KPMG Supplement

ZIMBABWE INDEPENDENT BUSINESS DIGEST AUGUST 8 TO 14, 2014 8
KPMG ADVERTORI AL
FINANCIAL DISTRESS AND ITS REPURCUSIONS
Te Zimbabwean economy has a challenging macroe-
conomic environment for many businesses. Most of these
have been struggling to stay above water let alone offer
meaningful returns to their shareholders. When a com-
pany is facing financial challenges, it is expected that the
financial director, together with the rest of the board of di-
rectors, should know how to ward off the business’ total
collapse and thereby reduce its losses. Te ability of a firm
to survive during turbulent times often means the differ-
ence between forced liquidation and rehabilitation and
eventual success. It has also become critical for executives
of healthy firms or ‘blue chip companies’, to have an un-
derstanding of bankruptcy in order to make informed de-
cisions when their customers and suppliers are faced with
the threat of bankruptcy.
Te onset of financial distress is usually flagged by the
company failing to meet scheduled payments or when
cash flow projections indicate that it will soon be unable to
do so. Te following are common signs of distress:
• Economic failure
Tis signifies a situation where a firm’s revenues are
inadequate to cover its total costs, including its cost of cap-
ital. Te significant price competition in the export mar-
ket and the slump in local demand coupled with crippling
financing costs has left many companies in virtually all
sectors of the economy in this precarious situation. Busi-
nesses which are facing economic challenges can continue
trading for as long as creditors are willing to provide fur-
ther financing and their shareholders are willing to accept
below-market returns. It is often difficult and almost im-
possible for a firm in this position, especially for those in a
serious debt-trap to trade out of this situation and return to
profit. Fresh capital will inevitably be required to replace
ageing assets, in the absence of which, downsizing will be
the next available option to scale the firm to output levels
that restore economic viability. Otherwise this is usually
the first step towards liquidation.
• Business failure
Tis is similar to economic failure and relates to a
situation where operations are terminated with a result-
ant loss to creditors. When a company starts mothballing
core assets (preserving production facilities without using
them to produce) this is a sign of potential business failure.
• Technical insolvency
Failure to meet current obligations as they fall due re-
sults in a firm being technically insolvent, and may result
from a temporary lack of liquidity, where, given enough
time, the company may be able to pay off its obligations
and survive. In most cases, this is a result of asset and li-
ability mismatches. Tis is usually due to the use of short-
term funding to finance long-term assets, which is not
sustainable. It should however be noted that, technical
insolvency may be an early sign of economic and/or busi-
ness failure which may lead to financial problems.
• Insolvency in bankruptcy
Tis occurs where the book value of all liabilities exceeds
the true market value of a firm’s assets. Tis is a more seri-
ous situation than technical insolvency because it usually
points to economic and/or business failure and more often
leads to liquidation.
• Legal bankruptcy
Many people use bankruptcy to refer to any failed busi-
ness. However, it should be noted that a firm is not legally
bankrupt unless it has filed for bankruptcy under the ap-
propriate laws. It is also of importance for the businesses to
know that, under the Companies Act (chapter 24:03) it is
a serious offence for the directors of a company to know-
ingly continue operating a firm while there are reasonable
grounds to suggest that the company is insolvent.

Having looked at the types of business failure, one
might then ask, what causes financial distress and what
possible remedies are there to turn around the fortunes
of a financially distressed company? Reasons for financial
distress can be broken down into three main areas name-
ly, economic factors, financial factors and neglect, disas-
ter and fraud. Economic factors include industry weak-
ness and an unfavourable macroeconomic environment,
while financial factors include excessive debt and insuf-
ficient capital. Te relevance of these different factors var-
ies over time, depending on such factors as the state of the
economy in terms of the level of interest rates, exchange
rate differentials and the level of demand. Usually, most
business failures occur as a result of the combined effect
of these factors which render a profitable operation unat-
tainable. Studies have also shown that a series of errors,
misjudgements and interrelated weaknesses directly and
indirectly linked to management decisions can result in
financial difficulties.
Within the Zimbabwean context, most people would
then be interested in knowing how widespread the prob-
lem of financial distress and the resultant business fail-
ures are. In order for one to give a detailed report, with
the necessary statistics, on the extent of such financial
distress in Zimbabwean firms, a dedicated study would
be needed. Many firms are in need of well designed stra-
tegic turnaround programs, as we continue to witness an
increase in the number of liquidations and shrinkage in
most industries.
Some studies have shown that the failure rate is high-
er in smaller firms but large firms are not immune. Some
financial institutions which had grown rapidly are now
under the management of curators. Tere are some strate-
gic firms of national significance (politically, socially and
economically), which although privately owned, their de-
mise would impact the economy as whole for which gov-
ernmental intervention may be necessary.
Where then, do financial advisors come in?
Te managers of a company which is in financial
distress need to first examine and establish whether the
problems of the company are temporary or likely to lead
to closure. Having established the extent and nature of the
problems at hand, financial advice should be sort on the
available options to solve these problems. Broadly speak-
ing, there are two available remedies, informal and formal
solutions. Informal solutions are generally less expensive
and convenient to all stakeholders of a distressed firm.
A company which is still economically viable and
whose difficulties are temporary is easier to turnaround as
in most cases its creditors will be willing to help it recover
and re-establish itself on a sound financial basis. Work-
outs of this nature usually require the restructuring of the
firm’s debt because current cash flows are insufficient to
service the existing obligations. Tis essentially involves
extension and/or composition. An extension is where
creditors agree to postpone payment dates for interest or
principal amounts or both, while in a composition they
voluntarily agree to reduce their fixed claims against a
debtor by either accepting a lower principal, a lower in-
terest rate or taking up equity or a combination of these.
