THOUGH required by law to make full disclosures relating to their financial and operating results, companies trading on the Zimbabwe Stock Exchange (ZSE) have escaped much regulatory scrutiny in recent times as they continue to withhold critical information.
Failure to provide full disclosures hinders fair assessment of companies as investors and shareholders make decisions based on information given to them.
Listed companies seem to enjoy wide latitude in deciding what type of information to make available to the public.
Selective disclosure has been a serious problem for investors because insiders would frequently take advantage of information for their own gain, at the expense of the general investing public.
But this appears to be changing as the Securities Commission of Zimbabwe (SECZ), which regulates securities and capital markets, is ready to take action by forcing listed companies to make comprehensive financial and operating disclosures.
SECZ has in the past expressed strong reservations over limited financial disclosures, saying this made it difficult for investors to make informed decisions.
It said the current disclosure requirements for listed companies had many shortcomings and allowed abuse of minorities who often do not have an insight into key details regarding the management of their companies.
Full disclosures are crucial in assisting outside reviewers of financial information as these clarify or interpret certain published financial information.
Tafadzwa Chinamo, the chief executive officer of SECZ, told The Financial Gazette that his organisation would soon be revising disclosure rules for listed companies’ financial and operating reports.
He said this would help improve the quality of their financial reports in order to attract foreign and local investments.
“Sadly most companies’ financial statements do not do any good because they don’t contain sufficient information investors need to know,” said Chinamo on the sidelines of a congress for chartered accountants held in Victoria Falls last month.
“Companies just do it because it’s a requirement. But they lose out in terms of investors going to other stock exchanges. In the reports, the numbers are fine but the explanations on the figures are not there. The challenge is that if you look at the full year results and erase the name, you can’t tell what business they are in and how they make their profits. So how do they expect the investors to put money into their companies?” asked Chinamo.
The ZSE is also set to have new listing requirements by November this year as they push for more disclosures in line with modern trading trends.
The current listing requirements were last revised in 1998.
Companies quoted on the ZSE also issue out cautionary statements now and again and ask investors to trade carefully whenever there are discussions that could impact on the company’s operations and share price.
Some investors have been clamouring for improved disclosures in both the financial, operational and cautionary statements.
They also urge listed companies to make use of technology in order to get important information to investors more reliably and at low cost.
Websites serve as effective means of disseminating important information to investors. But most listed companies have no websites and some of those that have websites rarely update them.
This means if one misses a press release, one will not get any information about a company.
Companies are also not doing enough to advertise themselves.
There are also instances where there is inconsistency in terms of press statements and the annual reports that are published, with no accompanying explanations or reconciliations.
Another observation is that most listed companies do not publish profit warning statements to discourage speculation in the market.
Though profit warning is not enforced by law, investors have to wait for up to six months or full year to get financial reports.
Companies need to go for quarterly updates as this discourages speculation.
In the neighbouring South Africa, the Johannesburg Securities Exchange (JSE) is often flooded by flash accounts during this period of the year.
The ZSE has also engaged a panel of experts, chaired by Simon Hammond, who is also the managing director of Old Mutual Shared Services, to review the level of disclosure by listed companies after noting that most companies were failing to give detailed disclosures.
Hammond told The Financial Gazette that listed companies would be required to submit their results to the review committee, which would go through the financial reports and press releases before they are made available to the public.
If they are satisfied with the information made available to them they would allow the company to go ahead and publish the reports.
“Our committee will go through all the listed companies’ results and press releases,” Hammond said.
“We are targeting 20 companies this year, the same number next year and the remainder in 2015. At the end of the year, we will submit our findings and we hope the companies will learn from it,” he said.
There is a 48 hour window to review the results; this is an administrative requirement.
Auditors should have sight of that press statement before it goes out to the public. Auditors are required to audit summarised press statements and should be able to verify the authenticity of the information.
If the financial and operating statements are found not to be correct, the panel of experts refers them back to the auditors or the financial directors.
Experts challenge companies to name and attach the auditors’ opinion when publishing their financial and operating reports to keep them on their toes always.
If auditors feel that there is too much information or serious errors they should highlight that in their statements to protect themselves and the investing public.
Companies which have a December 31 year-end are required to publish their results by March 31. But companies can go to the ZSE and ask for more time if they are justifiable excuses to warrant an extension.
In such a case companies should be suspended up to the time the results are published.
Financial reports from the JSE carry two assurance statements. These are the auditors and an independent opinion: Quality of the report is assured in this case.
In Zimbabwe, some financial reports carry only one assurance, that of the auditor. The question is: What if the auditors lie?
In Africa, carrying two assurance statements is still on a voluntary basis since there is no legislation that makes it a requirement while in Denmark, there is a Danish Financial Statement Act that compels companies to carry two assurance statements.
Now that the country has entered the financial reporting season, this provides Zimbabwean companies with an opportunity to inform the investing public about their financial and operating future, good or bad. Report by Financial Gazette