Delta delays results publication due to hyperinflation accounting

HARARE- The country’s largest beverages producer and the top capitalised company on the Zimbabwe Stock Exchange (ZW$5.1 billion), Delta Beverages, has said it will delay publication of its interim results for the 6 months period ended 30 September 2019.

In a trading update released on Tuesday, the company said it has deferred publication of its half year results pending clarification and guidelines from the Public Accountants and Auditors Board (PAAB) on the implementation of International Accounting Standard (IAS) 29. The accounting standard refers to reporting in hyperinflationary economies.

IAS 29 applies where an entity’s functional currency is that of a hyperinflationary economy. The standard does not prescribe when hyperinflation arises but requires the financial statements and corresponding figures for previous periods of an entity with a functional currency that is hyperinflationary to be restated for the changes in the general pricing power of the functional currency.

Having satisfied all conditions precedent to the classification, the Public Accountant and Auditors Board (PAAB), a statutory board created by an Act of Parliament and mandated with regulatory oversight of the accounting and auditing profession in Zimbabwe, went on to urge companies preparing financial statements for the period 1 July onwards, to adopt IAS 29.

This followed a broad consultation with market players including accounting and auditing professionals which established that there was a concensus on hyperinflation in Zimbabwe.

Delta Historical Financial Performance $m

From an accounting perspective, the view is that an economy satisfies hyperinflation if certain conditions are met and does not necessarily prescribe a particular rate of inflation.

 According to the standard, characteristics of the economic environment of a country which indicate the existence of hyperinflation include; the general population preferring to keep its wealth in non-monetary assets or in a relatively stable foreign currency; Amounts of local currency held are immediately invested to maintain purchasing power; the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency.

 Prices may be quoted in that currency; sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short; interest rates, wages, and prices are linked to a price index; and the cumulative inflation rate over three years approaches, or exceeds, 100%.

Old Mutual, which is the only company to have applied Hyperinflation accounting on its first half earnings, reported that profit for the period under hyperinflation accounting was -$210.47 million against a profit position under historical cost accounting of $509.15 million which was a gain of 671% on the prior year. This is how exposing hyperinflation accounting is to corporate earnings.

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Respect Gwenzi

Respect is the Lead Analyst and Managing Director at Equity Axis. He has 8 years experience in respective fields of finance and media. Particular areas of expertise include Asset Management, Stockbroking and Financial Media. Respect is on a mission to change the course of Financial Media in Africa through digitalization

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