Handling scenarios not covered by IFRS

WE have extensively covered financial reporting, which is a key element in being able to measure performance of an organisation. It goes without saying that once this measurement is done, there can be identification of shortcomings and requisite remediation can be carried out.

As most would be aware, IFRS are the International Financial Reporting Standards, which the accountancy regulator formally adopted for use in Zimbabwe.

This is not something new, in fact, I believe we are one of the leaders when it comes to reporting using global frameworks. IFRS states that 167 jurisdictions are required to make use of these standards for publicly traded entities while 12 others permit their use.

IFRS has also been tailored for small and medium enterprises through IFRS for small to medium enterprises (SMEs) which I touched on in the article Global Reporting Standards for SMEs published on August 19 2022. (https://www.theindependent. co.zw/2022/08/19/global-reporting-standardsfor-smes/) .

Before I proceed with the article, just to briefly touch on the need to use internationally accepted standards. According to the IFRS website, IFRS Accounting Standards bring transparency by enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.

IFRS accounting standards strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money.

IFRS accounting standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation.

Localisation of IFRS

Having mentioned the global structure and benefits it is important to come back to Zimbabwe and review the international standards in our context, as we look into the scenarios, which were not covered.

Naturally, each jurisdiction is different from the next and we have a number of issues that may not ordinarily be covered. It is quite rare though to find areas that have not been covered or at some point discussed at the international level.

This is particularly because of the agility of the International Accounting Standards Board (IASB). IFRS Foundation has in place the IFRS interpretations committee, which assists with the reading and interpretation of standards.

Within our own jurisdiction, as mentioned above, we have formally adopted IFRS and other global standards through Statutory Instrument (SI) 41 of 2019 Public Accountants and Auditors (Prescription of International Standards) Regulations, 2019.

This important piece of legislation also allows the local regulator to step in when there are areas within international standards that require a domestic flair.

The SI highlights that the regulator may, through a notice in the Government Gazette, adopt, adapt or revise international standards as and when the need arises.

This is extremely important to ensure that the reporting always remains relevant. Conversely though, over-domestication may end up resulting in us moving away from global frameworks and we lose out of the benefits stated above.

Fortunately, despite all the challenges and concerns we have continued to align with best practice. After reading the last statement, I am sure readers are probably thinking about the audit opinion modifications (qualifications) we are currently seeing, but I will resist the temptation to get into that right now.

The SI quoted above further states that in the case of any inconsistency between a local pronouncement duly issued by the local accountancy regulator, through a notice in the Government Gazette and any international standard, the local pronouncement takes precedence.

This again ties into the comment above. Ultimately this means that there is an option to ensure that there is always oversight on the reporting done.

Scenarios not fully covered

Whilst there is latitude per the existing laws to adopt, adapt and revise standards through the regulator, there are scenarios faced by entities that may not necessarily require the local regulator, the IFRS Interpretations Committee or IASB to step in.

The considerations around how prevalent or widespread an issue is will always come to the fore. Unusual circumstances may not necessarily warrant discussion with a view to change standards either locally or globally.

Just to re-emphasise the point that there are platforms to engage standard setters, both local or international. Professional Accountancy Organisations, such as Institute of Chartered Accountants of Zimbabwe (ICAZ) often engage with the local and international bodies on matters that require clarity or are not adequately addressed by the standards. Assuming a material issue has been raised, usually there are a few possible outcomes, which are:

A reading and interpretation of the exist•ing

standards is done, and clarity is provided; and

The matter is taken on and standards are amended.

Admittedly, I have oversimplified the process but ultimately those are the usual outcomes, with the third being a matter is deemed to not warrant any significant intervention.

At the outset I mentioned that due to our peculiarity there is a possibility that some areas may not be adequately covered, and this was somewhat foreseen.

With specific reference to Zimbabwe, examples that come to mind include issues around the exchange rates. Another case in point is the issue around gold coins and the related debates raging on platforms, such as LinkedIn with regards to how they should be accounted for.

PAOs have the structures to assist preparers and auditors on such matter that affect the majority of the economy. If a matter is sufficiently wide-ranging and complex, standard setters are also engaged so they can step in.

The standards in their form even before going through the process I have highlighted have some guidance embedded within them.

Guidance currently available

The standards highlight some clear guidance, which I will simply lift out of the standards and expand briefly. IFRS mentions that in the absence of a standard that specifically applies to a transaction, other event or condition, management shall use its judgement in developing and applying an accounting policy that results in information that is relevant to the economic decision making needs of users.

Further, the resultant financial statements should represent faithfully the financial position, financial performance and cash flows of the entity as well reflect the economic substance of transactions, other events and conditions.

In addition, the information produced should be neutral, i.e., free from bias, prudent and complete in all material respects.

In order to achieve this, sources consulted are listed in descending order as: Standards dealing with similar or related issues;

The definitions, recognition criteria and measurement concepts within the Conceptual Framework which simply put, is the foundation of reporting principles; and

The most recent pronouncements of other standard setting bodies that use a similar conceptual framework to develop accounting standards, other accounting literature and accepted industry practices, to the extent that these do not conflict with the two above.

The guidance refers to judgement, which will certainly invite further discussion with auditors to ensure the key principles for example ensuring faithful principles are adhered to hence caution is important.

Conclusion

The international standards were prepared with a view to ensure inclusion of all most transactions, events or conditions, but had provisions to ensure that possible gaps are addressed as above.

Furthermore, the flexibility of the standard setters allows for continuous improvement.

Locally, when the regulator adopted these and other standards, there were provisions for improvement as well.

Mavengere is the technical director at the Institute of Chartered Accountants of Zimbabwe (ICAZ), which is the largest and longest standing PAo in Zimbabwe, having been established on January 11 1918, and is a body corporate incorporated under the Chartered Accountants Act [Chapter 27:02]. ICAZ provides leadership on the development, promotion, and improvement of the accountancy profession focusing in the areas of accounting education, assurance, good governance practices and leadership and organisational excellence. owen can be contacted on technical@icaz.org.zw or Twitter: @ owenMavengere.