2011 Zambia's financial reporting framework

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


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


Overview

Effective date

• The three tier financial reporting framework is effective for annual periodsbeginning on or after 1st January 2011.


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;


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


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


• 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


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


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


2011

www.pwc.com/zm

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


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”


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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Slide 19

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.


Thank you

This publication has been prepared for general guidance on matters of interest only, and doesnot constitute professional advice. You should not act upon the information contained in thispublication without obtaining specific professional advice. No representation or warranty(express or implied) is given as to the accuracy or completeness of the information containedin this publication, and, to the extent permitted by law, PricewaterhouseCoopers , its members,employees and agents do not accept or assume any liability, responsibility or duty of care forany consequences of you or anyone else acting, or refraining to act, in reliance on theinformation contained in this publication or for any decision based on it.

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2011 Zambia's financial reporting framework