By Stephen Chandisareva
HARARE – Construction firm Masimba Holdings has received an adverse opinion from its external auditor, Grant Thornton for its 2023 financial results.
The main issue raised by the adverse opinion on the audited consolidated financial statements for the year ended 31 December 2023 is the non-compliance with International Accounting Standard (IAS) 21 – ‘The Effect of Changes in Foreign Exchange Rates’ with respect to the change in functional currency.
This non-compliance indicates that the company did not adhere to the requirements and guidelines set forth in the accounting standard when transitioning to a new functional currency.
It is important to note the judgments and technicalities involved in the translation of ZWL to USD financial statements and the company’s efforts to present a fair representation of its financial results.
After analysing the currency mix and determining that the group was trading at 69% USD compared to 65% in 2022, the board decided to make the USD its functional and reporting currency effective January 1, 2023.
“Following the change in functional currency, management adjusted the carrying amounts of assets and liabilities to align to their fair values in USD and recorded the resultant differences in a Foreign Currency Translation Reserve (FCTR) which was reclassified to retained earnings.
“This was not in accordance with IAS 21 in which a FCTR arises when translating the net investment in a foreign operation into athe group’s functional currency of which reclassification is done on disposal of the foreign operation.
“Our opinion is modified because of the possible effects of these matters on the comparative figures and the retained earnings as at 31 December 2023,” reads the adverse opinion.
As for financials, Masimba Holdings revenue rose 8.06% to US$53.83 million in 2023.
On the other hand, operating profit fell by 51% to US$8.24 million. The decline in operational profit was attributed to a slowdown in works during the fourth quarter due to delayed payments and liquidity constraints, negatively impacting project efficiencies.
The profitability of the group was also affected by sub-optimal currency payment mix on projects not aligned with the increased dollarization of the economy.
Profit before tax fell by 41% to US$7.88 million. The decrease in profit before tax can be attributed to the challenges faced in project execution due to delayed payments and liquidity constraints.
The impact of the sub-optimal currency payment mix on projects also contributed to the decline in profitability.
Profit for the year stood at US$7.55 million.
The company did not declare a dividend.