ACCA BULAWAYO

Financial Reporting CPD

IAS 21 AND IAS29
TINASHE MUREREKWA
PARTNER – MJV CHARTERED ACCOUNTANTS

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 BACKGROUND: THE ZIMBABWEAN STORY
• 2000-2008 Zimbabwe experienced a devaluation of currency through sustained inflation
• In 2007 and 2008 Inflation figures were suspended
• In 2009 Zimbabwe adopted a multicurrency system. On 12 April 2009 Zimbabwe
abandoned the Zimbabwe Dollar and was de-monetised in 2015.
• The USD became both a Functional and Reporting Currency
• On the changeover assets and liabilities were recognized through the Foreign Currency
Translation Reserve
• In 2014 bond coins were introduced to ease the shortage of change
• In November 2016 Bond notes were introduced as an export incentive
• In February 2018 the RBZ gave a directive for the ring fencing of actual Foreign currency
deposits
• 1 October 2018 the RBZ instructs banks to separate Foreign Currency FCA Nostro and RTGS
FCA maintaining 1:1
• 21 February 2019 the RTGS dollar was introduced which effectively marked the return of
the Zim dollar

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 FINANCIAL ACCOUNTING SINCE 2000
2000-2003
• By definition Zimbabwe was hyper-inflationary but most entities had not
adopted Inflation adjusted accounting (26% per annum over 3 years)
(Economists view vs Accountants View) (IAS21 fully functional)
2004-2008
• There was consensus among accountants that the economy was now
hyper-inflationary
• 2004-2007 Financial Reports were restated using Consumer Price Indexes
• After suspension of year on year figures, accountants started using the Old
Mutual Implied Rate (OMIR) (IAS21 & IAS29 fully functional)

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 FINANCIAL ACCOUNTING SINCE 2000
2009
• Zimbabwe abandoned the use of the Zimbabwe Dollar (ZWD) and
introduced the multi currency with the USD becoming the Functional
Currency as accepted by business and monetary authorities.
• Foreign Currency Translation Reserve (NDR) created to migrate Balance
Sheet to USD(Monetary Balances Suffered Impairment) (IAS 21)
2009-2016
• USD now functional but with a multicurrency IAS21 applied. The Zim $ was
demonetized
• Cash shortages surfaced in 2016, the Bond Note was introduced, this was not
a currency
• Expansionary monetary and fiscal policy resulted in a premium between
USD Cash, Bond Note and Electronic Funds (IAS21 not permissible as at law
USD, Bond and Electronic Funds were said to be 1)

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 FINANCIAL ACCOUNTING SINCE 2000
2017-Feb 2019
• The premium between the USD, Electronic Funds and Bond Note increased
• Auditors should have qualified 2017 accounts for failure to allow IAS 21 when
substance showed it was existing.
• 2018 the prices surged by more than 100% October 1 Monetary & Fiscal
Policy pronouncements. This in essence should have triggered inflationary
reporting, but the functional currency was still the USD
• Financial Statements for the FY18 were debated as to their usefulness seeing
that IAS21 was being pervasively violated
• SI33 of 2019 then enabled accountants to unilaterally issue adverse opinions

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 CURRENT FINANCIAL ACCOUNTING
2017-Feb 2019 contd The Effects of SI33 (21 February 2019)
• Heralded the return of the Zimbabwean Dollar (RTGS$)
• PAAB pleaded with the government for it to be backdated to 1 January 2019
• PAAB gave guidance to its members to consider the ‘substance over form’
and duly adverse opinions with scenarios where issued
• This marked the institution of IAS21 between the USD and Bond Notes/RTGS
• The return of the ZWL also paved way for the possible use of IAS29 as should
have been done since 2018
• The FY19 now has 2 months of Financial Reporting in USDs without a
translation rate and thereafter ZWL (Adverse possibly disclaimers loading)

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 CURRENT FINANCIAL ACCOUNTING
2017-Feb 2019 contd The Effects of SI33 (21 February 2019)
SI 33 of 2019
(d)that, for ACCOUNTING AND OTHER PURPOSES, all assets and liabilities that were,
immediately before the effective date, valued and expressed in United States dollars (other
than assets and liabilities referred to in section 44C (2) of the principal Act) shall on and after
the effective date be deemed to be values in RTGS dollars at a rate of one-to-one to the
United States dollar.