In many instances, voluntary settlements are simple
and relatively cheap in terms of legal and administrative
expenses.
When it is beyond any reasonable doubt that the
firm is unviable, informal procedures can be used to liq-
uidate it. Assignment is one such way of informally liq-
uidating a company and usually yields more to creditors
than they would otherwise receive in formal bankruptcy
liquidation. It should however be borne in mind that as-
signments are more feasible in small firms whose op-
erations are simple. Te assets of the distressed firm are
transferred into the hands of an assignee or trustee, who
is then instructed to liquidate the assets and distribute
them on a pro rata basis to creditors. Tis is less expen-
sive and saves time compared with a formal liquidation
in bankruptcy through the courts, but does not automat-
ically discharge fully and legally the distressed firm.
To circumvent the shortcomings of assignment, a
company can also consider formal liquidation under the
country’s bankruptcy laws. Formal bankruptcy proceed-
ings are designed to protect both the company and its
creditors. A company is officially bankrupt when it files
for bankruptcy with the High Court, and can use these
proceedings to gain the necessary time to resolve its cash
flow problems if it was facing technical insolvency.
Article by
Godfrey Matsika (M.Sc. Finance & Investment – NUST)
Manager – Transaction & Restructuring.Godfrey has
been with KPMG for over 9 years and has vast experi-
ence in corporate finance, transaction services and in-
vestment management having assisted clients across
various sectors of the economy in Zimbabwe, Zambia,
Malawi and Angola.
Linking the components
Welcome to the second and
final part of our two part series
on Demystifying Integrated
Reporting. Last week we
gave a brief overview of what
Integrated Reporting is all about.
Tis week we will discuss how
companies in Zimbabwe can
address the gap between current
corporate reporting trends and
investor reporting needs. Many
businesses and regulators will
adopt an evolutionary approach to
Integrated Reporting, seeing it as
the future of reporting, rather than
something that can be achieved at
a single stroke. Companies will
need time to develop their reports
and reporting systems to support
the broader perspective envisaged
by Integrated Reporting.
For years investors and
company boards have struggled to
get a true picture of business value
and how management is driving
the business forward. Te trend
towards Integrated Reporting is
being hailed as one way to close
the gap between current reporting
and investor needs.
Historical financial information
plays an essential role in corporate
reporting, but on its own may
not provide a complete picture of
business value. More is needed
to help users understand how
management is driving the
business forward and how changes
in the business environment
might present new opportunities
and challenges. Users need a
more forward looking focus to
help them form their own views
on how such issues may affect the
business in the future - without
necessarily requiring companies
to provide forecasts or projections
themselves.
A small group of companies
have taken this a step further,
aligning the narrative reporting in
their Annual Report more closely
with business value. Te result has
been significant improvement in
the relevance of these companies’
reports, yet many have not
followed suit. One of the reasons
for this is that there has been no
definition of a ‘good report’ to
follow. How do you even define
‘good’ when every company’s
value drivers are unique? A
traditional compliance based
approach is unlikely to provide
the answer.
Te International Integrated
Reporting Council (IIRC),
believes it has found the solution
to closing the reporting gap. Its
draft framework for an Integrated
Report provides a principles based
approach to reporting that should
be of interest to every business
– whether they are looking to
produce a separate ‘Integrated
Report’ or simply looking to
improve the relevance of their
financial statements.
An Integrated Reporting
approach to improving the annual
report
As highlighted in our last
article, Integrated Reporting is
built around seven components of
content: Business Model; External
Environment; Opportunities and
Risks; Strategy; Performance;
Future Outlook and Governance.
By linking content across these
components, an Integrated
Report can build the story of the
business from a basic description
of the business model, through
the external factors affecting
the business and management’s
strategy for dealing with them
and developing the business. Tis
provides a foundation from which
to discuss the performance,
prospects and governance of the
business in a way that focuses on
its most important aspects.
Te linkages across the content
elements helps determine what
should and, importantly, what
should not be included in the
report. For example, if a central
part of your business strategy
involves developing a particular
market, the logic of Intergrated
Reporting implies that you
should be reporting on progress
in developing that market. Te
result should be focused on the
key drivers of business value -
typically built around a thread
of five or six key issues that run
throughout the report. Tese
should be the same issues that
management is focused on in
the day-to-day operation of the
business, and the same issues
that should be driving investment
decision making.
How will Integrated Reporting
change the information being
reported?
Te information relevant to
each business will be different
but broadly we would expect
Intergrated Reporting to result in:
• More operationally
focused measures of performance
– information that will help
readers understand progress
in implementing strategy,
developing business assets, and
creating new income streams –
leading indicators of performance
rather than lagging ones.
• Greater focus on
explaining how key business
assets (such as the customer
base, intellectual property,
and reputation ) have been
managed and enhanced in line
with the business strategy and
changes to the external operating
environment.
• More emphasis on
explaining factors driving future
performance – helping readers
form their own views on what
those factors are and how
they might impact on future
performance.
Tis should lead to reports
that are far more aligned with
investors’ own cash flow
valuation models. In particular,
providing a clearer picture of how
management’s plans and changes
in the operating environment
are likely to affect medium term
returns, and also helping investors
assess the substantial element of
value that is typically locked up
in the ‘terminal value’ element of
their models.
For executives frustrated by
apparent investor short-term
loans, this is an opportunity to
provide a more complete picture
of value, how it’s shaped by
current and future events, and
to explain what management is
doing to create value and preserve
it.
