Currency confusion clouds Mashonaland Holdings aud...

Currency confusion clouds Mashonaland Holdings audit report

Nyashadzashe Ndoro-—Chief Reporter

A significant accounting discrepancy has cast a shadow over Mashonaland Holdings Limited's 2024 financial results, with independent auditors Axcentium issuing a qualified opinion due to a US$20,826,513 understatement of investment property in prior-year comparative figures.

The auditor's report highlights a departure from International Accounting Standard (IAS) 21, The Effects of Changes in Foreign Exchange Rates, concerning the impact of a functional currency change.

According to the report, Mashonaland Holdings' directors elected to use a United States Dollar (USD)-based valuation of investment property as of December 31, 2022, to determine opening balances when the functional currency changed on January 1, 2023.

Axcentium stated that IAS 21 requires all items to be translated into the new functional currency using the exchange rate at the date of the change.

The auditors found that this deviation resulted in an understatement of investment property by US$20,826,513 and an understatement of deferred tax by US$1,041,326 as of January 1, 2023, with the offsetting entries affecting an exchange reserve.

The report further notes that this misstatement carried over to the comparative period ending December 31, 2023, leading to an overstatement of fair value adjustments on investment property by the same US$20,826,513 and an overstatement of the related deferred tax expense by US$1,041,326 for that period.

While the qualification pertains to the comparative financial information, Axcentium stated that its opinion on the current year (2024) consolidated financial statements is modified due to the impact of this matter on the comparability of the current period's financial data with the prior year.

Despite the qualified opinion, Axcentium concluded that, except for the noted issue, the consolidated financial statements fairly present, in all material respects, the financial position of the Group as of December 31, 2024, along with its financial performance and cash flows for the year, in accordance with IFRS Accounting Standards and the requirements of the Companies and Other Business Entities Act (Chapter 24:31).

The auditor's report also identified the valuation of investment property, amounting to US$91,595,000, as a key audit matter due to the significant judgments and estimates involved, particularly in the context of Zimbabwe’s volatile economic environment and the use of unobservable inputs by independent external valuers.

The engagement partner for the audit was Stelios Michael of Axcentium, Chartered Accountants (Zimbabwe).

Mashonaland Holdings Limited significantly increased its investment properties portfolio in the financial year ending December 31, 2024, by US$10.9 million. This growth raised the total valuation of its investment properties to US$91.6 million, a notable increase from the US$80.7 million recorded in the previous year.

The expansion was driven by property capital gains amounting to US$742,907 and strategic investments of US$10.1 million directed towards ongoing property development projects. Key projects contributing to this growth include the Pomona Commercial Centre Development Project, the Milton Park Day Hospital, and the Chiyedza House SME Centre.

A major highlight for the property developer was the completion of the Pomona Commercial Centre Development in the fourth quarter of 2024. This complex, designed to offer 14,000 square meters of prime wholesaling and flexible warehousing space, represents a total investment of US$14.6 million, financed through a mix of debt and equity.

The environmentally conscious design incorporates groundwater recharge, renewable energy usage, and natural lighting. Demonstrating strong market demand, the Pomona Commercial Centre achieved an impressive pre-opening occupancy rate of 82%.

Furthermore, Mashonaland Holdings expanded its portfolio with the completion of the Milton Park Day Hospital, a 2,134-square-meter modern medical facility developed under a develop-and-lease agreement with a leading medical insurance and hospital brand. This investment aligns with the company's strategy to diversify its property portfolio and make socially responsible investments that benefit the community.

Additionally, the company repurposed office space at Chiyedza House to create a fully let SME retail facility, comprising 60 furnished offices and trading space for 40 retailers.

These developments contributed to an overall increase in Mashonaland Holdings' total assets to US$94.9 million, up from US$88.63 million in the preceding year.