New IASB Leader Embraces Challenges

New IASB Leader Embraces Challenges: Brazil’s adoption of IFRS

DeVry University

Current Issues in Accounting: ACCT525

New IASB Leader Embraces Challenges: Brazil’s adoption of IFRS

In Brazil, the implementation phase of reporting using the converged IFRS standards for listed companies began in 2010. A full adoption and implementation followed shortly after which made Brazil the first Latin American country to adopt IFRS in the region. The application of IFRS in Brazil has allowed for clearer financial statements and reporting which should help to boost the economy. This clarity in accounting practices also helps to attract foreign investments and trade. It is important to note that IFRS does not necessarily simplify trade. Brazil’s political environment is full of conflict and government intervention is very prominent as it relates to trade. IFRS does, however, improve transparency for companies operating in Brazil.

With Brazil’s partial acceptance of IFRS in 2007, the Securities and Exchange Commission in Brazil was accountable for and in charge of regulating IFRS for all non-banking listed companies in the country. During this partial implementation, IFRS adoption by listed companies was not yet mandatory. Mandatory use of IFRS in Brazil by all publicly-listed businesses was not authorized until 2010. Only businesses with revenues greater than R$240M and assets greater than R$300M were required to follow IFRS standards with all of their financial reporting.

Investors have seen a tremendous benefit with the adoption of IFRS in Brazil. Previously, foreign investors had to apply a risk premium due to their lack of understanding of Brazilian GAAP standards. This premium cost is no longer necessary since IFRS was adopted because financial statements are more easily understood by foreign investors. Access to capital has also become easier in Brazil as creditors are more perceptive to modifications in accounting standards due to the importance of accounting information to evaluate performance and contracting. IFRS adoption in Brazil had an effect on economic and financial indicators which, as a result, also impacted creditors’ analyses of financial status. It is safe to say that the ability of accounting information to explain corporate credit ratings increased with the adoption of IFRS.

Although IFRS in Brazil brings much needed transparency, it has not made the tax system any easier. Tax regulations have not been coupled with IFRS accounting standards. Whenever updates are completed on the accounting side, tax law remains unchanged. Brazilian taxation remains very complicated and can include many unclear layers of taxes for foreigners investing in the country. While IFRS is a great step forward and has been more welcoming to foreign investment, Brazil’s sluggish bureaucratic process coupled with its complicated and high taxes still present a challenge for foreign investors. The lack of accountants that are experienced and qualified in IFRS also presents a problem for Brazil’s successful outcome.

The US Securities and Exchange Commission should not be involved in mandating the adoption of IFRS. For a successful implementation, there is a need to be sensitive to the complexities of implementation and the different laws of each country. Brazil operates in a very complex manner. What may work in one country may be catastrophic in Brazil. The general idea behind the adoption of IFRS is great but we need to understand that IFRS adoption will be different from one country to another given the intricacies of each country.

References

De Lima, G. (2016, June). Effects of the adoption of IFRS on the credit market: Evidence from Brazil. Retrieved July 16, 2017, from

https://business.illinois.edu/accountancy/wp-content/uploads/sites/12/2016/01/Effects-of-the-Adoption-of-IFRS-on-the-Credit-Market-Evidence-from-Brazil-6-16-16.pdf

IAS Plus. (2011, November 15). Retrieved July 16, 2017, from https://www.iasplus.com/en/news/2011/November/the-bruce-column-the-brazilian-benefits-of-ifrs-in-full