Brazil’s Financial Statement Items Presentation and Valuation

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Table of Contents

Introduction
Financial Reporting Framework
Allocation of Responsibilities
GAAP versus IFRS
Conclusion
References

Introduction

The financial situation in Brazil can be compared to that in other developed countries in the western world, Middle East and the Far East. Various frameworks operate in the country to control and moderate the way the operations of financial institutions are conducted. Banks and other small and large businesses are required to adhere to certain programs specifically designed to moderate them. This paper seeks to address the presentation and valuation of financial items in Brazil.

Financial Reporting Framework

The Securities and Exchange Commission of Brazil compels all the listed companies to make publications of their consolidated financial statements. This requirement is established under specifications of international financial reporting standards and the statements should be recorded starting from the reporting date to the end of 2010. However, the same commission held that use of International financial reporting standards is made optional for the listed companies between the year 2007 and 2009. In the year 2006, a decision was made by the Central Bank of Brazil requiring all the banks to publish their financial statements. These statements were supposed to include all the investment information, whether domestic, foreign, listed, or unlisted (World Bank, 2005). In addition, the statements that were expected from the banks were supposed to comply with International Financial Reporting Standards. Just like it is a requirement for the listed companies, the banks must record all their statements starting from the reporting year to 31 December 2010.

For the small and medium enterprises (SMEs), a different international financial reporting standard was adopted and presented in Portuguese. The Brazilian Accounting Pronouncements Committee (CPC) commissioned the resolution, which was later endorsed by the Brazilian Federation Accounting Council. Through these regulations and registration guidelines, financial institutions are monitored for compliance with the commission’s specifications.

Allocation of Responsibilities

The allocation of responsibilities between the government’s departments and levels is constitutionally defined and has an independent revenue collection process. The Brazilian Constitution outlines that all the levels in the government are independent and should operate autonomously. In articles 153 to 156, the tax powers of each level of government are outlined and explained fully according to each echelon. On revenues, the Fiscal Responsibility Law requires the withholding of discretionary federal transfers to states and other levels of government that are not involved in the collection of their taxes, and publications of how tax exemptions may affect them (World Bank, 2005). On matters dealing with expenditure, the Fiscal Responsibility Law holds that spending consent should not be cleared without changing the permanent revenues or carrying out some cuts on permanent spending.

GAAP versus IFRS

In the recent past, Brazil has adopted two different but related paths of international financial reporting standards. In one of the strategies, the country mandated the securities regulator as well as the Brazilian Central Bank to use the International Financial Reporting Standards for all consolidated financial statements of public companies. The specifications also motivated the insurance regulators to make similar decisions to ensure reporting requirements harmonize with the international financial reporting standards. The reporting standards also required that all Brazilian companies register and prepare financial statements as per the local standards.

The basic standards under the GAAP have a special framework for preparing and presenting financial statements (Ernst & Young Terco, 2010). In addition, the international financial reporting standards have frameworks that have similar roles of preparing and presenting financial statements of financial institutions. Although the two standards appear similar based on their roles, there are a couple of observable differences between them. While the items presented and reported under the international financial reporting standards are supposed to be exclusively under the Brazilian Corporate Law, the BR GAAP framework has other items outside the Brazilian Corporate Law (Ernst & Young Terco, 2010).

Under the two frameworks, there exist criteria that should be followed to confirm the absence of public debts and fiduciary responsibilities before the reporting period. The above standard is only applicable for businesses whose worth doesn’t exceed R$ 300 million (Ernst & Young Terco, 2010). The GAAP standard is therefore very efficient in the presentation and preparation of financial statements by corporate and other businesses operating in Brazil.

Thirty-eight standards are present under the international financial reporting standards and the BR GAAP (Ernst & Young Terco, 2010). The GAAP also sheds light on impairment of assets, which is similar to that under IFRS standards. This means that there are no significant differences between the two frameworks. Although changes in the foreign exchange rates and financial statements conversions happen under the GAAP frameworks, the international financial reporting standards are greatly affected by these changes. Even if the GAAP has statements of cash flow, the international financial reporting standards also have similar specifications (Ernst & Young Terco, 2010). The GAAP addresses intangible assets and so does the IFRS standard. In addition, both address related party disclosures as well as leases. While the GAAP has frameworks for addressing government grants, the IFRS standards address accounting for government grants and disclosure of assistance from the government (Ernst & Young Terco, 2010).

Conclusion

These two bodies share roles of recognizing and measuring the financial instruments as well as presenting the findings. Disclosure roles are also shared by the two standards, making it possible to deal with corporate and institutional affairs. There are shared based payments under the two standards and there is no significant difference between the two standards with regard to insurance contracts. Similarly, the two frameworks address business combinations and inventories and manage revenue, concession and construction, in the same way.

References

Ernst & Young Terco. (2010). Brazilian GAAP vs. IFRS: The basics. Web.

World Bank. (2005). Report on the observance of standards and codes (ROSC): Brazil accounting and auditing. Web.

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Brazil’s Financial Statement Items Presentation and Valuation

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