GOVERNMENT has directed state firms to review how they treat borrowing costs in their financial statements, following the adoption of International Public Sector Accounting Standards (Ipsas), which are meant to enhance transparency. Ipsas came into effect in January. In its Zimbabwe Financial Reporting Manual (ZFRM) sent to heads of state enterprises recently, Treasury said they would be required to migrate to the new framework by 2025.
“The adoption of the accrual based and the migration to Ipsas framework is necessary for the fulfilment of the public financial management principles in Section 298 of the Constitution of Zimbabwe,” Treasury said in the manual.
“The date of adoption of Ipsas was January 2023 for all entities within the scope of this manual. This date will be regarded as the date of adoption irrespective of the previous basis of accounting that the entity used.”
ZFRM will compel state firms to treat borrowing costs as expenses, rather than as capital.
“In applying Ipsas 5, reporting entities shall follow the benchmark treatment set out in Ipsas 5,14 and expense all borrowing costs. This means that the alternative treatment to capitalise borrowing costs is withdrawn for all reporting entities,” Treasury said.
“Reporting entities that have capitalised borrowing costs in their previous accounting bases before the date of adoption should change the accounting policy on borrowing costs from the date of adoption of Ipsas.
“Opening balances, which include borrowing costs capitalised before the adoption date, will be considered as correct deemed cost on the date of adoption,” it added.
Treasury said Ipsas required the immediate expense of borrowing costs.
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However, it still permitted the capitalisation of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Writing in the report, George Guvamatanga, permanent secretary in the Ministry of Finance and Economic Development, said in coming up with ZFRM, government sought to improve transparency.
“The ongoing project for the migration to the accrual-based Ipsas framework, by December 2025, forms part of wider government’s Public Finance Management (PFM) reforms and is aimed at enhancing transparency and accountability,” he said.
“This is consistent with the principles of PFM in Section 298 of the Constitution of Zimbabwe, which requires transparency and accountability in financial matters as well as responsible and clear financial management and fiscal reporting.
“The development of ZFRM is a recommendation of the Ipsas implementation strategy and plan (ISP) launched in 2019,” Guvamatanga noted.
He said the manual was expected to help provide local interpretations and clarifying options, thereby ensuring consistency of application of the various standards by state firms.
“ZFRM only focuses on standards or areas where specific guidance is needed,” Guvamatanga said.
“Entities are required to apply new standards as issued by the Ipsasb (International Public Sector Accounting Standards Board) as and when they become effective regardless of whether or not the ZFRM has been updated to include guidance on these standards.”
Since 2018, government has scaled up its state firms reform programme. Authorities want state firms to champion economic growth, while providing affordable services to the public. But the companies have been run down following years of unrestricted theft and mismanagement.