Moving forward with Integrated
Reporting
Intergrated Reporting takes
a very different approach to
narrative reporting. Understanding
its full implications requires
careful thought about how it
should be applied to your unique
business model and strategy. We
are finding that many companies
are interested in taking this first
step as a basis for assessing the
cost-benefit balance of moving
forward on a voluntary basis.
Ultimately, though, this is about
business making its case for capital
in a more effective way – bridging
the gap between management’s
value creation story and investors’
assessment of business value
and stewardship. Whether or not
Intergrated Reporting becomes
incorporated into the regulatory
agenda, this evolution in reporting
should at the very least be on your
radar.
Should you require further
information on this topic please
contact us at our KPMG Zimbabwe
offices in Harare and Bulawayo.
Tis publication was adapted
from KPMG Global’s Integrated
Reporting resources and the
document remains the property
of KPMG.
Article by
Linda Chipo Samuriwo (FCCA)
Manager -Accounting Advisory
Services. Linda is a member of the
Association of Chartered Certified
Accountants and she also holds a
Diploma in International Financial
Reporting issued by the same
professional body. She has been
with KPMG for several years and
has vast experience in accounting,
finance and taxation. She has
worked on clients across all
sectors of the Zimbabwe economy
and also spent six months in
Botswana on a client secondment
for the KPMG Botswana office
assisting them with work in their
finance function.
Disclaimer
Te information contained
herein is of a general nature and
is not intended to address the
circumstances of any particular
individual or entity. Although
we endeavor to provide accurate
and timely information, there
can be no guarantee that such
information is accurate as of
the date it is received or that it
will continue to be accurate as
of the date it is received or that
it will continue to be accurate
in the future. No one should act
upon such information without
appropriate professional advice
after a thorough examination of
the particular situation.
© © 2014 KPMG, the Zimbabwe
member firm of the KPMG
network of independent member
firms affiliated with KPMG
International Cooperative (³KPMG
International²), a Swiss entity.
All rights reserved. Printed in
Zimbabwe.
Te KPMG name, logo and
³cutting through complexity²
are registered trademarks or
trademarks of KPMG International
C29
KPMG
ZIMBABWE INDEPENDENT AUGUST 29 TO SEPTEMBER 4, 2014
Demystifying Integrated Reporting –
Part 2


Te Chartered Accountants Students So-
ciety‘s (CASS) held its annual sports day at
ZB Sports ground recently.
Te firms that participated in the event
included KPMG, Deloitte, PwC, EY, Baker
Tilly, BDO, Grant Tornton, AMG, PKF, HLB
Ruzengwe, Delta and the Institute of Char-
tered Accountants of Zimbabwe (ICAZ).
Te firms came together for fun and games
including soccer, netball, volleyball, touch
rugby, athletics, tug of war, 5- aside soc-
cer and tennis. Te event was graced by the
presence of ICAZ President, Bothwell Nya-
jeka and Past President, Brian Njikizana.
Te fun and games were kicked up by
ICAZ CEO Matts Kunaka who underscored
the need for people to interact and net-
work. He also emphasized the need to al-
ways act with integrity as that was the back
bone of the accountancy profession.
Te games commenced at 9 am and con-
tinued throughout the day where account-
ants showed that they were equally good
on the sports track as they are with figures.
Te highlight of the day was the final soc-
cer match between KPMG against a team
comprised of Baker Tilly and Delta TOPP
students. Baker Tilly and Delta proved too
strong for KPMG on the day and lifted the
trophy.
KPMG were however crowned the over-
all winners of the event at the colorful
awards ceremony held after the games.
Te event was not only about fun and
games. Te Chartered Accountants Stu-
dents Society also made a donation to the
Harare Children’s Home. Te donation
of complete school uniform sets includ-
ing shoes and stationery and all required
school apparel for all grades 2 up to 6 was
handed over to the Harare Children’s Home
patron Mrs. Sithole by the CASS president
Gerald Matavata from KPMG.
Matavata said, “Traditionally the Soci-
ety assisted the home with groceries and
other perishables, but this year education
was the major focus. Education ensures
sustainability hence the shift to providing
the home with complete school uniforms
which will go a long way in meeting the
educational needs of the children.”
Also speaking at the event, CASS patron
Gloria Zvaravanhu spoke on the need for
professional bodies to continue making an
impact in the communities in which they
conduct business. “It is our role as the pre-
mium brand of accountants to pick up and
uplift those that are less privileged than us.
As a leader, one should always remember
that you lead people from the front and you
have people that are coming up, following
your footsteps, you wouldn’t have done
any justice if you don’t look around and
pick up those around you.”
.Accepting the gift on behalf of Harare
Children’s home, Mrs Sithole said, “Our
first contact with CASS was last year at the
sponsored walk and fund day. Tis year
they have decided to continue supporting
us and we are happy that they have chosen
education as their focus.
Our children are disadvantage but for
them to liberate themselves they need
education. We are very excited about our
continued relationship with CASS and we
hope that they will continue to support the
Harare children’s home.”
ICAZ Students hold
sports day, donate to Ha-
rare Children’s Home.
ZIMBABWE INDEPENDENT EXECUTIVE SEPTEMBER 12 TO 18, 2014 E3
THEME: ALL MATTERS FINANCIAL
Te much awaited KPMG IFRS
and Business seminar will take
place on the 18th of September
2014. Te acclaimed event comes
amidst a time when Zimbabwean
industries and companies are try-
ing to forge a way out of the slow-
ing down global and local econ-
omy. In addition, as corporations
thrive to stay afloat and stay wary
of stagnation in order to up their
bottom lines, improve presenta-
tion of financial information in
line with current global and local
pronouncements, the upcoming
IFRS and Business Seminar of-
fers an irresistible value proposi-
tion that KPMG clients and non-
clients alike cannot afford to miss.
