Audit firm issues adverse report on ZECO financials

INDEPENDENT auditor, MGI Chartered Accountants, has not signed off ZECO's 2021 financials for not meeting the International Financial Reporting Standards (IFRSs).

In a report accompanying Zeco's financials for the year ended December 31, 2021, MGI Chartered Accountants outlined that the engineering firm did not present its financial position and cash flows fairly during the period under review.

“In our opinion, because of the significance of the matters discussed in the basis for adverse opinion section of our report, the company's financial statement do not present fairly the financial position of the company as at December 31, 2021, and its financial position and its cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRSs),” it said.

The independent auditor said as a result of the pronouncement made by the Public Accountants and Auditors Board (PAAB), entities reporting in Zimbabwe were required to apply the requirements of IAS 29 from the date of change in functional currency adopted on 22 February 2019.

“However, in accordance with International Accounting Standard 21, the effects of changes in foreign exchange rates (IAS 21), the date of change in functional currency was determined to be 1 October 2018.

“Consequently, the changes in the general pricing of power of the functional currency should have been applied from 1 October 2018,” said MGI Chartered Accountants.

“As disclosed in Note 3,1 of the inflation adjusted consolidated financial statements, the company did not comply with the IAS 21, as the directors elected to comply with Statutory Instrument 33 of 2019.

“IAS 29 was only applied from 22 February 2019, and not 1 October 2018, as required by IAS 21.”

It said management resolved to correct the inconsistencies arising due to the decision to apply the requirements of IAS 29 from 22 February 2019 as opposed to 1 October 2018 as would have been required to comply with International Financial Reporting Standards as described above.

MGI stated that the impact of such a correction was only effected as a restatement of the opening equity in the current year statement of changes in equity.

“This is not in compliance with International Financial Reporting Standards, IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors as the requirement would have required retrospective restatement.

“We have not been able to quantify the prior year impact of this adjustment as the cumulative effects of non-compliance with IAS 21 and its consequent impact on IAS 29 could not be ascertained for the year ended 29 February 2020.

“In prior year, management incorrectly disclosed deferred tax liabilities and assets separately in the statement of financial position.

“In current year, the deferred tax assets and liabilities were set off with no retrospective adjustment to the comparative information, as would be required by IAS 8 for the correction of an error,” it said.

The prior year audit report included a qualification on the valuation of property, plant, and equipment in the 2020 financial year.

“The valuation matters remained unresolved and therefore affected the valuation of assets recorded in the comparatives.

“Our opinion on the current year's inflation adjusted consolidated financial statements is qualified because of the possible effects of these matters on the comparability of the current year's inflation adjusted consolidated financial statements with that of the prior year,” said MGI Chartered Accountants.