More accounting headaches for firms

WITH Zimbabwean firms still grappling with hyperinflationary accounting, they — like many others across the globe — now need to factor the impact of the coronavirus (Covid-19) pandemic on their financials.

Changes in the country’s functional currency, from the United States dollar to the Zimbabwe dollar ( ZWL), largely implemented during the course of 2019, resulted in high inflation, and necessitated local companies to apply International Financial Reporting Standards ( IFRS) hyperinflationary accounting.

But the rapid spread of the virus in Zimbabwe and globally, and the economic disruptions thereof, have brought about more accounting problems for these firms.

These problems particularly relate to the difficulties of estimating expected credit losses ( ECLs) on financial instruments under the present uncertain circumstances.

ECLs take into account the amount and timing of payments.

A credit loss arises even if the entity expects to be paid in full, but later than when contractually due.

Experts say expected credit losses can be measured either at an individual exposure level or a collective portfolio level.

Covid-19-related disruptions have contributed to a rise in business costs and constitute a negative productivity shock, reducing economic activity within economies.

And to counter these negative consequences, governments across the world — Zimbabwe included — have announced varying economic support and relief measures.

Last month, Government announced measures, which include support of economic activity/relief to productive sectors of the economy, as well as the setting aside of resources to cover one million vulnerable households under a cash transfer programme.

“The demand and supply shocks all spell economic doom for the economy and this calls for a mixture of temporary short-term relief measures covering at least three months.

“The measures should also balance the required support to productive sectors and the necessity for enhancing revenue to meet the various requirements during these difficult times,” said Finance and Economic Development Minister Mthuli Ncube at the time.

The Zimbabwe Public Accountants and Auditors Board ( PAAB) says firms should account for the modifications resulting from the introduction of such support measures.

“Entities should carefully assess the impact of the economic support and relief measures on recognised financial instruments and their conditions . . . Entities should note that the Government of Zimbabwe, through the pronouncements by the Minister of Finance and Economic Development, is establishing economic support programmes for impacted individuals, businesses or industries.

“These programmes are designed to mitigate the adverse impact of Covid-19 and related economic consequences. When these support programmes impact (i.e. reduce) the lifetime risk of default on a financial instrument, they should be considered in the assessment of the significant increase in credit risk ( SICR) of that financial instrument,” said

PAAB secretary Mr Admire Ndurunduru in a staff alert.

The staff alert was prepared for the purpose of highlighting requirements within IFRS 9 Financial Instruments that are relevant for entities in considering how the Covid-19 pandemic affects their accounting for ECLs.

“Entities should note that the measures taken in the context of the Covid19 pandemic which permit, require or encourage suspension or delays in payments, should not be regarded as automatically having a one-to-one impact on the assessment of whether a financial instrument has suffered a

SICR.

“In the context of the SICR assessment, an analysis is necessary of the conditions under which these measures are implemented.”

More adverse opinions?

Recently, Zimbabwe’s listed firms have been receiving adverse opinions on their annual, half-year or quarterly interims as a result of a number of wider fiscal and monetary policy adjustments that have been taking place, which have culminated in the currency adjustments.