Transitioning from ZWL to ZWG for 2024 Annual Financial Statements for Entities with ZWG as the presentation currency Article 1 by Timothy Dandira

Transitioning from ZWL to ZWG for 2024 Annual Financial Statements for Entities with ZWG as the presentation currency

Introduction

After the introduction of the ZWG currency on 5 April 2024, entities struggled to come up with one trial balance at the end of the 2024 financial period, 31 December 2024. Some erroneously summed up the 1 January 2024 to 5 April 2024 ZWL balances and the 6 April 2024 to 31 December 2024 balances. This option is incorrect as you cannot add 1 USD to 1 ZWG to have 2 USD given the difference purchasing powers of the currencies. Some incorrectly converted the ZWL amounts into ZWG whilst some did not do anything, leaving them with two trial balances, one in ZWL and another one in ZWG. This article provides a comprehensive guide for entities transitioning from Zimbabwean dollars (ZWL) to Zimbabwe Gold (ZWG) for their 2024 Annual Financial Statements (AFS). The article outlines two options for converting financial statements to ZWG, each with its own methodology and considerations.

Option 1: Hyperinflation Adjustment – IPSAS 10

This option involves the following steps:

• Gathering ZWL figures: Collecting monthly ZWL figures from January 1 to April 5, 2024.
• Hyperinflating ZWL figures: Adjusting ZWL figures to reflect current purchasing power as of April 5, 2024.
• Converting to ZWG: Dividing hyperinflated ZWL figures by the ZWL to ZWG exchange rate (2 498.2472) to obtain historical ZWG figures as of April 5, 2024.

Option 2: USD Conversion – IPSAS 4

This option involves the following steps:

• Converting ZWL to USD: Converting all income statement transactions from ZWL to USD using the exchange rate at the date of transaction (which is between 1 Jan to 5 April).
• Locking USD value: The USD value remains stable due to minimal fluctuations in this currency.
• Converting USD to ZWG: Converting USD values to ZWG using the USD to ZWG exchange rate (of 13.56) as of April 5, 2024.

Comparison and Considerations

The two options have different implications for financial reporting:

• Hyperinflation: Option 1 requires hyperinflation adjustments, while Option 2 avoids this complexity.
• Stability: Option 2 leverages the stability of USD to maintain purchasing power.

It is crucial to acknowledge that the aforementioned methodologies are subject to inherent estimation uncertainties, which may yield disparate results due to fundamental differences in their underlying assumptions and calculation approaches. Specifically:

• Divergent methodologies: One approach relies on exchange rate fluctuations between currencies, whereas the other utilizes inflation indices, which may not perfectly align.
• Estimation variability: These differences in methodology can lead to variations in results, highlighting the importance of careful consideration and transparent disclosure in financial reporting.

Demonstration/Example

To illustrate the potential disparity between the two options, consider the following example:

• An entity had ZWL 30,674,320.40, which was equivalent to USD 1,000 as of April 5, 2024, given the exchange rate between USD and ZWL of 30 674.32 as of 5 April 2024.
• Converting the ZWL amount to ZWG resulted in ZWG 12,275.99.
• If the entity were to acquire USD on the RBZ auction after transitioning to ZWG, they would have converted the ZWG 12,275.99 to an equivalent of USD 905.31.
• This results in a translation difference of USD 94.69, which would be accounted for in the Non-Distributable Reserve, a component of Net Assets/Equity.

Conclusion

Both options provide a framework for converting ZWL to ZWG. The choice between options depends on the entity’s specific circumstances and preferences. Accurate application of either option ensures reliable financial reporting.

Recommendations

To ensure consistent and transparent financial reporting, entities should:

– Apply the chosen method consistently: Throughout the financial statements.

– Disclose the chosen method and assumptions: To provide clarity and transparency in financial reporting.

The views and opinions expressed in this article are those of the author, Timothy, and do not necessarily reflect the views of his employer or any professional organization he is affiliated with. The information contained herein is for general informational purposes only and should not be considered as professional advice.