The Zimbabwean economy is characterised by high inflation and diminishing productivity. Most manufacturing companies have significantly curtailed their operations due to various factors, and accountants are ‘at the centre of things’ in trying to cope with the environment in which their companies operate.

With annual inflation rate in February 2008 at 164900.3%, decision makers in private and public sectors are finding it difficult to plan, budget and correctly price their goods and services. Prices of goods and services in the country are to a large extent driven by speculation and the movement in the exchange rate of stable currencies. As a result of this, prices of goods and services are rising more rapidly and the country’s currency is losing its value on a daily basis. This article focuses on how accountants are affected in general.


Accountants in this economic environment stand as the difference between success and collapse of their companies. Daily, accountants are faced with the questions “what price should we charge today” or “what percentage increase should we effect on price”. One would argue that the simplest way is to index prices to a stable foreign currency and then track the movement in foreign exchange rate of that currency. However, in a hyper-inflationary environment the currency depreciates rapidly such that one has to speculate the rate of depreciation of the local currency during the conversion period (conversion period is the time frame between receipts of cash and the conversion into hard currency or the use of it) and this should be reflected in prices. The major challenge in this area comes from Government control on prices of certain goods and services. Government set up the National Incomes and Pricing Commission (NIPC) to regulate pricing of goods and services in the economy. Companies need to apply independently to NIPC to get approval for effecting price increases. The process takes several days or weeks such that, when the approvals are granted, the approved prices will have been overtaken by events and therefore not viable. The Government’s motive in controlling prices is sound and valid, but the hyperinflationary environment makes it almost impossible to implement an effective price monitoring and control system. In light of the above, the best way forward is to let market forces determine prices with minimal, or without, government intervention.


IAS 29 Financial Reporting in Hyperinflationary Economies para 7 states that: “In a hyperinflationary economy, financial statements, whether they are based on a historical cost approach or current cost approach, are useful only if they are expressed in terms of the measuring unit current at the balance sheet date”. Paragraph 37 of IAS 29 states that, “the restatement of financial statements in accordance with this standard requires the use of a general price index that reflects changes in general purchasing power. It is preferable that entities reporting in the currency of the same economy use the same index.”

In the context of the above, the following two questions arise:

  1. a) Which price index to use?
  2. b) Does it really reflect the changes in purchasing power?

In Zimbabwe, the Consumer Price Index (CPI) published by the Central Statistical Office (CSO) is widely accepted as the only official index and is used for financial reporting purposes. This answers the first question.

However, the answer to the second question is not clear cut. It is generally acknowledged that the methodology used by the CSO meets international standards. The challenge comes from non-availability of goods from the official market, which puts to question the variables used in coming up with the CPI. As a result, the general population does not believe that these CPI numbers truly reflect the inflation on the ground. Regardless of this setback, the CSO produced CPI is the only index we have available and members of the profession rely heavily on it.

The other challenge to accountants is the failure by the CSO to publish the CPI numbers timeously. Entities whose reporting date is 31 December 2007 only managed to get the CPI for the last quarter of 2007 in March 2008, just in time to beat the 31 March deadline for publication of financial statements of public companies. The major blow fell to companies whose reporting date was 31 March 2008. March CPI was not available at the time of writing this article but the deadline (30 June 2008) for publication of financial statements by listed companies was less than two weeks away. Some listed companies have since published unaudited Financial Statements without restatement, which is surely misleading (IAS 29 para 2).

Other Challenges

Businesses in general are facing complications in the areas of budgeting and cost control. Conventional theories and techniques of budgeting and cost control have been rendered ineffective by the economic environment, and the business community is relying on accountants to employ innovative measures in the monitoring and control of business operations.

Due to the dictates of the hyperinflationary environment, suppliers of goods and services prefer to transact on a cash basis as opposed to use of cheques and Inter-bank transfer settlements. This is largely due to restricted access to cash from financial institutions. The central bank controls daily cash withdrawals by corporate entities and individuals to a maximum of ZW$25billion (equivalent to R29 at interbank forex exchange rate), an amount which falls significantly short of daily cash requirements by businesses.

The issues highlighted above are only a fraction of the challenges faced by accounting professionals in the economy. Accountants, who are often leaders of entities in various sectors of the economy, should be applauded for employing sound business strategies in order to survive in this turbulent environment. In a future article, focus will be on challenges specifically in the financial sector.

Willard Tinashe Mabwe ACCA, is a Technical Manager at the Institute of Chartered Accountants of Zimbabwe and is also a member of ECSAFA Technical Team.