Auditor condemns Edgars currency games in financia...

Auditor condemns Edgars currency games in financial report

Nyashadzashe Ndoro

CHIEF REPORTER

Victoria Falls Stock Exchange-listed clothing retailer Edgars Stores Limited faces serious questions about its financial reporting after their auditor issued a scathing report disclaiming an opinion on the company's financial statements.

This casts a long shadow over the company’s reported financial performance for the year ended January 7, 2024.

The auditor’s report highlights several areas of non-compliance with international accounting standards.

Edgars allegedly failed to properly account for a change in functional currency, sticking with the Zimbabwean Dollar even though the group's business appears to be conducted primarily in US Dollars. According to the auditors, Deloitte & Touche, this is a violation of IAS 21, which requires companies to reflect their underlying economic activity in their financial statements.

“In our report dated 20 May 2024, we expressed an adverse audit opinion on the audited inflation adjusted consolidated financial statements of Edgars Stores Limited for the 52 weeks ended 7 January 2024. The basis for our adverse opinion was due to:

“Non-compliance with international Accounting Standard 21 ‘The Effects of Changes in Foreign Exchange Rates’ (IAS 21) with respect to change in functional currency and use of exchange rates.

“IAS 21 requires that the functional currency of an entity reflect the underlying transactions, events and conditions that are relevant to the entity, and to change the functional currency when there. change ase underlying transactions, events, and conditions. Whilst the Group's indicators provided evidence of a change in functional currency for the entity to United States Dollars from the beginning of the current 52 week period ended 7 January 2024, management elected to maintain the Zimbabwe Dollar as the entity’s functional currency.

“This does not comply with the requirements of IAS 21, which requires that when there is a change in entity’s functional currency, the entity shall apply the translation procedures applicable to the new functional currency prospectively from the date of the change,” reads part of the audit report.

The auditors were also unable to verify the exchange rates used by Edgars, raising further concerns about the accuracy of the financials.

Another major point of contention is the company’s method for valuing property, plant, and equipment. According to the auditors, Edgars’ method “was not an accurate reflection of market dynamics”.

The report goes on to state that Edgars used an “estimated exchange rate” to convert USD valuations to ZWL, and then subjectively determined fair values internally. This lack of transparency and adherence to International Financial Reporting Standard 13 raises red flags about the reported value of Edgars’ assets.

Edgars’ financial statements cannot be relied upon according to the auditors. They state that “it is inappropriate to express an opinion on the accompanying abridged inflation adjusted consolidated financial statements”.

This essentially means that the auditor is unwilling to vouch for the accuracy of the information presented.

While Edgars boasts of an “improved performance” for the year, the validity of these claims is shrouded in doubt by the auditor's report. The company did experience a decline in unit sales, despite an increase in revenue.