Question

brazil accounting infrastructure

with references

Answer 1

Brazil is one of the most promising emerging markets in the world. The country has overcome the recent turbulent international economic crisis and returned as a stronger and more attractive global player. A higher degree of diversification of our economy and a broader selection of trading partners, coupled with tightly regulated financial systems, were key to successfully mitigating the worst effects of the recent crisis. This was the result of nearly two decades of political and currency stability, tight fiscal discipline, increasing international reserves, solid macroeconomic indicators and a fast expanding internal consumer market.

The accounting profession

Professional requirements

There are two classes of accountants in Brazil:

Contadores (accountants): Accounting graduates who are permitted to engage in all types of professional work.

Técnicos de contabilidade (accounting technicians): Non-graduates whose field of professional activity is restricted.

Holders of non-Brazilian university degrees in accountancy may apply to have them revalidated in order to practice in Brazil. This requires sitting testinations on subjects that the state or federal universities consider as not having been covered in the courses taken outside Brazil. Accountants may practice until their qualifications have been recognised and registered by the appropriate Regional Accounting Council (CRC). Only contadores may work as auditors.

Auditors are required to pass a technical qualification test before working as auditors. There is a national registration of independent auditors (Cadastro Nacional de Auditores Independentes or CNAI) which is managed by the Federal Accounting Council (CFC) in order to assess the competence and skills of accounting professionals who wish to work as auditors. Additionally, all auditors of entities regulated by the Central Bank, CVM and the Private Insurance Regulator - (SUSEP) must pass the respective additional tests.

Independent auditors (individuals or firms) of listed companies in Brazil are subject to peer review, a quadrennial review of policies and specific engagements by another independent auditor under a program managed by members of the CFC and the Institute of Independent Auditors of Brazil (BRACON).

Federal Accounting Council and Regional Accounting Council

The accounting profession is regulated by an authority called the Federal Accounting Council (CFC) which is composed of members elected by representatives of the various Regional Accounting Councils (CRCs). The elected members of the CFC then elect their president.
The CFC is a supervisory body, interpreting how the law governing the profession is to be applied and overseeing its enforcement. The CFC is called upon to resolve any disagreement at the regional level. Both the Federal and Regional Councils pass judgment on ethical matters. The CFC may submit proposed changes in the relevant legislation to Congress through the Ministry of Labour or it may be called upon to present its recommendations.

Institute of Independent Auditors

The Institute of Independent Auditors (IBRACON) is a private institution founded to complement, but not substitute, the CFC, primarily for technical matters. Preparing auditing pronouncements is one of its activities. IBRACON also had initiatives to prepare accounting pronouncements until 2007, but those activities are now the responsibility of the Accounting Pronouncements Committee (CPC).

Accounting Pronouncements Committee

The Accounting Pronouncements Committee (CPC) was created under the auspices of Federal Law 11638, which authorised the CVM, the Central Bank and other regulatory bodies and agencies to enter into an agreement with an entity for the purpose of studying and disclosing accounting and auditing principles, rules and standards and, as part of their regular activities, to fully or partly adopt that entity's pronouncements and other technical guidelines

The CPC is mostly composed of accountants and also includes, on an equitable basis, representatives of entities that prepare financial statements, entities that audit and analyse financial statements, the CFC and universities or research institutes with renowned expertise in the accounting and capital market areas.

Auditing standards

Financial statements and the accounting principles reflected therein are representations of management. The independent auditors confirm whether the financial statements conform to published accounting principles. To do so, they must testine the financial statements in accordance with approved Brazilian auditing standards.

The Brazilian Convergence Committee was created in October 2005 to identify and monitor the initiatives to be implemented to make possible the convergence of Brazilian accounting and auditing standards with the International Financial Reporting Standards (IFRS) issued by the IASB and International Standards on Auditing (ISAs) issued by the International Federation of Accountants (IFAC) through the International Auditing and Assurance Standards Board (IAASB).

The accounting standards convergence process with respect to auditing standards, this process resulted in the CFC adopting the IFAC’s international auditing and assurance standards, issued after the clarity project. CFC accordingly issued thirty-seven auditing and assurance standards in Brazil in 2009. These new standards apply to the audit of financial statements for periods ending on or after December 31, 2010

In this process of adopting international auditing standards, the original IFAC numbering system was maintained to facilitate the subsequent updates or reviews. Despite the maintenance of the numbering system, the structure of Brazilian standards is classified as professional (includes the code of ethics ) and technical (ISAS, ISAS, ISRSS, ISRES). For testple, instead of ISA 210 as issued by IFAC, this standard will be numbered TA 210; instead of ISRE 2400 this standard will be numbered NBC TR 2400.

Accounting Principles and Practice

The Accounting Practices adopted in Brazil (BR GAAP) are founded upon Brazilian Corporate Law. At the end of 2007 a new law (Law 11638) modified the Brazilian Corporate Law, effective in 2008   

This law was an important step towards making BR GAAP equivalent to International IFRS, although several differences still remain. The local standard setter, the Accounting Pronouncements Committee (CPC), was established in 2007 and is responsible for issuing new Brazilian accounting standards, which must then be endorsed by the applicable regulators, such as the CVM, the Central Bank or the Private Insurance Regulator (SUSEP), Representatives of the regulators usually attend CPC meetings as observers, so they are familiar with the new standards and can approve them soon after they have been finalised by the CPC.

The CVM, the Central Bank and SUSEP have each issued regulations requiring that the entities regulated by them prepare consolidated financial statements in accordance with IFRS for the 2010 calendar year. These regulated entities will still prepare their stand-alone financial statements in accordance with BR GAAP. All legal entities Brazil shall prepare their individual or stand-alone financial statements in accordance with BR GAAP. Individual financial statements differ conceptually from separate financial statements in IFRS. In the individual financial statements, the investments in subsidiaries, associates and joint ventures are accounted for using the equity method, while IFRS would require them at cost or fair value in separate financial statements.