Te KPMG IFRS and Business
Seminar is offering the ultimate
financial package by providing
a one stop deal for all financial
matters from new IFRS’, tax mat-
ters, and attracting foreign direct
investment, hence the theme for
this year, “All matters financial.”
Now in its 9th year, the KPMG
Zimbabwe (KPMG) IFRS and
Business Seminar continues to
be the leading source of up to
date accounting standards in-
terpretations and all other cur-
rent, relevant financial informa-
tion. As a build up from previ-
ous seminars, this year, KPMG,
supported by regulators and
economic and industry experts,
will discuss key regulatory and
tax issues, fundamental busi-
ness issues and application spe-
cific issues around International
Financial Reporting Standard
(IFRS) 10- Consolidated Finan-
cial Statements: Investment
Entities and IFRS 13-Fair value
Measurement. IFRS 15 the new
revenue standard will be intro-
duced together with its impact
on current revenue treatment.
In addition the much anticipated
financial instruments standard-
IFRS 9 will be demystified.
Te Zimbabwe Revenue Au-
thority (ZIMRA) will be in at-
tendance to answer topical tax
issues; as well as capital market
experts from the Securities and
Exchange Commission of Zim-
babwe (SECZ) who will articu-
late on topical regulatory issues.
PRESENTER PROFILES
Tafadzwa Chinamo- the Chief
Executive Officer of the Securi-
ties and Exchange Commission of
Zimbabwe (SECZ) will take par-
ticipants through issues around
going concern disclosures identi-
fied during the SECZ’s review of
published accounts.
George Manyere of Brainworks
Capital Management (Private)
Limited, who recently success-
fully brokered the Atlas Mara-
BacABC deal will take the au-
dience through how to attract
suitable foreign investments in
Zimbabwe.
Heather de Jongh is an Associ-
ate Director with the Department
of Professional Practice in the
KPMG South Africa office. She is
a Chartered Accountant and is a
specialist in the interpretation of
accounting standards.
Valerie Muyambo is a Senior
Manager with KPMG Zimbabwe.
Valerie is a member of the Ac-
counting Procedures Commit-
tee (APC) an accounting techni-
cal committee of the Institute of
Chartered Accountants of Zimba-
bwe (ICAZ). She is also involved
extensively in training and has fa-
cilitated numerous International
Financial Reporting Standards
(IFRS) seminars.
Trough this seminar, KPMG
gives its clients a unique opportu-
nity to interact with representa-
tives of regulatory bodies in a
neutral environment.
Venue:
Sango Conference Centre, Cresta
Lodge
Cnr S. Machel Ave East/R.
Mugabe Road
Harare
Registration:
Time:0700hrs – 0745hrs
Start Time: 0800hrs – 1700hrs
Cost per delegate: $ 190.00
(a 5% discount for organizations
that book a minimum of 5 delegates)
RSVP: Isabel Macaullay
Email: [email protected]
Call: 04 302600/303700
If anything the evolution of
technology in Africa has assisted
the continent continue to live
up to its title as the world’s last
frontier, of interest to me is the
Mobile Money play we have seen
over the past decade or so. Unlike
other continents that are decades
ahead in terms of technology in-
troduction of new technological
innovations raise much hype and
excitement in Africa. Africa is
hungry for innovation, it is an ex-
pectant market breeding oppor-
tunities. Zimbabwe has certainly
not been lagging behind in this
exciting technological theatrical
play. Driving around town one
cannot help but notice the spread
and reach of Mobile Money
Transfer technology and Mobile
Banking billboards, are all over
town and too visible to ignore.
Business Monitor estimated
that the value of transactions
would increase from $12 billion
in 2011 to $85 billion in 2016 in
the continent. According to the
African Development Bank, an-
nual consumer expenditure will
reach $2.2 trillion by 2030. Vi-
able growth in commercial ac-
tivity will be crucially dependent
on similar growth in payments
infrastructure to support the vol-
umes of transactions associated
with projected levels of consum-
er expenditure.
Mobile Banking vs. Mobile
payments
Often these two terms are mis-
takenly used interchangeably.
But there is a difference: Mobile
banking refers to the provision
of banking services to customers
through mobile devices. Mobile
payments, meanwhile, refer to
the transfer of funds or any oth-
er form of value through mobile
devices in return for goods and
services.
Tese payments can be execut-
ed either in proximity or remote-
ly. Together with mobile retail,
they collectively represent what
is referred to as M-Commerce. In
M-Commerce there are a num-
ber of regulatory frameworks
governing banks, telecommu-
nications operators, technology
companies, merchants, and oth-
er players involved in the mobile
money ecosystem.
Tese frameworks primar-
ily seek to uphold the safety and
security of financial transactions
as well as to protect personal in-
formation. Even though some
countries have clear frame-
works, there are markets where
the regulatory frameworks are
not established enough to clarify
the market turf; for example, for
telecommunications operators
vs. banks. Locally, the media has
been awash with news about in-
teractions between the telecoms
and banks, in some instances al-
legations of unfair practice being
hailed against the Telecoms. Per-
haps that is a clear sounding bell
that frameworks to regulate the
convergence between banks and
An overview of Mobile Money growth and
opportunity in Africa
telecoms are overdue.
Mobile banking set to grow in
Africa
Mobile banking is set to grow in
the continent for a number of rea-
sons. Firstly, there is the fact that
generally, Africa has a low base of
physical banking infrastructure.
According to an International
Monetary Fund, Financial Access
Survey, 2012 the number of ATMs
per 100,000 adults was 4.76 in
Zimbabwe, as compared to 59.93
in neighboring South Africa, Te
picture is somewhat skewed
when this ratio is compared to
South Africa’s neighboring coun-
tries like Lesotho 9.17, Mozam-
bique at 6.9, and Namibia at 47.74.
