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Tawanda Musarurwa
At no fault of their own, Zimbabwe’s listed firms have been receiving adverse opinions on their annual, half-year or quarterly interims. To be precise, it’s a result of a number of wider fiscal and monetary policy adjustments that have been taking place, which have culminated in the end of the multi-currency system and the re-introduction of the Zimbabwe dollar.
Zimbabwe adopted a multi-currency system in 2009, which was largely underpinned by the United States dollar, and listed firms adopted the US dollar as their book keeping currency.
But there have been significant monetary shifts in the period between then and now.
These include the introduction of export incentives in the form of bond notes in October 2016 through Statutory Instrument 133, which amended section 44 of Reserve Bank of Zimbabwe Act (the bond notes eventually became a surrogate currency); separation of RTGS (Real Time Gross Settlement) bank accounts and US dollar nostro accounts last year, and very recently the announcement of the Monetary Policy Statement which saw the floating of foreign currency trading through the introduction of an inter-bank foreign exchange market.
The Monetary Policy also created the RTGS dollar (a combination of the bond notes and electronic bank balances) as the functional currency in Zimbabwe.
In March, the Public Accountants and Auditors Board (PAAB) made a determination on financial reporting and auditing guidelines following the Reserve Bank of Zimbabwe’s Monetary Policy the previous month.
In its recommendations dated March 21, 2019, the PAAB said “the presentation currency is expected to remain US dollar as at December 31, 2018, but this remains the sole prerogative of directors.”
And then in June, Government effectively ended the long-standing multi-currency system and re-introduced the Zimbabwe dollar as the sole trading and functional currency through Statutory Instrument 142 of 2019.
The adverse opinions are still rolling in.
Investopedia describes an adverse opinion as a professional opinion made by an auditor indicating that a company’s financial statements are misrepresented, misstated and do not accurately reflect its financial performance and health.
So without a doubt, these adverse opinions should be having adverse consequences on, at least the perception of these companies.
Says think-tank and research firm, Institute for Sustainability Africa:
“It has its own implications beyond just the banks and companies receiving adverse opinions. Think of the of the investor who was intending to come to Zimbabwe seeing these financial statements.
“We may argue that the investor is now more informed but the sum of it all shows the bigger risk associated with the entire economic environment (economic risk). The deep pocket investors are very sensitive to this.”
All things being equal, shareholders, investors and financiers are averse to accept financial statements with adverse opinions.
So it’s certainly a terrible time for companies listed on the Zimbabwe Stock Exchange (ZSE) that are trying to attract fresh capital.
Although in May, the local bourse absolved companies for generally failing to adhere to International Accounting Standard (IAS), due to the adverse opinions, (foreign) investors have been less kind.
The general under-performance of the local equities, among other things, can also be attributed to foreign investors’ concerns about the current state of play.
Bongani Ndlovu