LISTED companies have raised the red flag over the publishing of blended inflation figures, saying the development is presenting accounting headaches during reporting period.
This comes after three commercial banking companies listed on the Zimbabwe Stock Exchange reported their trading updates in historical terms.
In its first-quarter trading update, ZB Financial Holdings said its analysis was based on historical numbers, as the financial reporting in hyperinflationary economies is not practical.
In January this year, Finance and Economic Development minister Mthuli Ncube endorsed Statutory Instrument 27 of 2023 implementing the use of blended inflation rate and halted the publication of Zimbabwe dollar inflation.
“Due to this change in CPI measurement, the group was not able to provide the inflation-adjusted financial statements as a result to challenges created in implementing the blended inflation indices,” said the group.
Also facing the same challenge, FBC Bank said it was reporting its first-quarter update in historical numbers because the blended inflation did not facilitate inflation-adjusted reporting.
“The trading update is regrettably in historical terms due to the unavailability of relevant consumer price indices (CPI), which facilitate reporting in inflation adjusted terms,” the bank said.
NMB Bank also published its trading update for the quarter in historical terms.
According to Statutory Instrument 27 of 2023, “rate of inflation” means the general increase in price levels of goods and services measured as a weighted average based on the use of Zimbabwean dollars and United States dollars over a given period.
This instrument was passed in response to the change from a mono-currency economy based on Zimbabwe dollars, which were depreciating, to the bi-currency economy dominated by the greenback.
The Confederation of Zimbabwe Industries (CZI) in its research note criticised this instrument, saying it blurred the actual Zimbabwe dollar inflation, thereby affecting International Accounting Standard (IAS) 29 (reporting in hyperinflationary economies).
“For accounting purposes, IAS 29 requires that all businesses with the Zimbabwe dollar as their functional currency publish inflation-adjusted accounts and this will require an official Zimbabwe dollar inflation rate. If such is not available, how will businesses with the Zimbabwe dollar as their functional currency comply with the requirements of the standard?” the CZI said.
In agreement with CZI, Masimba Holdings Limited said the blended Consumer Price Index (CPI) might pose challenges in reporting its half-year financials for the year.
“The adoption of the blended CPI statistics for purposes of presentation of financial statements may not be appropriate, the full impact of which will be assessed at the group’s half-year reporting ending 30 June 2023,” said the construction company.
According to experts, inflation accounting allows for a more accurate representation of a company’s financial position and performance over time by adjusting historical financial statements to current prices, and by incorporating inflation adjustments into future financial projections.
The CZI added that this change could result in prospects of distorted financials reported by local companies, which would erode public and investor trust on financials published by companies.
According to the Zimbabwe National Statistics Agency, the annual blended inflation rate for the month of April 2023 was 75.2%, down from the March inflation rate of 87.6%.
The month-on-month inflation rate in April 2023 was 2.4%, gaining 2.3 percentage points on the March 2023 rate of 0.1%.