THE devasitating hyperinflation that has engulfed Zimbabwe
has crippled local firms and has also left the accountancy profession in a
quandary over which index to use for hyperferinflation reporting under
International Accounting Standard (IAS) 29 in the absence of official annual
The development comes at a time government banned the
publishing of official annual inflation data, which has been skyrocketing.
Government, in 2008, did the same, stopping publishing inflation figures when
they no longer making sense. Despite the ban, independent economists continue
making estimates, which have gone close to 300%.
Hyperinflation is ravaging the economy and the issue of
price hikes on a daily basis is making planning difficult for local companies.
This has created serious headache for local accountants . Without official
inflation data, accountants can use exchange rate index or calculate own CPI
But, several accountants who spoke at the Institute of
Chartered Accountants of Zimbabwe (ICAZ) hyperinflation reporting meeting held
in the capital this week on Tuesday expressed disquit saying they want
convergence, some market index to use. They said it won’t be credible and
dangerous to use own index for hyperinflation reporting, as recently directed
by the Public Accountants and Auditors Board (PAAB), a body that regulates the
accountancy profession in Zimbabwe.
To worsen the situation for local firms, Anesu Daka, the
group chief executive officer of Chartered Accountants Academy, who spoke at
the ICAZ hyperinflation reporting workshop warned companies to brace for hefty
audit fees as the economy grapples with the crippling hyper inflation. He said
auditors were set to charge increased fees because of the amount of work now
involved due to hyperinflation reporting.
“Expect increases in audit fees because now auditors can’t
charge the same as they did on historical accounting.Now they are dealing with
two balance sheets. It means more work,” Daka warned.
Asked if the market was out of the woods in terms of
modified opinions is concerned, given the PAAB directive, Daka said: “The audit
issues are still there because of the issue of the functional currency. There
is likely to comply with IAS 29 But, what can still hold us comply with IAS
He said choosing a hyperinflation rate will be contentious.
Under hyperinflation, Daka warned that companies should set up systems that
quickly pick up issues, so that they do not lose value. “There are pressures on
future plans,” Daka said.
“Unemployment rises because some companies close, and some
down size. There will be high staff turnover, business suffer as costs rises,
savings are eroded.”
The ravages of the hyperinflation has caused most companies
to establish Pricing Committees to check on prices on a daily basis to avoid
losing out both on the supply side and the demand side “Because figures do not
make sense anymore, many companies have set pricing committees to check and
track prices every day to see if you are not losing value,” Daka said.
His remarks were echoed by several accountants who spoke to
Business Times on the sidelines of the meeting, who confirmed the development
saying indeed, they have set up pricing committees in their companies to deal
with the issue. Some said the Committee comprises the finance director or
accountant, marketing manager, purchasing manager or technical manager.
In the absence of an official inflation index, Zimbabwe
Accountants are in a fix. According to IAS29, the restatement of financial
statements requires the use of a price index that reflects changes in general
purchasing in hyper inflation environment. Now that government has banned the
publishing of annual inflation rate, Accountants now grapple with which index to
use between the CPI and the forest index. Accountants said they need guidance
on the index to use.
Daka said there was a big issue here, but, a decision has to
be made. “One can use month on month inflation figures convent into annual or
pick the statistics from the RBZ, which of course is not the normal place to
get such statistics. Apart from CPI, one can choose the exchange rate index.
It’s not really available because of the willing seller willing buyer issue.
“But, one can get the rate from RBZ. It’s a form of
judgment, which need to be disclosed however, “ he added. Gloria Zvaravanhu,
ICAZ chief executive said the institute would come up with guidance soon.
“We have heard your concerns,in two weeks time the guidance
will be out,” Zvaravanhu said.
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