This follows a communique from the Public Accountants and Auditors Board (PAAB) a fortnight ago allowing preparers of financial statements to exercise professional judgment in considering the presentation of historical financial information as supplementary information which would be inflation-adjusted in terms of the requirements of IAS 29.
The IAS 29 lists factors that indicate an economy is in a hyperinflationary cycle. One of the indicators of hyperinflation arises when cumulative inflation over a three-year period approaches, or is in excess of 100%.
Presenting at the hyperinflation reporting workshop yesterday Chartered Accountants Academy chief executive Anesu Daka highlighted the pros of using the general price index which include that it is understood to be linked to inflation and also reflects change in general purchasing power.
Daka pointed out that delays in publishing monthly data, suspension of year-on-year inflation figures militate against the use of general price index.He further opined that prices of goods and services were not moving at the same rate as inflation as such it was difficult to employ the index.
According to Daka, using the exchange rate was noble as data is available on a daily basis, as well prices in Zimbabwe move in line with the exchange rate.He, however, said practitioners were wary of using the exchange rate as an index as it was not commonly used in normal cases.
“The ministry of finance said it will not be publishing year-on-year inflation. So what will happen? In one sentence of your financial statement you will say the finance ministry has stopped announcing year-on-year inflation figures. And them on another hand you say from my own calculation year-on-year inflation is like this. While government has stopped announcing figures people are using the month-on-month to calculate the year-on-year inflation,” Daka said.
Icaz past president Martin Makaya proposed that the profession develop a more comprehensive framework detailing how to arrive at the ideal index to use for reporting.
“We are a complex market for that reason we suggest to have the profession lead us in calculating the adjustment factor to use. Our institute should develop some comprehensive framework to use and say this is what we have developed ,” he said.
Another accountant concurred with Makaya on the need for the profession to come with up a proper index to use in the restatement of financial statements.
“We want to believe that as professional bodies we should sit down and come up with an index that we use. You guys need to stop to be political,” he said.
Another accountant weighed in saying there was need to use a common index across the board to allow policy consistency. “If you working on a listed company on the stock exchange, for instance Edgars cannot use price index and Truthworths use the exchange rate. It’s not good for investors,” he said.
Zimbabwe is listed on countries with projected three-year cumulative inflation rates exceeding 100% by the International Practices Task Force of the Centre for Audit Quality that monitors the status of “highly inflationary” countries. The Task Force’s criteria for identifying such countries are similar to those for identifying “hyperinflationary economies” under IAS 29.
This is not the first time Zimbabwe has adopted hyperinflation reporting standards. In 2008 it resorted to the same before abandoning it after the adoption of the multi-currency system. Zimstats stopped publicising the inflation data then due to none availability of price information.