• The above resulted in the impairment of monetary items of the balance sheet e.g. Trade &
other Payables & Receivables, Debt Securities, Cash & Equivalents
• The above resulted in any entity with foreign obligations becoming increasingly insolvent as
rate was escalating. The RBZ responded by ‘absorbing’ obligations at 1:1
• THE move by the RBZ possibly created a violation of IAS21 or alternatively will result in
unusual hedging instruments (IFRS 9) appearing in the financial statements
• The move endorsed adverse opinions due to IAS21 and IAS10 (Events After Reporting
Period) working together against a standing Law.

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 FINANCIAL ACCOUNTING SINCE 2000
Feb 2019 onwards
• The interbank debuted at 2.5 and is currently hovering at 16
• Prices soared and conditions for application of IAS 29 started appearing
• Year on year figures were suspended
• Culminated in PAAB pronouncing that IAS29 be used in preparation of
Accounts
• Several Statutory Instruments were issued including one that made
International Public Sector Accounting Standards (IPSAS), the Public sector
equivalent of International Financial Reporting Standards (IFRS) the
standards to use in all public sector accounting. IAS29 is the same as IPSAS
10.

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IAS 29 UNMASKED
WHO DOES IAS 29 apply to?
IAS 29 Financial Reporting in Hyperinflationary Economies applies when
an entity’s functional currency is that of a hyperinflationary economy.
Background
• Issued in 1989 and first used in periods 1 January 1990 onwards
• No amendments to the Standard since 2017

Scope
IAS 29 is applied to the individual financial statements, and the
consolidated financial statements of an entity whose functional
currency is the currency of a hyperinflationary economy

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 IAS 29 UNMASKED
At what rate of inflation does IAS 29 apply ?
The standard does not prescribe an absolute rate at which hyperinflation
occurs, it is deemed a matter of judgment.

5 indicators that IAS 29 might be applicable

i. The general population prefers 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
ii. 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.
iii. 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
iv. Interest rates, wages and prices are linked to a price index; and
v. The cumulative inflation rate over three years approaches, or exceeds, 100 per cent.

‘Monetary Illusion vs Real Basis’ “ZSE”

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IAS 29 UNMASKED
RESTATEMENT OF FINANCIAL STATEMENTS
• The financial statements of an entity whose
functional currency is the currency of a
hyperinflationary economy should be restated
• Consistency from period to period in applying the
procedures is more important than the precision of
the amounts.
• Financial statements prepared under IAS 29 should
be definitive i.e. they are not supplementary
information or in notes to the financial statements.

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IAS 29 UNMASKED
RESTATEMENT OF FINANCIAL STATEMENTS CONT’D
IAS 29 REQUIRES:
• A restatement of current period financial statements in terms of the
measuring unit at the end of the reporting period
• A restatement of comparative figures for the previous periods reported in
the same way (i.e. using a general measuring unit)
• Recognition of a gain or loss on the net monetary position to be included
in profit or loss, and separately disclosed

Approaches to Restatement of Financial Reporting

• - Restatement of Historical Financial Statements
- Restatement of Current Cost Financial Statements

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IAS 29 UNMASKED
RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
STATEMENT OF FINANCIAL POSITION
ITEM
Assets and liabilities that have a
predefined link to price changes
Other monetary items
Non-monetary assets carried at a
valuation that is current at the
end of the reporting period
Non-monetary assets carried at a
valuation that is not current at
the end of the reporting period
Other items in the statement of
financial position, i.e. items
carried at cost, or cost less
depreciation and impairment
losses
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Treatment
Adjust in accordance with the
particular agreements in place
No need for restatement as
already at current level
No need for restatement as
already expressed at current
measuring unit
Restatement is required from the
date of the valuation to the end
of the reporting period
These are restated in terms of the
measuring unit current at the end
of the reporting period by
applying a general price index
Example
Interbank Rate Linked Financial
Instruments
Cash, receivables and payables
Inventories carried at NRV.
Investment Property carried at
Fair Value
Property revalued at a date
other than the end of the
reporting period
When carried at cost: property,
plant and equipment,
inventories, goodwill and
intangible assets. Also prepaid
expenses and deferred income.
IAS 29 UNMASKED
RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
Example (Property, Plant & Equipment)
Property Purchase 31/12/2017 for $1000 (Price Index 100) (10yrs Straight Line)
31/12/2018 (Price Index 150) Adjust Cost to 150/100X1000= $1,500
Depreciation 10% of $1500 = $150
Accumulated Depreciation= $150
31/12/2019 (Price Index 240) Adjust cost to 240/150x1500 = $2,400
Depreciation 10% of $2,400 = $240
Accumulated Depreciation = $480
(240/150*150+$240)

