DELOITTE and Touche Zimbabwe auditors have condemned Edgars Stores Limited financial results for the year ended January 8, 2023, saying they failed to comply with International Financial Reporting Standard 13 (IFRS 13) and International Accounting Standard 29 (IAS 29).
The auditors subsequently issued a negative opinion to the clothing manufacturer, claiming that the consolidated and separate financial statements, adjusted for inflation, did not accurately depict its financial situation, performance, and cash flows.
“The method of determining the fair value of property, plant and equipment as at 9 January 2022 was not an accurate reflection of market dynamics and the risk associated with Zimbabwe dollar transactions on a willing buyer, willing seller basis,” the auditors said.
“…in the prior year, the group engaged professional valuers to determine fair values in US dollars and management subsequently determined the Zimbabwe dollar equivalent fair values by translating those US dollar valuations using an estimated exchange rate.”
IFRS 13 defines fair value as the price that would be received to sell an asset in an orderly transaction between market participants at a measurement date.
In the prior year, the auditors said they found the assumptions and methods used by the professional valuers to determine the US dollar valuations reasonable.
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“However, we were unable to obtain sufficient appropriate evidence to support the appropriateness of the application of the ZW$/USD blended exchange rate in the determination of the final Zimbabwe dollar fair valuations presented for the prior year.
“The group did not disclose the unobservable significant inputs applied in the determination of fair value as is required by IFRS 13.”
IFRS 13 further requires a fair value to be determined using the assumptions that market participants would use when pricing the asset, assuming market participants act in their economic best interests.
It also requires a fair value to reflect the price that would be received to sell the asset in an orderly transaction in the principal market at the measurement date under current market conditions, regardless of whether that price is directly observable or estimated using another valuation technique.
“We were, therefore, unable to obtain sufficient appropriate evidence to support the appropriateness of simply applying the closing ZW$/USD blended exchange rate in determining the Zimbabwe dollar fair value of property, plant and equipment, without any further adjustments to reflect how the economic conditions within the country as at that measurement date would impact the assumptions that market participants would use in pricing the items of property, plant and equipment in Zimbabwe dollars,” the auditors said.
IAS 29 par 19 further requires non-monetary assets restated from the date of revaluation (property, plant and equipment), to thereafter be reduced to their recoverable amount.
The Zimbabwe dollar recoverable amount could not be accurately determined in the current and prior years, it said.
Edgars also did not comply with International Accounting Standard 21 (IAS 21) which looks at the effects of changes in foreign exchange rates on comparative and current year financial information.
During the comparative and current year, the group applied exchange rates that did not meet the definition of spot exchange rates in accordance with IAS 21, as they were not available for immediate delivery during the comparative and current year.
“The financial effects on the inflation adjusted consolidated and separate financial statements of this departure in the comparative and current year were not determined,” it said.
“Our opinion on the current year’s financial information is modified because of the possible effects of the matter on the current year information and that of the prior year,” it said.
In the period under review, the group reported revenue of $35,9billion which is 51,7% up from that achieved in 2022.