Te same ratio in the European
Union stood at 70.
In addition to lack of physical
infrastructure, the continent’s
internet penetration rate remains
one of the lowest in the world.
Zimbabwe for instance has an es-
timated internet penetration rate
of 40%.Secondly, the pricing re-
gimes for existing infrastructure
such as ATMs and cards are not
responsive to the economic re-
alities of most African markets.
Exacerbated by the local curren-
cies performances, this afford-
ability challenge is even greater in
the international money transfer
domain. Most African economies
are dependent on international
money transfers due to the large
number of African expats all over
the world.
Leveraging mobile technology
According to an online publi-
cation, the African Focus, remit-
tance flows to Sub Saharan Africa
were estimated at $21 billion a
year from 2008 to 2010 and in-
creased to $24 billion in 2012.
Te transfer cost, according to the
World Bank was 11.57% per $200
in the third quarter of 2011 in Sub
Saharan Africa, the highest aver-
age cost compared to other parts
of the world. Tis certainly posi-
tions mobile payments as an al-
ternative channel that is real time
cost effective.
Lastly, one of the major so-
cial imperatives that cut across
the continent is the challenge
of financial inclusion. Tere are
varying statistics around the
number on unbanked adults in
the continent. In Zimbabwe for
instance the FinScope Zimbabwe
Consumer Survey 2011 revealed
that about a quarter of the adult
population (24%) are banked
while 26% of the adults have or
use other formal bank products
or services and 41% of Zimba-
bweans have or use informal
mechanisms for managing their
finances. Recently the Bankers
Association of Zimbabwe (BAZ)
commissioned a study to deter-
mine the amount of money circu-
lating outside the formal system,
and what remains significant is
that access to financial services
and not just bank accounts is a
major issue. Te economies of
Africa will not reach their poten-
tial if access to financial services
does not reach the broader sec-
tions of the populace.
Perhaps Mobile Money tech-
nology holds the key to this mar-
ket, and what can be made of it at
a primary, or secondary level is
an open cheque. M-commerce,
fuelled by mobile banking and
payments technology, may be
the winning formula for African
banks and potential startups to
profit from long-anticipated eco-
nomic growth on the continent.
KPMG Africa, Mobile banking
series,
KPMG BUSINESS SEMINAR 2014.
"Mobile banking is set to
grow in the continent for a
number of reasons. Firstly,
there is the fact that generally,
Africa has a low base of phys-
ical banking infrastructure.
According to an International
Monetary Fund, Financial Ac-
cess Survey, 2012 the number
of ATMs per 100,000 adults
was 4.76 in Zimbabwe, as
compared to 59.93 in neigh-
boring South Africa."
George Manyere
Heather De Jongh
Tafadzwa Chinamo
Valerie Muyambo
A key milestone on the journey
to better business reporting
Reporting in Zimbabwe has
turned around 360 degrees over
the last three decades. Tis has
generally been as a result of the
economic, social, political and
environmental changes that
have taken place during that
time. After a turbulent decade of
hyperinflation that ended in 2008
and gave birth to dollarisation,
the country opened up to the
world and became a more
lucrative destination for investors
despite the challenges faced since
that time. With the right policies
and the vast resources that are
lying idle it is only a matter of
time until this “sleeping giant”
regains its position on the world
map. Going back on the world
map also means using widely
accepted reporting frameworks
as the rest of the world in order
for investors to get value from
reports produced in Zimbabwe.
It is time that businesses in
Zimbabwe moved beyond
historical financial performance
reporting. Integrated Reporting
can play a key role in the drive for
a more comprehensive analyses
of the business.
Looking beyond short-term
earnings – Te future of corporate
reporting?
Te Integrated Reporting
Framework is an attempt to
reshape the direction and focus
of corporate reporting, aimed at
providing investors with a more
complete picture of business
value by extending reporting
beyond historical financial
performance. Te Framework
was launched on 9 December
2013 by the International
Integrated Reporting Council
(IIRC), following a period of
consultation that received an
extensive response.
Te Framework is likely to be
of particular interest to those
companies already looking to
improve the quality of their
narrative reporting as a basis for
better dialogue with their
investors.
A principles-based framework
for more relevant information
Rather than specify detailed
disclosures and measurement
bases, the IIRC has defined a
principles-based framework that
would leave businesses to tell
their story on their own terms,
rather than through a check
list of disclosures.

Cultural shift
Te principles-based approach
requires a cultural shift by
report preparers to better
communicate the value they are
creating. Preparers would need
to recognise their reporting as a
platform to explain what drives
the underlying value of the
business and how management
has acted to develop and protect
this value. Tey would need to
ask themselves what the user
needs to know, rather than what
they are required to tell the user.
Te increased business
relevance that this could bring to
the report should be welcomed,
but it may be challenging
for those who have come to
regard their annual reporting
as a compliance-led regulatory
burden rather than a basis for
better shareholder dialogue.
Relationship with other
reporting streams
Integrated Reporting does not
necessarily intend to replace
other reporting streams such
as financial, corporate social
responsibility, or corporate
governance reporting. Te
IIRC’s vision is that preparers
should draw together relevant
information produced under
other more detailed reporting
frameworks – e.g. International
Financial Reporting Standard’s
– to explain the key drivers of
business value.
Explaining how long-term
value has been developed and
protected Integrated Reporting
is a relatively new concept, and
has been subject to a variety of
interpretations – some of
which are more closely linked
to sustainability. In finalising
the Framework, the IIRC has
provided greater clarity over a
number of areas, including the
following points.