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IAS 29 UNMASKED
RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
Example (Inventories)

July Aug Sep Oct Nov Dec

Price Index
100 110 130 200 260 300

Description Date of Index Historical Indexing 31 December

Purchase Cost Adjustment Balance
Flour 30 Sep 130 50 300/130x50 115
Premix 30 Nov 260 60 300/260*60 69
WiP – Raw Mat 31 Oct 200 90 300/200*90 135
WiP – Labour 30 Nov 260 25 300/260*25 29

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IAS 29 UNMASKED
RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
Impairment
• When restated amount is more than recoverable amount, Impairment is
recognized
• Inventories will be written down to NRV (IAS2). PPE and intangible Assets
will be written down in accordance with IAS36.
Equity
On first application of IAS29
• any revaluation surplus that arose in previous periods is eliminated (i.e. it
is absorbed in adjusted retained earnings);
• with the exception of retained earnings, other components (equity,
share premium and any other existing reserves) are restated by applying
a general price index from the dates the components were contributed
or otherwise arose; and
• restated retained earnings are calculated as the balancing figure after
all adjustments have been made to all other components of the
statement of financial position.

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IAS 29 UNMASKED
RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
Statement of Comprehensive Income
• All items must be expressed in terms of the measuring unit current at
the end of the reporting period. This like the SFP is through price index
• Due to volume of transactions, an average or some fair estimation might
be more appropriate. Judgement is key, but remember Consistency
over precision.

Gain or loss arising on net monetary position

• The gain or loss arising on the net monetary position as a result of all of
the adjustments to items in the statement of financial position is included
in profit or loss and separately disclosed.

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IAS 29 UNMASKED
RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS
Statement of Comprehensive Income
• All items must be expressed in terms of the measuring unit current at
the end of the reporting period. This like the SFP is through price index
• Due to volume of transactions, an average or some fair estimation might
be more appropriate. Judgement is key, but remember Consistency
over precision.

Gain or loss arising on net monetary position

• The gain or loss arising on the net monetary position as a result of the
adjustments to items in the statement of financial position is included in
profit or loss and separately disclosed.

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IAS 29 UNMASKED
RESTATEMENT OF CURRENT COST FINANCIAL
STATEMENTS
STATEMENT OF FINANCIAL POSITION
• Items are already at current value so they do not need restatement

STATEMENT OF COMPREHENSIVE INCOME

• All amounts in the statement of comprehensive income should be
restated in the measuring unit current at the end of the reporting period
by applying a general price index
• Gains/Losses in net monetary position should be treated the same as
historical

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IAS 29 UNMASKED
DISCLOSURE REQUIREMENTS
• The accounting policies should state that the financial statements and
the corresponding figures have been restated for changes in the general
purchasing power of the functional currency and, consequently, are
stated in terms of the measuring unit current at the end of the reporting
period;
• The accounting policies should also state whether the financial
statements are based on a historical cost approach or a current cost
approach; and
• The price index that has been used, its level at the end of the reporting
period and the movement in the index during the current and previous
reporting periods.

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IAS 29 UNMASKED
IMPLEMENTATION CHALLENGES
1) What index should be used to restate figures?
2) If Interbank rate is applied, is it the fair rate to use, what
about the alternative market or OMIR
3) How practical is it to apply restatement in the Profit and
Loss on every transaction? If we use an average how
fair is it when a currency is shading ≥2% per day?
4) Will the application of IAS29 be possible to the
comparative figures, if so will the restatement be
enough to discard of adverse opinions passed in the
prior year?
5) What happens to foreign denominated loans that
crossed over on SI33 pronouncement?
6) How will adjusting journals be passed in ERPs like Sage,
Navision & Quickbooks, Opening Balances and
Statutory returns

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