Fidelity Life Assurance of Zimbabwe Limited (Fidelity Life) reported a staggering 9,945% increase in inflation-adjusted profits for the year ended December 31, 2023, attributing the surge to strong revenue and investment income growth.
The company said the success was achieved through innovative product development and increased uptake, particularly their “Vaka Yako” product.
A recent audit by Grant Thornton, however, casts a shadow over the positive figures, revealing that the company adopted a new accounting standard, IFRS 17, without fully implementing the necessary infrastructure.
The positive figures are overshadowed by the revelation that the company adopted a new accounting standard, IFRS 17, without fully implementing the necessary infrastructure.
According to the auditors, Grant Thornton, Fidelity Life is still upgrading its systems to comply with IFRS 17.
“As disclosed in Note 3.3 to these consolidated inflation adjusted financial statements, the Group adopted IFRS 17 – Insurance Contracts with effect from 1 January 2023.
“The Group is still in the process of upgrading its accounting, administration and information technology infrastructure to align with the requirements of IFRS 17.
“In preparing these consolidated inflation adjusted financial statements, the Group 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 information technology infrastructure to 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.
“Accordingly, we were not able to determine the adjustments that might be necessary to the following financial statement line items: Insurance contract revenue, insurance service expenses, insurance finance expenses for insurance contracts issued, insurance reserve and insurance contract liabilities,” the auditors noted.
The audit report also identified other areas of concern. Fidelity Life did not adhere to International Accounting Standard (IAS) 29, which requires companies operating in hyperinflationary environments to adjust their financials for monthly inflation.
Instead, the company used an average inflation rate for the entire year, potentially leading to misstatements.
“The Group did not maintain monthly IFRS 17 financial reports given the ongoing upgrade to its accounting, administration and information technology infrastructure as described above.
“As a result, in applying IAS 29 Financial Reporting in Hyperinflationary Economies, management used average inflation indices for the year ended 31 December 2023 to restate insurance contract revenue included in the consolidated inflation adjusted statement of profit or loss and other comprehensive income.
“This constitutes a departure from IAS 29, which requires that all amounts in the statement of profit or loss and other comprehensive income be restated by applying the change in the general price index from the dates when the items of income and expenses were initially recorded in the financial statements,” the audit report stated.
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