Grant Thornton, the independent auditors for Masimba Holdings Limited, issued a scathing audit report on the company’s 2023 financial statements, expressing an adverse opinion due to “material non-compliance” with International Financial Reporting Standards (IFRS).
The report, signed by Engagement Partner Edmore Chimhowa, details significant discrepancies in Masimba’s handling of foreign currency exchange rates and casts doubt on the accuracy of the company’s financial performance.
“In our opinion, because of the significance of the matters described in the Basis for Adverse Opinion section of our report, the consolidated financial statements do not present fairly, in all material respects, the financial position of Masimba Holdings Limited as at 31 December 2023, and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS),” the report states.
A key point of contention surrounds Masimba’s decision to change its functional currency from Zimbabwean Dollars (ZW) to United States Dollars (USD) effective January 1, 2023.
According to the auditors, the company did not follow proper IFRS guidelines when implementing this change.
“The directors effected the change in functional currency on 1 January 2023, for which all items (except shore capital and reserves) were translated to USD using an internally generated exchange rate,” the report noted.
“Shore capital and other reserves were translated from ZWL to USD using management’s valuation techniques. The resultant exchange differences from this process were recognized in a Foreign Currency Translation Reserve (FCTR).”
Grant Thornton asserts that this method deviates from IAS 21, the IFRS standard governing the effects of changes in foreign exchange rates. The standard mandates that all items be translated using the exchange rate at the date of the change.
The Grant Thornton report also highlights concerns regarding Masimba’s revenue recognition practices, particularly for complex construction projects.
The auditors identified a “presumed fraud risk” and noted the company’s use of estimates and judgments that could potentially inflate revenue figures.
“The amount of revenue and profit recognized in a year on construction projects is dependent on, among other things: On the actual costs incurred; The assessment of the percentage of completion for contracts; and The forecast contract revenue and costs to complete for each project,” the report further stated.
While the auditors found no evidence of wrongdoing after performing their procedures, they emphasised the inherent risk associated with revenue recognition in such projects.
