2011 zambia's financial reporting framework
TRANSCRIPT
2011
www.pwc.com/zm
Zambia’s financialreporting frameworkBreakfast briefing
Agenda
• Welcome and introductions
• A brief background on the objectives and goals of having a tiered reportingframework
• Discussion around the the framework with a focus on:
- Accounting and reporting implications; and
- Financial effectiveness and processes required to implement and sustainthe revised framework
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the revised framework
• Closing
Slide 22011Zambia’s Financial Reporting Framework
2011
www.pwc.com/zm
Zambia’s financialreporting frameworkObjectives of the framework
Overview
• ZICA Adopted full International Financial Reporting Standards for allentities in 2005
• Zambian Accounting Standards in operation previously
Capacity constraints within SMEs toensure compliance
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Complexity of issues covered in IFRS
Amount of implementation guidance
Volume of disclosures and relevanceto the users
Generally low level of compliance
OverviewThree Tier Financial Reporting framework and Audit for Zambia
Type of entity Financial ReportingFramework
Audit AssuranceRequirement*
Listed Companies, PublicInterest entities andGovernment OwnedEnterprises
Full IFRS Full Audit AssuranceEngagement
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Economically SignificantCompanies –not PIEwith turnover of K20billion and above
IFRS for SMEs or FullIFRS if the Companyopts to use it
Full Audit AssuranceEngagement
Micro and Small Entities– With Turnover of lessthan K20 billion
Zambian FinancialReporting Standard forMicro and Small Entities
No Full Audit required. Ifneeded full Audit can be doneotherwise, Accountant’sReport will suffice subject toCompanies Act amendment
* - recommended subject to amendment of the Zambia Companies Act
Overview
IFRS and IFRS for SMEs
• Standards adopted without modification as issued by IASB
Zambian Financial Reporting Standards for Micro and SmallEntities
• Simplified version of the IFRS for SMEs
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• Simplified version of the IFRS for SMEs
- Fewer disclosures
- Some topics deleted
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Overview
Effective date
• The three tier financial reporting framework is effective for annual periodsbeginning on or after 1st January 2011.
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2011
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Zambia’s financialreporting frameworkAccounting and reporting implications
NOUNLIKELY!!!
YES
Apply judgement
NO Is the transactionaddressed by IFRSor IFRS for SMEs?
YES
Applying the standard
Standard addressestransaction, event
orcondition
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Apply judgementand make use of
those standards todevelop policy
NO
Entity not requiredto follow the
Standard
YES
Apply therequirements of the
standard
Is the amount inquestion material?
2011Zambia’s Financial Reporting FrameworkSlide 9
ImplicationsPresentation of financial statements
Benefits Challenges
Reduced to three primary statements,plus accounting policies andexplanatory notes
Whilst no requirement to present aStatement of changes in equity:• Dividends and other movements in
retained earning will be on theP&L;
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Benefits Challenges
P&L;• Any other changes in equity, will
be in the notes
No restatement of comparatives isrequired on first time adoption ofZFRS for MSEs
First time adoption balances may notbe comparable with prior yearfinancial statements
Changes in accounting policy andcorrection of misstatements doneprospectively
Current and prior year amounts manynot be comparable
ImplicationsPresentation of financial statements
Benefits Challenges
Fewer disclosures will simplifyfinancial statements;1. Comparatives for fixed assets2. Comparatives for intangible assets3. Statement of changes in equity
Elimination of disclosures may affectusefulness of financial statements forstakeholders
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3. Statement of changes in equity4. Effective tax reconciliation
ImplicationsStatement of financial position - Assets
Benefits Challenges
Principle of the lower of Cost or NRVapplied to determining the carryingvalue of assets;
• Assets are not fair valued• Property, plant and Equipment
Cost does not always reflect the valueof the assets held
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• Property, plant and Equipmentare not revalued
Only straight line depreciation basis isallowable
Other bases such as Units ofProduction may be more appropriatein certain instances
Accounting for biological assetssimplified, by narrowing it to the useof cost rather than fair value, less costto complete
Gaps in required treatment for areassuch as ‘offspring’ or ‘secondary crop’may result in need to adopt full IFRSor IFRS for SME requirements
ImplicationsStatement of financial position – Liabilities and equity
Benefits Challenges
No requirement to fair value financialinstruments such as accounts payableand loans/ borrowings
• Intrinsic value of liabilities may notbe captured
• Standard defines loans payable asamounts due after 12 months andexcludes current liabilities
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excludes current liabilities• Requirement to disclose accounts
payable outside agreed credit termsas at the Balance Sheet date
ImplicationsStatement of financial position - Profit
Benefits Challenges
Under the new standards, there is norequirement to recognise deferred taxon temporary timing differences
Deferred tax meets the definition of aliability and so there is a challenge oncompleteness of liabilities
The effective tax rate for entities willbe volatile
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be volatile
Standard allows for exceptional items Exceptional items allow for distortionof presentation of items
ImplicationsStatement of financial position – Cash flows
Benefits Challenges
Use of direct method for computingcash flows from operations providesmore meaningful information
The direct method is tedious andusually complicated
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Zambia’s financialreporting frameworkFinancial effectiveness and processes
Finance & Accounting – a consulting mindset orbusiness reality?
To support CEO’s, CFO’s controllers and treasurers to:
• optimise the structure of their finance functions and improve theircontribution to the business;
• to support the C-Suite in decision-making
• provide solutions around compliance & control and efficiency and
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• provide solutions around compliance & control and efficiency andflexibility, such as:
- strategic planning
- finance process improvement (gap analysis)
- finance organisation reviews and process improvements
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Finance & Accounting – a consulting mindset orbusiness reality?
In simple terms a finance & accounting process review will ensure:
• accounting records are complete and accurate;
• transactions are valid;
• complies with legal requirements; and
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• minimise the risk of fraud.
“Consequently the above results in accurate informationwhich allows for timely and effective value adding andstrategic decision making in the most cost efficientmanner”
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Management accounts versus external financialreporting
Management Accounts
• Compiled regularly: quarterly /monthly / weekly / daily
• More detailed: users (usuallymanagement and banks) need
Financial Reporting
Compiled less frequently – usuallyannually
Only overview of organisation as a
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management and banks) needto know what action to take
• More prompt to enable timelyaction by recipients
• Could be less precise because ofthe speed of compilation
• No legal obligation to producemanagement accounts
Only overview of organisation as awhole is required
May only be finalised months afterthe period end
Time lag between period end andcompilation of external reports allowsdetailed checking to eliminate errors
Required by law
Zambia’s Financial Reporting Framework
Finance & Accounting – SME’s in the economiclimelight
• Today’s SME’s are the engine of growth and ultimately tomorrowsmultinationals
• The entrepreneurial flair together with sound financials and systems in placeallows for easy access to capital through the preparation of robust andbankable business plans.
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• However with external financial support comes the need for accountabilityand governance – the creation of trust and openness.
• The need for SME’s to engage professionals and consultants at the variousstages of the business life cycle become more pertinent in dealing withchanging macro economic conditions.
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Thank you
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