets in liabilities in three different categories;
• Monetary Assets and Liabilities (Nostro FCA USD),
• Monetary Assets and Liabilities (RTGS Dollar) and
• Non-monetary Assets and Liabilities (whose underlying values or amounts are denominated in USD)
The guidance also recommends three additional statements of financial position or balance sheets to be included in the notes to the financial statements using the same rationale outlined above.
The notes to the financial statements should have a clear note explaining the functional currency of the statements and the events after the reporting date relating to currency. To give a clear picture of the currency situation and insure that the information is complete.
Appendix 2 for Auditors
The report also includes advice for auditors of financial statements and decision tree to be used in determining the nature of opinion to be given on financial statements as;
Unmodified opinion – where impact is small and disclosure clearly explains
Qualified or Adverse – where impact is insignificant but disclosure is inadequate
Adverse Opinion – where impact is significant and disclosure is adequate
Adverse Opinion or Disclaimer – where impact is significant and disclosure is inadequate.
With these guidelines now out we can expect to see financial statements rolling out soon. The guidance is needed because many matters do become subject to interpretation. The advice is also important because it informs users of financial statements including the ordinary investor on how to read and understand financial statements that will be rolling out soon.