Brazilian GAAP Vs IFRS Overview - PKF ifrs.pdf · CPC 04 Intangible Assets CPC 05 Related Party...

Brazilian GAAP Vs IFRS Overview

An overview of significant

differences for Companies

converting to IFRS from

Brazilian GAAP

Table of Contents


Framework for the Preparation and Presentation of Financial Statements

Accounting Standard for Small and Medium-sized Entities (CPCs for SMEs)

CPC 01 (R1) Impairment of Assets

CPC 02 Changes in Foreign Exchange Ratesand Financial Statements Conversion

CPC 03 Statement of Cash Flows

CPC 04 Intangible Assets

CPC 05 Related Party Disclosures

CPC 06 Leases

CPC 07 Government Grants

CPC 08 Transaction Costs and Premium on the Issuance of Debt and Equity Instruments, CPC 38 Financial Instruments: Recognition and Measurement (supersedes CPC 14), CPC 39 Financial Instruments: Presentation, CPC 40 Financial Instruments: Disclosure

CPC 10 Share Based Payment

CPC 11 Insurance Contracts

CPC 13 First Time Adoption of Law 11,638,CPC 37 First Time Adoption of IFRS,CPC 43 Initial Adoption of Technical Pronouncements CPC 15 and 40

CPC 15 Business Combinations

CPC 16 (R1) Inventory

CPC 17 Construction Contracts, CPC 30 Revenue Recognition and CPC 01 Concession Contracts

CPC 18 Investments in Associates, CPC 19 Interests in Joint Ventures, CPC 35 Separate Financial Statements, CPC 36 (R1) Consolidated FinancialStatements; ICPC 09 Individual FinancialStatements, Separate Financial Statements and Consolidated FinancialStatements and Equity Method

CPC 20 Borrowing Costs

CPC 21 Interim Reporting, CPC 22 OperatingSegments, CPC 23 Accounting Policies,Changes in Accounting Estimates and Errors, CPC 26 Presentation of Financial Statements

CPC 24 Subsequent Events; ICPC 08 Accountingfor the Payment of Proposed Dividends

CPC 25 Provisions, Contingent Liabilities andContingent Assets

CPC 27 Property, Plant & Equipment, CPC 28 Investment Property, CPC 31 Non-Current Assets Held for Sale and Discontinued Operations, ICPC 01 Concession Contracts

CPC 29 Biological Assets

CPC 32 Income Taxes

CPC 33 Employee Benefits

Transition to IFRS Methodology - How we can help you

Suggested IFRS Conversion Methodology

Introduction

On 28 January 2010 the Brazilian Federal Council of Accounting and the Brazilian Accounting

Pronouncements Committee signed a Memorandum of Understanding (MoU) with the IASB that

set the end of 2010 as the date for full convergence with International Financial Reporting Standards

(IFRSs) and established a framework for future co-operation between the organisations.

The move towards convergence with IFRSs was initiated by the Brazilian Central Bank, reflecting its

view of the importance of a single set of IFRSs in use around the world. In 2006 the Brazilian Central

Bank announced that financial institutions under its remit will comply with IFRSs from December 2010

in their consolidated statutory financial statements. The Brazilian Securities Commission and the

Brazilian Insurance Supervisor issued similar guidelines in 2007.

In 2008 the Brazilian Congress approved a law which would require the convergence of Brazilian

GAAP with IFRSs for the statutory individual financial statements of all listed and unlisted companies.

As of 31st December 2008, a total of 14 new standards and one technical orientation had been

issued and most of these were required to be applied for 2008. Since then, an additional 27 new

standards have been issued along with 14 interpretations and two technical orientations.There are also

two additional standards relating to the framework for preparing and presenting financial information

and specific to small and medium sized entities (SMEs). These new standards are required to be

applied to calendar year 2010 and can be found online at www.cpc.org.br.

In this guide, “Brazilian GAAP vs. IFRS: Overview”, we take a high level look into existing GAAP

differences and provide an overview of where the standards are similar and where they diverge.

No publication that compares two sets of accounting standards can include all differences that could

arise in light of the huge variety of business transactions that could possibly occur. The existence of

any differences – and their materiality to an entity’s financial statements – depends on a variety of

specific factors. This brochure focuses on those differences most commonly found in present

practices and, where applicable, provides an overview of how and when those differences are

expected to converge.

1


In 2010 the Comitê de Pronunciamentos Contábeis (CPC) issued 43 accounting standards, 38 of which were, in

essence, equivalent to IFRS. However some of these standards did incorporate additional guidance or clarifications.