• Investors are the
focus of an integrated report.
Information would only be
included in an integrated report
if it is considered material to
an investor’s assessment of the
business.
• Te purpose of an
integrated report is to explain
shareholder value creation. It
does not set out to value the
resources controlled by the
business.
Tese two areas in particular
should help companies to narrow
down the range of information
that Integrated Reporting might
require them to provide.
Telling the business story
Integrated Reporting is built
around seven key components of
content; specifically:
• Business model;
• Organisational over
view and
external environment;
• Opportunities and risks;
• Strategy and resource
allocation;
• Performance
• Outlook;
• Governance.
Te Framework does not
require the content elements to
be discrete sections in the report,
rather, they should be seen as
a high-level check to ensure
that the report covers all of the
relevant aspects of the business
story. We hope you enjoyed
reading the first part of our two
part series. Join us next week for
the second and final part of our
series on demystifying integrated
reporting. Should you require any
further information on this topic
please contact us at
our KPMG Zimbabwe offices in
Harare and Bulawayo.
Tis publication was adapted
from KPMG Global’s Integrated
Reporting resources and the
document remains the property
of KPMG.
Article by Linda Chipo
Samuriwo (FCCA)
Manager -Accounting Advisory
Services. Linda is a member of the
Association of Chartered Certified
Accountants and she also holds
a Diploma in International
Financial Reporting issued by
the same professional body. She
has been with KPMG for several
years and has vast experience
in accounting, finance and
taxation. She has worked on
clients across all sectors of the
Zimbabwe economy and also
spent six months in Botswana
on a client secondment for the
KPMG Botswana office assisting
them with work in their finance
function.
It is time that businesses in Zimbabwe moved beyond financial perfomance
reporting to integrated reporting.
E4
KPMG
ZIMBABWE INDEPENDENT AUGUST 22 TO AUGUST 28, 2014
Demystifying Integrated Reporting
– Introduction
Disclaimer
Te information contained herein is of a
general nature and is not intended to address
the circumstances of any particular individ-
ual or entity. Although we endeavor to pro-
vide accurate and timely information, there
can be no guarantee that such information is
accurate as of the date it is received or that it
will continue to be accurate as of the date it
is received or that it will continue to be ac-
curate in the future. No one should act upon
such information without appropriate pro-
fessional advice after a thorough examina-
tion of the particular situation.
© © 2014 KPMG, the Zimbabwe member
firm of the KPMG network of independent
member firms affiliated with KPMG Interna-
tional Cooperative (³KPMG International²),
a Swiss entity. All rights reserved. Printed in
Zimbabwe.
Te KPMG name, logo and ³cutting
through complexity² are registered trade-
marks or trademarks of KPMG International
"The i nt egrat ed repor t i ng
f ramework i s an at t empt t o
res hape t he di rect i on and
f ocus of cor porat e repor t i ng,
ai med at provi di ng i nvest ors
wi t h a more compl et e
pi ct ure of bus i ness val ue by
ext endi ng repor t i ng
beyond hi st or i cal f i nanci al
per f or mance"
ZIMBABWE INDEPENDENT EXECUTIVE SEPTEMBER 19 TO 25, 2014 E6
Good corporate governance practices
Being a director of a company can be re-
warding, worthwhile and fulfilling. At the
same time, it is a demanding and challeng-
ing task, even in the best of circumstances.
Directors must be accountable to their
company’s stakeholders, such as share-
holders, regulators, employees, lenders,
trade creditors and customers. Directors are
under increasing pressure to become more
accountable, transparent and responsive to
stakeholder and community interests. In
extreme cases, they face the possibility of
litigation brought by disgruntled stakehold-
ers. New legislation, regulations as well as
voluntary and statutory codes aimed at im-
proving standards of corporate governance
make this even more challenging.
Te test of a board’s effectiveness is its
ability to increase the value of the organi-
sation on a sustainable basis. Tis objective
demands an emphasis on performance,
not just conformance. We have produced
this article to help directors (and aspiring
directors) make a worthwhile contribution
to the performance of their companies by
implementing good corporate governance
practices.
Definition of corporate governance
Te term corporate governance has many
definitions and all reflect the divergent role
of companies in society. One of the earlier
and popular definitions of corporate gov-
ernance comes from the 1992 UK Cadbury
Report: “Corporate Governance is the sys-
tem by which companies are directed and
controlled”.
Te Organisation for Economic Co-op-
eration and Development (OECD) defines
corporate governance as: “a set of rela-
tionships between a company’s manage-
ment, its board, its shareholders and other
stakeholders. Corporate governance also
provides the structure through which the
objectives of the company are set, and the
means of attaining those objectives and
monitoring performance are determined.”
Role of the board
• Ensure the company’s ethics are
managed effectively through building an
ethical culture, setting ethics standards,
measuring adherence and incorporat-
ing ethics into its risk management, op-
erations, performance management and
disclosure.
• Be the focal point of governance
- have a charter, meet at least four times a
year, monitor management and stakehold-
er relations and put in place a framework to
ensure the company survives and thrives.
• Appreciate strategy, risk, perfor-
mance and sustainability.
• Determine the board sub-com-
mittees required based on the nature
and complexity of the company and en-
sure such subcommittee are in place and
operational.
• Govern risks.
• Be responsible for IT governance.
• Ensure the company complies
with laws and considers rules, codes and
standards.
• Ensure there is an efective risk
based internal audit.
• Ensure integrity of the integrated
report.
• Report on the efectiveness of in-
ternal controls.
• Act in the best interests of the
company (including managing conflicts).
• Consider business rescue options
as soon as the company is distressed.
• Elect annually an independent,
non-executive director as chairman.
