Zimre Holdings hit with worst-case audit report, financial health in question
Auditors for Zimre Holdings Limited (ZHL) a Zimbabwean-based diversified investment holding company, have issued an adverse opinion on the company’s financial statements for the year ended December 31, 2023, citing significant accounting issues.
Research by Nehanda Radio established that an adverse opinion is the most severe conclusion an auditor can reach regarding a company’s financial statements.
It indicates that the statements are so flawed that they can not be relied upon by investors or other stakeholders to make informed decisions.
This raises concerns about the financial health of the Zimbabwean insurance giant.
Grant Thornton, ZHL’s independent auditors, stated in their report that the company’s financial statements “do not present fairly” its financial position and performance. The auditors identified three main reasons for their adverse opinion.
ZHL’s subsidiary, Fidelity Life Assurance, failed to implement the new International Financial Reporting Standard (IFRS) 17 for insurance contracts.
Due to ongoing upgrades to its accounting systems, Fidelity relied on simplified models that could not track profitable and unprofitable contracts accurately. This resulted in potential significant adjustments being needed to the financial statements.
“In preparing these consolidated inflation adjusted financial statements, Fidelity Life Assurance of Zimbabwe Limited utilised simplified models in accounting for insurance contracts and these do not track onerous and profitable contracts at policy level.
“Once the upgrade of the accounting, administration and IT infrastructure align with the requirements of IFRS 17 is complete, significant adjustments may have to be made to the amounts recognised in these financial statements with respect to the Group’s insurance contracts,” the auditors noted.
ZHL also allegedly breached International Accounting Standard (IAS) 29, which governs financial reporting in hyperinflationary economies.
The company reportedly used average inflation indices for the year to restate insurance revenue and expenses instead of applying the changing inflation rate throughout the year as required by the standard. The financial impact of this deviation remains undetermined.
The auditors were also unable to verify the financial statements of Vanguard Life, a subsidiary of Fidelity Life, because they were unaudited.
This lack of verification introduced uncertainty regarding the accuracy of Fidelity Life’s, and consequently, ZHL’s consolidated financial statements.
“The consolidated financial statements of Fidelity Life Assurance of Zimbabwe include unaudited financial statements of Vanguard Life Assurance Limited, a subsidiary of Fidelity Life Assurance of Zimbabwe.
“As a result, we were unable to satisfy ourselves that all necessary adjustments and disclosures have been made to the unaudited financial statements of Vanguard Life Assurance Limited, and consequently to the consolidated financial statements of Fidelity Life Assurance of Zimbabwe Limited for the year ended 31 December 2023,” the report states.
Grant Thornton highlighted these issues in their “Basis for Adverse Opinion” section of the audit report.
The report states, “We were not able to determine the effect this might have on the consolidated financial statements of Zimre Holdings Limited for the year ended 31 December 2023.”