Brazilian GAAP Standard IFRS Standard Significant Differences

Basic ConceptsFramework for the Preparation and

Presentation of Financial Statements

CPC PMEAccounting Standard for Small and

Medium-sized Entities (CPCs for SMEs)

CPC 01 (R1)Impairment of Assets

CPC 02Changes in Foreign Exchange Rates and

Financial Statements Conversion

CPC 03Statement of Cash Flows

CPC 04Intangible Assets

CPC 05Related Party Disclosures

CPC 06Leases

CPC 07Government Grants

Framework for the Preparation

and Presentation of Financial

Statements

The International Financial

Reporting Standard for Small

and Medium-sized Entities (IFRS

for SMEs)

IAS 36Impairment of Assets

IAS 21The Effects of Changes in

Foreign Exchange Rates

IAS 7Statement of Cash Flows

IAS 38Intangible Assets

IAS 24Related Party Disclosures

IAS 17Leases

IAS 20Accounting for Government

Grants and Disclosure of

Government Assistance

The Framework under BR GAAP

contains differences from the IFRS

Framework as it relates to items that are

not allowed by Brazilian Corporate Law.

Both standards include criteria that

entities must meet in order to utilise the

pronouncement such as no public debt

or equity, but BR GAAP standards also

includes size requirements which are

consistent with Brazilian Corporate Law.

An entity qualifies as an SME in Brazil if

specific criteria are met. For example, its

revenues should not be greater than

R$300 million and its total assets should

not be greater than R$240 million.

No significant differences.

CPC 02 has additional paragraphs

which cover the separate IFRS

interpretation IFRIC 16 (Hedges of a

Net Investment in a Foreign Operation).

In addition, CPC 02 says that subsidiaries

that are considered as an “extension” of

the parent company must use the same

functional currency as the parent.





CPC 07 includes examples specific

to the Brazilian environment as

government grants are common

in Brazil.2


Description

CPC 08Transaction Costs and Premium on

the Issuance of Debt and Equity

Instruments

CPC 38Financial Instruments

Recognition and Measurement

(replaces CPC 14)

CPC 39 Financial Instruments: Presentation;

CPC 40Financial Instruments: Disclosure

CPC 10Share Based Payment

CPC 11Insurance Contracts

IAS 32Financial

Instruments

Presentation

IAS 39Financial Instruments

Recognition and Measurement

IFRS 7Financial Instruments:

Disclosures

IFRS 2Share Based Payment

IFRS 4Insurance Contracts






CPC 15Business Combinations

CPC 16 (R1)Inventory

IFRS 3 (R)Business Combinations

IAS 2Inventory



CPC 13First Time Adoption of Law 11,638;

CPC 37First Time Adoption of IFRS;

CPC 43Initial Adoption of Technical

Pronouncements CPC 15 and 40

These CPCs were issued in order to help companies apply the changes

brought by Law 11.638 and the CPCs. They are broadly equivalent to

IFRS 1 but there are differenceseliminating alternatives and requiring items

primarily due to CPC or Corporate Law constraints or requirements such as

the revaluation of assets (not allowed under Corporate Law), presentation

of the income statement (under the CPC, entities must present an income

statement separate from comprehensive income but the IFRS allows a

choice between one statement and two statements), and the effective date

of when businesses combinations must be revalued. (Under the CPC,

business combinations can only be revalued back to 1 January 2009 but

the IFRS allows companies to go back further than this so companies in

Brazil should be following the CPC requirements.)


3



CPC 17Construction Contracts;

CPC 30Revenue Recognition;

ICPC 01Concession Contracts

CPC 18Investments in Associates;

CPC 19Interests in Joint Ventures;

CPC 35Separate Financial Statements;

CPC 36 (R1)Consolidated Financial Statements;

ICPC 09Individual Financial Statements, Separate

Financial Statements and Consolidated

Financial Statements and Equity Method

CPC 20Borrowing Costs

CPC 21Interim Reporting;

CPC 22Operating Segments;

CPC 23Accounting Policies, Changes in

Accounting Estimates and Errors;

CPC 26Presentation of Financial Statements

IAS 11Construction Contracts;

IAS 18Revenue;

IFRIC 12Service Concession

Arrangements;

SIC 29Service Concession

Arrangements: Disclosures

IAS 28Investments in Associates;

AS 31Interests in Joint Ventures;

AS 27Consolidated and Separate

Financial Statements

CPC 20Borrowing Costs

IAS 34Interim Financial Reporting;

IFRS 8Operating Segments;

IAS 8Accounting Policies, Changes in

Accounting Estimates and Errors;

IAS 1Presentation of Financial

Statements

O CPC 17 requires additional disclosure

relating to gross and net revenues.

CPCs 35 and 36 (R1)have a third type

of financial statements called individual

financial statements.These are parent

Company’s financial statements in which

subsidiaries and joint ventures are

presented using the equity method.

Joint ventures must use proportionate

consolidation under CPC 19 while they

have the option of proportionate or

equity method consolidation under IFRS.

