ASX quizzes Zimplats over financials

THE Australian Securities Exchange (ASX) has put Zimplats Holdings Limited under spotlight, questioning whether its accounts for the half year ended December 31, 2019 gives a true representation of its financial performance and position

BY MTHANDAZO NYONI

Zimplats, registered in Guernsey, is listed on the Australian Stock Exchange.

In a letter dated April 6, 2020, ASX adviser, listings compliance Lin Kang asked Zimplats to explain its position following the independent auditor’s report qualified opinion which raised a number of grey areas in its half year accounts for the period to December 31, 2019.

According to the independent auditor’s report attached to the half year accounts, Zimplats transacted using a combination of United States Dollars (US$), bond notes and coins, real time gross settlement (RTGS) system and mobile money platforms in the 2019 financial year.

In October 2018, banks were instructed by the Reserve Bank of Zimbabwe to separate and create distinct bank accounts for depositors, namely RTGS foreign currency accounts (FCA) and nostro FCA accounts.

This resulted in a separation of transactions on the local RTGS payment platform from those relating to foreign currency.

Prior to this date, RTGS FCA and nostro FCA transactions and balances were co-mingled.
As a result of this separation, there was an increased proliferation of multi-tier pricing practices by suppliers of goods and services, indicating a significant difference in purchasing power between the RTGS FCA and nostro FCA balances, against a legislative framework mandating parity.

These events were indicative of economic fundamentals that would require a reassessment of the functional currency as required by International Accounting Standard (IAS) 21.

In order to comply with IAS 21, Zimplats management performed a reassessment of its functional currency and concluded that the US$ remained as the functional currency of the group.

Consequently, from October 1, 2018, management manually separated transactions between RTGS and US$ in order to convert RTGS transactions to US$ using the Old Mutual Implied Rate (OMIR).

In the absence of a detailed ledger account reflecting the transactions split by currency, management applied judgment by assuming that the foreign currency payments to suppliers equalled the foreign currency portion of the expenditure recorded in the statement of profit or loss.

Auditors noted that the manual separation of transactions had some inherent limitations in terms of precision of the amounts recognised, which could result in a material misstatement in expenditure and the corresponding exchange gain or loss recognised in the condensed consolidated statement of profit and loss and other comprehensive income.

In addition, included in inventory on hand and property, plant and equipment additions as at June 30, 2019, were RTGS transactions which were incurred between October 1, 2018 and February 22, 2019 and were recorded as if they had been incurred in US$.

In accordance with IAS 21, these transactions should have been converted to US$ using another rate other than 1:1.

“It was not practicable for management to split the transactions between RTGS and US$ as the amounts were capitalised at parity in the accounting records. Exchange gains and losses resulting from the conversion of foreign currencies should have been expensed as and when they were incurred,” the report reads.

“During the period October 1, 2018 and February 22, 2019, exchange losses were recognised in inventory which may have resulted in a material misstatement in the inventory
balance.”

“Similarly, additions to property, plant and equipment incurred in RTGS between October 1, 2018 and February 22, 2019 should have been converted to US$. As a result of this, property, plant and equipment additions recognised during this period and the corresponding depreciation charge may have been materially misstated.”

In the letter, Kang demanded Zimplats to confirm that in the directors’ opinion the half year accounts comply with the relevant accounting standards and give a true and fair view of its financial performance and position.

Kang wanted to know what enquiries did the board make of management to satisfy itself that the financial records of Zimplats had been properly maintained and that the financial statements complied with the appropriate accounting standards and gave a true and fair view of the financial position and performance of Zimplats.

“Commenting specifically on the qualified opinion, does the board consider that Zimplats has a sound system of risk management and internal control which is operating effectively? Please confirm that Zim is complying with the listing rules and, in particular, Listing Rule 3.1,” Kang demanded.

In response, Zimplats chief finance officer Patricia Zvandasara confirmed that the half year accounts were prepared in accordance with the IAS 34.

“We confirm that the half year accounts give a true and fair view of Zimplats’ financial performance and position, except for the possible, but unquantifiable carry over effects of the qualified opinion issued by the predecessor auditors, PricewaterhouseCoopers, on the financial statements for the year ended June 30, 2019 lodged with ASX market announcements platform and released on September 30, 2019,” she wrote.

“The board considers that Zimplats has a sound risk management and internal control systems … We confirm that Zimplats is complying with the ASX Listing Rules and, in particular, Listing Rule 3.1. The qualified review conclusion in the half year accounts was a technical accounting issue arising from legislative developments which were previously disclosed in the annual accounts by the previous auditor, PricewaterhouseCoppers,” she said.

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