Recent developments related to the assessment of Zimbabwe as a highly inflationary economy

Published on: 13 Sep 2019

Zimbabwe has used bond notes pegged to the U.S. dollar (USD) as its local currency since 2009. Over the last year, the consumer price index (CPI) inflation in Zimbabwe began to rise. In February 2019, Zimbabwe reinstated a local currency, the Real Time Gross Settlement (RTGS) dollar, and allowed the value to float against the USD thus causing an acceleration of the increase in CPI inflation. As a result of the rising CPI, the cumulative three-year inflation rate for the period ended June 30, 2019, now exceeds 100 percent.

In addition to the challenges the country faces related to increasing inflation rates, government officials placed a ban on the use of foreign currencies for local trading in June 2019. Local trade must now be conducted in the established local currency, the RTGS dollar.

At its May 21, 2019, meeting, the Center for Audit Quality’s International Practices Task Force referred to the discussion document, Monitoring Inflation in Certain Countries, which reflected inflation rates through March 2019. At that time, the cumulative three-year inflation rate for Zimbabwe was projected to exceed 100 percent by the end of 2019.

As of March 2019, the annual inflation rate was 67 percent,1 resulting in a three-year cumulative inflation rate of 72 percent. The annual inflation rate through June 2019 increased to 176 percent,2 resulting in a three-year cumulative inflation rate for Zimbabwe of 185 percent.

Entities with material operations in Zimbabwe that previously concluded that the RTGS dollar was the functional currency may need to assess the accounting implications of Zimbabwe as a highly inflationary economy in accordance with ASC 830.3 ASC 830-10-45-12 states that “determination of a highly inflationary economy must begin by calculating the cumulative inflation rate for the three years that precede the beginning of the reporting period.” On the basis of currently available inflation data through June 30, 2019, we would expect calendar-year-end public entities to account for the implications of Zimbabwe as a highly inflationary economy under ASC 830 beginning July 1, 2019, and calendar-year-end private entities to account for such implications beginning no later than January 1, 2020. Accordingly, in consolidating its Zimbabwean operations, an entity may need to remeasure monetary balances as if the functional currency were the reporting currency.

Because Zimbabwe did not have an official currency the last several years, many entities determined their functional currency to be USD. Entities that have continued to use USD as their functional currency may determine that there is no accounting impact because of the highly inflationary economy.

Entities with material operations in Zimbabwe should consider the impact of these events on their internal control processes to ensure they have proper monitoring in place as the economic situation in Zimbabwe continues to evolve. As a result, these entities should (1) monitor whether multiple legal rates emerge as a result of the foreign currency restrictions implemented by the Zimbabwean government which would require determination of the appropriate exchange rate for remeasurement and (2) continue to assess the appropriateness of consolidating Zimbabwean operations in the event that control no longer rests with the entity due, in part, to currency restrictions.


1 Inflation rates published by the National Reserve Bank of Zimbabwe.

2 See footnote 1.

3 FASB Accounting Standards Codification (ASC) Topic 830, Foreign Currency Matters.

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