Under IFRS, an entity can include results

of an investment in a associate with a

different reporting period as long as it

iswithin three months of the entity’s

reporting date. CPC18 only allows a

difference of two months.

IFRS is silent as to whether or not

exchange differences should actually

create a credit to the asset due to

favourable exchange rates.

The CPC says that exchange rate

differences should be captured in the

capitalisation.

IAS 1 does not require the Value Added

statement that is required by CPC 26.

4


CPC 24Subsequent Events;

ICPC 08Accounting for the Payment of Proposed

Dividends

CPC 25Provisions, Contingent Liabilities and

Contingent Assets

CPC 27 Property, Plant & Equipment;

CPC 28Investment Property;

CPC 31Non-current Assets Held for Sale and

Discontinued Operations;

ICPC 01Concession Contracts

CPC 29 Biological Assets

CPC 32 Income Taxes

CPC 33 Employee Benefits

IAS 10Events after

the Reporting Period

IAS 37Provisions, Contingent Liabilities

and Contingent Assets

IAS 16Property, Plant & Equipment;

IAS 40Investment Property;

IFRS 5Non-current Assets Held for Sale

and Discontinued Operations;

IFRIC 12Service Concession

Arrangements

IAS 41Agriculture

IAS 12Income Taxes

IAS 19Employee Benefits;

IAS 26Accounting and Reporting by

Retirement Benefit Plans

ICPC 08 explains how dividends are

recorded and explicitly states that

mandatory dividends under Law

6.404/76 must be recorded as a liability.

IFRS has no guidance similar to ICPC 08.


Revaluation of assets is not permitted

under Law 11,638 while revaluation may

be applied (as a policy choice) to an

entire class of assets which are then

required to be revalued to fair value on

a regular basis under IFRS.

CPC 31, has an additional category

of assets called assets held to be

distributed to owners.


CPC 32 requires more disclosure as it

relates to gross versus net revenue and

various taxes specific to Brazil.


5


How we can help you

PKF International’s suggested IFRS conversion methodology for member firms and how we can help

you with your IFRS conversion is highlighted below.

IFRS Conversion

Our methodology is split into four phases and these will help you with the following;

Phase 1:The impact assessment phase will help to identify high level changes and accounting differences for

your organisation.

Phase 2: Identifying the skills sets and resources to carry out the conversion and designing and planning for

the conversion and understanding timelines to ensure business as usual processes are not delayed.

Phase 3:When significant accounting differences have been identified and a plan set up for the conversion,

the implementation phase can begin. This will involve identifying potential group restructuring and tax

benefits to be had before the conversion begins, preparation of skeleton financial statements and

embedding the process to name some of the items to be addressed.

Phase 4:Finally, at the end of a successful conversion, it is paramount that relevant individuals within the

organisation are trained on IFRS, new policies and procedures and systems to ensure all skills have

been transferred and to ensure a smooth transition.

6

Conversion methodology

The diagram below shows that during a conversion project from local GAAP to IFRS it is not only the

Finance teams of an organisation which should be involved but also Tax, IT (involving issues around

business processes and systems), Regulatory, Human Resources and Training teams.

PKF International member firms have proven experience of undertaking this conversion and can help

you understand and plan for your company’s conversion to IFRS.

Design and

planning

Imple

menta

tion a

nd

embed

din

g pro

cessesTraining

1

3

2

4

Impact

assess

ment

7

IFRS

Finan

cial

Rep

ortin

g

Tax

IT

Regulatory

Hum

an

Res

ource

s

Trai

ning

IMPORTANT DISCLAIMER: This publication has been distributed on the express terms and understanding that the authors are not

responsible for the results of any actions which are undertaken on the basis of the information which is contained within this publication,

nor for any error in, or omission from, this publication.

The publishers and the authors expressly disclaim all and any liability and responsibility to any person, entity or corporation who acts or fails

to act as a consequence of any reliance upon the whole or any part of the contents of this publication.

Accordingly no person, entity or corporation should act or rely upon any matter or information as contained or implied within this publication

without first obtaining advice from an appropriately qualified professional person or firm of advisors, and ensuring that such advice specifically

relates to their particular circumstances.

PKF International is a network of legally independent member firms administered by PKF International Limited (PKFI). Neither PKFI nor the

member firms of the network generally accept any responsibility or liability for the actions or inactions on the part of any individual member

firm or firms.

8

PKF International LtdFarringdon Place20 Farringdon RoadLondon EC1M 3AP

Tel: 020 7065 0104

www.pkf.com

Brazilian GAAP Vs IFRS Overview - PKF ifrs.pdf · CPC 04 Intangible Assets CPC 05 Related Party...

Documents

Transcript of Brazilian GAAP Vs IFRS Overview - PKF ifrs.pdf · CPC 04 Intangible Assets CPC 05 Related Party...