Accounting issues at Edgars: valuation methods questioned by auditors

Zimbabwe based retailer Edgars Group Limited (EGL) has received an adverse opinion from its auditors, showing that the company failed to disclose crucial information used to determine the fair value of its property, plant and equipment (PP&E) as required by International Financial Reporting Standards (IFRS) 13.

Deloitte and Touche Zimbabwe, on Edgars’ financial statements for the year ended January 9, 2022, noted that the statements given did not accurately reflect the company’s financial position, performance and cash flows. The issue lies in the valuation of Edgars’ PP&E.

According to the auditors’ report, the company engaged professional valuers to determine the fair value of its PP&E in US dollars (USD).

However, EGL then converted these USD valuations to Zimbabwean dollars (ZWL) using an estimated exchange rate, which the auditors found unsupported by sufficient evidence.

Furthermore, the report states that EGL’s leasehold improvements were not revalued in the previous year, which contradicts the company’s accounting policy.

International Financial Reporting Standards (IFRS) define fair value as the price that would be received in an orderly sale between market participants.

While the auditors found the methods used to determine the USD valuations reasonable, they couldn’t verify the appropriateness of the exchange rate used to convert them to ZWL.

This lack of evidence means EGL failed to disclose the crucial information used to determine the fair value of its PP&E, as required by IFRS.

“In the current and prior period, we found the assumptions and methods used by the professional valuers to determine the USD valuations reasonable.

“However, we were unable to obtain sufficient appropriate evidence to support the appropriateness of the application of the ZW$/USD blended exchange rate in the determination of the final ZW$ fair valuations presented for the prior and current years.

“Consequently, the Group did not disclose the unobservable significant inputs applied in the determination of fair value as is required by IFRS 13,” read the report.

The adverse opinion casts doubt on the accuracy of Edgars’ financial statements and raises concerns about the company’s financial health.