• Appoint the CEO, defne board’s
materiality, establish a delegation of au-
thority, evaluate CEO performance and en-
sure a succession plan for CEO and senior
executives is in place.
Benefits of good corporate governance
Good corporate governance benefits all
entities. Indeed, good corporate govern-
ance benefits the wider stakeholders – the
economy, society and the environment i.e.
the concept of the organisation being a re-
sponsible corporate citizen. What consti-
tutes good corporate governance practices
is the subject of numerous guides and laws
issued internationally. In Zimbabwe, the
most significant of these is the Companies
Act Chapter 24:03, which regulates all pri-
vate, listed and state enterprises which are
registered as companies by the registrar of
companies in Zimbabwe. State enterprises
are also governed by the Public Finance
Management Act, Chapter 22:19, Corpo-
rate Governance Framework for State En-
terprises and Parastatals and the respective
acts that bring the state enterprises into
existence.
Zimbabwe has developed its own na-
tional code on corporate governance, the
document has been finalized and it is ex-
pected to be launched before the end of
the year. Te national code on corporate
governance for Zimbabwe project is a joint
initiative of the Institute of Directors Zim-
babwe (IODZ), the Standards Association
of Zimbabwe (SAZ), and Zimbabwe Lead-
ership Forum (ZIMLEF).
Drivers of good governance
Some of the fundamentals that estab-
lish effective corporate governance are as
follows:
• Investor and stakeholder engage-
ment - through transparent consultations
with recognition of legitimate expectations,
and accountability for meeting commit-
ments (an inclusive stakeholder approach).
• Regular and consistent board
appraisals.
• Leadership - ensuring efective
and ethical leadership in an organisation.
• Balance of power - diversity of
views and protection against abuse.
• Relevant, useful and transparent
communication.
• Efcient legal and regulatory
compliance.
By emphasizing sustainable value crea-
tion, a company’s view on corporate gov-
ernance should go beyond traditional con-
formance. Te emphasis should be on the
board’s role as being a board that should
apply governance principles and prac-
tices, as opposed to blindly conforming in
a ‘tick-box manner’ to latest governance
guidelines. Undoubtedly this requires an
application of mind as to what best befits a
company - no one size fits all.
Tis article was adapted from a KPMG
publication ‘Toolkit for the company
director’.
KPMG Zimbabwe’s advisory services de-
partment assists clients with, among other
advisory services, corporate governance
consultancy. Services provided in respect
thereof comprise corporate governance
review, board induction and/or training
and facilitation of board and board mem-
ber evaluation. A core team dedicated to
governance matters ensures the client gets
specialized and in depth insight into the
respective service required.
For more information you may contact
the KPMG Zimbabwe advisory services
department on (04) 302600 or 303700. Al-
ternatively you can visit our website www.
kpmg.com/zw.
Directors must be ac-
countable to their com-
pany’s stakeholders,
such as shareholders,
regulators, employees,
lenders, trade creditors
and customers.
Definition of corporate governance
Te term corporate governance has many
definitions and all reflect the divergent role of
companies in society. One of the earlier and
popular definitions of corporate governance
comes from the 1992 UK Cadbury Report:
“Corporate Governance is the system by which
companies are directed and controlled”.
ZIMBABWE INDEPENDENT EXECUTIVE SEPTEMBER 5 TO 11, 2014 E6
CASS Patron, Gloria Zvaravanhu giving a
handover speech while ICAZ CEO, Matts
Kunaka(second from right) and ICAZ President,
Bothwell Nyajeka(third from right) looks on
Left, Gerald Matavata,CASS President and CASS
Patron, Gloria Zvaravanhu
Second from right, Mrs Sithole, Harare Children’s
home Patron, giving an acceptance speech
KPMG representatives receiving the Overall
winners shield.
WE are now in the age of ‘Big
Data.’
An age where, as noted in a 7
November 2013 European Com-
mission Fact Sheet, What is big
data? “Every minute the world
generates 1.7 million billion bytes
of data, equivalent to 360,000
standard DVDs. More digitised
data was created in the last 2 years
than in the rest of human history.
Tis trend and the mountains of
data it produces is what we call
‘Big data’. Te big data sector is
growing at a rate of 40 percent a
year.”

Tink about that number.
360,000 DVDs (4.7Gb per disc)
worth of data per minute. And for
some organisations that’s the tip
of the iceberg.
Two years ago Facebook alone
was storing 100 petabytes of data.
Tat’s all of the data from their
near 1 billion plus ‘active users’.
Ten consider the estimated
154.6 billion emails sent globally
every day (89 billion of which
are corporate emails – a figure
expected to grow at an average
annual rate of 13 percent over the
next 4 years).
Now add in every Twitter
tweet (over 30,000 per second),
every SMS, every data transfer,
returned survey, indirect tax
statement, bank transfer, trans-
action records, Frequent Flyer
and supermarket rewards card
transaction, etc... the list goes on.
All of which combines to be-
come what we now call ‘Big
Data’, a term that can be broken
down into the three V’s:
1 Volume – the amount of data,
2. Velocity – how fast it is
processed / analysed,
3. Variety – the different types of
data,
• Structured (databases, spread
sheets, etc,)
• Unstructured (emails, social
media, SMS, etc)
And to make that even more
complex, a fourth and a fifth are
also key:
4. Veracity – the accuracy of that
data and how it may relate to
business value (remember
that ‘bad data in means bad
data out’)
5. Value – making sure the
findings are insightful and
can be “used” as opposed to
just ‘interesting’.
Needless to say, the potential
value of all of that data cannot be
underestimated.
