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Auditors issue adverse report on Afdis



AFRICAN Distillers’ external auditors have issued an adverse opinion on the company’s half-year results, arguing that the use of unofficial exchange rates has a material impact on the financials.


Zimbabwe has experienced several cycles of currency volatility which have presented accounting headaches to both publicly listed and privately owned companies.

In its report attached to African Distillers’ full-year audited financial information for the half-year ending 30 September 2023, the local unit of international audit firm Ernst & Young argued that by determining its own exchange rate during the preparation of financial statements for the period under review, Afdis failed to adhere to International Financial Reporting Standards.

 The auditors said Afdis failed to comply with International Financial Reporting Standards IAS 21 which relates to the effects of changes in foreign exchange rates and IAS 8  which pertains to accounting policies, changes in accounting estimates and errors.

“Effective 1 August 2020 to 30 September 2023, management applied an internally generated exchange rate (transaction rate) to translate foreign-denominated transactions and balances to the functional and reporting currency, the Zimbabwe Dollar (ZW$),” the auditors said.

 “We believe that the use of a transaction rate is inappropriate for financial reporting as it does not meet the definition of a spot rate as the rate is not accessible through a legal exchange mechanism.

“We believe that management should have applied the auction exchange rate and/or the Willing-Buyer-Willing-Seller (WBWS) exchange rate as determined by the interbank market, as either one of these two rates met the International Financial Reporting Standards definition of a spot rate.

 “The errors resultant from the use of incorrect exchange rates impact both current halfyear and prior year numbers. The prior year errors should have been corrected retrospectively in accordance with IAS 8 — Accounting Policies, Changes in Accounting Estimates and Errors. As no retrospective adjustments in terms of IAS 8 have been made, the corresponding amount for cash and cash equivalents on the Inflation Adjusted Statement of Financial Position is materially mis-stated. Our prior period audit report was also modified due to this matter.”

 In inflation-adjusted terms, Afdis reported after-tax profit of ZW$22.3 billion during the period under review compared to ZW$2 billion reported during the prior comparative period.

 At a time the economy continues to wobble, retailers and other service providers are now charging prices based on the official exchange rate, parallel market rate, Real-Time Gross Settlement rate and several others, depending on the mode of payment consumers opt to use.

Matts Valela, Afdis chairperson, said the economy was unstable during the first quarter of the year.

“The operating environment under review was characterised by an unstable exchange rate and high inflation particularly in the first quarter while the second quarter had relative price stability and tight ZW$ liquidity,” Valela said in a statement accompanying the financials.

“Consumer demand was negatively impacted by currency-induced pricing distortions in the formal retail channel. The informal trade benefitted from the stable and competitive pricing in US dollars. Consumer spending was also spurred by the election-related activities.”

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