STARAFRICA Corporation Limited’s external auditors have expressed concern over the company’s valuation of properties and freehold land and buildings, saying this has presented a unique disconnect in the currency used, it has been learnt.
Improper valuation of property was one of the matters that saw Ernst & Young Chartered Accountants (Zimbabwe)(EY) failing to express an audit opinion on the financial accounts of Starafrica, saying the results did not reflect the true value of the company’s financial position.
This is coming at a time the company, which produces sugar and other sweeteners, has just come out of the woods following its rescue by the Zimbabwe Asset Mismanagement Corporation (Zamco) and is poised to offload 54,7% shareholding to a new investor.
In its evaluation of the Starafrica’s results for the six months ended 30 September 2020, EY noted that the disconnect was caused by the fact that the company was valuing its properties in US dollars yet rentals were being paid in Zimbabwean dollars. Owing to the nature of the matter, EY was unable determine the appropriate inputs and therefore could not quantify the potential impact.
“We also disagreed with the valuation of investment properties, freehold land and buildings. The properties were valued using USD denominated inputs and converted to ZWL at the interbank exchange rate.
There was a unique disconnect between the currency in which the rentals are being paid (ZWL) and the currency in which the properties are being valued (USD),” EY said.
EY stressed that the US dollar inputs used may not be a true reflection of market dynamics as risks associated with currency trading did not reflect the risks associated with property trading. The group’s properties are held at a fair value of US$ 1 082 938 649 as at 30 September 2020 (30 March 2020:US$ 393 802 017).
“The Group’s properties were valued using unobservable inputs denominated in the United States Dollar currency and converted to local currency using the interbank rate,” EY noted.
The auditors noted that other notable issues included failure by Starafrica to comply with International Financial Reporting Standard (IAS) 21 on “The Effects of Changes in Foreign Exchange Rates in Prior Period, Inappropriate Application of IAS 8 on Accounting Policies, changes in Accounting Estimates and Errors, exchange rates used (non-compliance with IAS 21) and consolidation of Foreign Associates using inappropriate exchange rates”, among others.