So the question is – how many
organisations are making the best
of what they’ve got? Are they us-
ing data analytics to identify and
extract any valuable information
and insights?

And the answer matters.
A recent Bain & Company
study3 showed that those who
were early adopters of Big Data
analytics not only gained a sub-
stantial lead in the corporate
world but those with advanced
analytics capabilities outper-
formed their competition by a
wide margin. Additionally, an-
other European Commission
study4 showed that ‘data-driven
decision making leads to 5–6
Te current state of Big Data: and why it matters
percent efficiency gains in the
different sectors observed’. With
investment in IT infrastructure
soaring across many markets of
the African continent, and the
proliferation of smartphones
tracking ahead, Big Data is now
on the radar of many businesses
and telecoms in the region. In
Zimbabwe, the difficult to ignore
fiber trenching taking place in a
number of residential and com-
mercial areas is evidence of the
kind of investment being made
into IT infrastructure. More con-
nectivity will mean more data.
It’s no surprise then that data
analytics is a quickly evolving area
within businesses – with different
organisations and industries at
different stages or maturity.
Naturally, data analytics can be
used in many different areas of
the business for a variety of rea-
sons. By being able to look deeper
into the their data, directors and
senior management can, for ex-
ample, better tailor services and
products to specific customers,
minimise risk, boost innovative
product and service develop-
ment, make better management
decisions, and improve overall
decision-making.

Finance
Big data can be a real game
changer in this industry especial-
ly in light of our goal of financial
inclusion. Financial institutions
such as banks can exploit big data
to understand their market bet-
ter, predictive analytics can en-
able banks to have a better un-
derstanding of the transactional
needs of their clientele, insurance
companies can use predictive an-
alytics to make it easier to process
claims and spot fraud for instance.
Tis can help shorten their claims
processing time and in this indus-
try we all know the faster you can
process claims the more policies
you get to underwrite. Lower Op-
erational costs may also be a ben-
efit as the need to visit clients for
claims may be reduced. Health
insurance companies may even
be able to predict client’s prob-
lems before they arise which
will be of significant benefit to
their planning and budgeting.
Te competiveness that will arise
from such efficiencies cannot be
undermined.
Agriculture
Perhaps the key to restoring our
‘Bread Basket title,’ is Big Data.
Farming successfully is based
on well informed decisions, the
difference between a bumper
harvest and a failed farming sea-
son could be information. Big
Data projects have the potential
of providing farmers with the
kind of information necessary to
make the right kind of farming
decisions. If for instance farm-
ers had access to leverage agri-
cultural data, including climate,
soil information and disease, it
would help them make informed
decisions about irrigation, pest
control and fertilization, and also
avoid wasting much needed re-
sources. With the right kind of
information market specifics can
also be predicted to the benefit of
the farmer for instance pricing of
goods has a lot to do with timing
and supply and these are two fac-
tors that should be part and parcel
of the farmers planning activities.
Successful farming is dependent
on making the right kind of deci-
sions and this is something that
Big Data can help with.
Te real benefits of Big Data are
more specific to each entity and
what meaningful value an entity
may derive from it is subject to how
well an entity may take advantage
of Big Data. A holistic understand-
ing of the business processes of an
entity will be key for the optimal
use of data analytics. Important
questions will have to answered,
for instance why the data is re-
quired-need definition, what kind
of data is is required, how will the
data be used and so forth. Firms
may choose to outsource or make
use of in-house capabilities but the
bottom line, successful Big Data
projects will require some level of
expertise.On the other hand, Big
data could raise some serious pri-
vacy and security concerns. Te
collection, storage and interpreta-
tion of data about consumer be-
havior may give rise to issues on
privacy issues. Big Data could also
be abused by Cyber criminals, but
like all good things controls should
be put in place to safe guard the
value and worth of Big Data.
Dare I say Big Data is the next
market competition frontier yet
to be explored, if any entity is
serious about being competitive
now would be the time to start
exploring. Often the term Big
Data gives the impression that
this is a domain for ‘Big’ corpora-
tions but that is not the case. Big
Data is about taking advantage of
data for business gain regardless
of your size as an entity, in fact
Big Data could unlock the growth
potential of an entity looking to
increase its market space.
In conclusion, all this means
getting serious about privacy and
data security, up-skilling those
needed to analyse the data, in-
vesting in appropriate technology
to make use of these large datas-
ets and looking at ways and areas
to broaden the ability to analyse
and provide actionable insights.
Because in a world of data,
knowledge is king.
Donald Mlambo is a Junior Ana-
lyst -IT Advisory. He is a holder
of a Bsc Honors Degree in Infor-
mation Systems (Africa Univer-
sity).Donald has over a years’
experience in providing IT and
Audit Consultancy services at
various levels. Donald has aided
clients in identifying controls and
improving their IT environments.
Disclaimer
Te information contained here-
in is of a general nature and is
not intended to address the cir-
cumstances of any particular in-
dividual or entity. Although we
endeavor to provide accurate and
timely information, there can be
no guarantee that such informa-
tion is accurate as of the date it is
received or that it will continue
to be accurate as of the date it is
received or that it will continue
to be accurate in the future. No
one should act upon such infor-
mation without appropriate pro-
fessional advice after a thorough
examination of the particular
situation.
© 2014 KPMG, the Zimbabwe
member firm of the KPMG net-
work of independent member
firms affiliated with KPMG In-
ternational Cooperative (³KPMG
International²), a Swiss entity.
All rights reserved. Printed in
Zimbabwe. Te KPMG name,
logo and ³cutting through com-
plexity² are registered trade-
marks or trademarks of KPMG
International
Donald Mlambo
ICAZ sports day in pictures
EY-Tag of war winners ICAZ Team- Netball winners