IFRS vs. Brazilian GAAP
← Why Kuwait Airways is Great | Leader-member Exchange Model → |
Abstract
International Financial Reporting Standards (abbreviated as IFRS) are simply principles-based standards, interpretations, and frameworks which are adopted by the international board of accounting. Most of the standards which form part of the IFRS are acknowledged by their original name, which was International Accounting Standards (IAS). These standards were issued by the Board of International Accounting Standards Committee (IASC) between 1973 and 2001. A new International Accounting Standards Board was set up in 2001to craft International Accounting Standards. These new standards have often been referred to as IFRS.
Introduction
It does indeed not astonish that many people who track down new developments in worldwide accounting standards these days end up being confused. The convergence of Generally Accepted Accounting Principles (GAAP) has therefore been prioritized on the agendas of many countries. Convergence is a term which suggests the act of coming together or eliminating differences.
In particular, Brazil has taken a number of steps towards its application of the International Financial Reporting Standards, with two most distinct but correlated paths in the adoption of IFRS. First and foremost, the securities regulator of Brazil, known as Comissão de Valores Mobiliários resolved that from the year 2010, public companies should use IFRS in consolidating their financial statements. Early adoption was accepted. The same resolutions were also made by the insurance regulator and the Central bank of Brazil, and this means that it is now be mandatory for financial institutions in Brazil to report under IFRS.
The second step that was taken by Brazil towards the use of IFRS was the formulation of a new corporate law 11, 638. This law was enacted in 2007 but took effect from 2008, and it stipulates that all Brazilian companies must prepare their financial statements in accordance with another set of new local standards which are presently being issued based on the standards of IFRS. This in essence means that all the public and non-public companies in Brazil are currently directed to use some specified local standards which are analogous to the standards of IFRS.
These specified local standards are currently being given out by a newly formed Brazilian accounting standard setter known as Comitê de Pronunciamentos Contábeis (CPC). The new standards have been set up to replace the existing accounting standards known as Normas Profissionais de Contabilidade which were issued by Instituto dos Auditores Independentes and other regulators. By the end of December 2008, a total of 14 CPC standards had been given out, nine of them being basic translations of the equivalent standards of IFRS. Nevertheless, there exist slight differences in these standards mainly due to supplementary guidelines and clarifications which are attached to them. More CPC standards which are based on the IFRS were expected to be completed in 2009, even though they were to become applicable as from 2010.
This paper seeks to explore the existing GAAP differences and provide a synopsis, based on the accounting area, of the similarities and differences which exist between international financial reporting standards (IFRS) and Brazilian Generally Accepted Accounting Principles (GAAP) and how these differences will make it hard for Brazil as accounting standards are moving towards globalization and IFRS is becoming the global standard.
Differences and Similarities with Regard to CPC 14
The major differences which exist between international financial reporting standards (IFRS) and Brazilian Generally Accepted Accounting Principles (GAAP) with regard to CPC 14 are envisaged in things such as financial instruments and embedded derivatives, and due to factors such as discontinuing of Hedge accounting, and the impairment and disclosure of financial assets. First and foremost, the Brazilian GAAP does not talk about derecognition of financial instruments. On the other hand, IAS 39 of the IFRS standards specifies rules which relate to derecognition of financial instruments. This is mainly based on the concept of the transfer of risks and rewards. Another major difference exists in compound financial instruments. According to the Brazilian GAAP, compound financial instruments are not supposed to be split into equity and debt components. On the Other hand, IAS 32 of the IFRS stipulates that compound financial instruments are supposed to be split into the equity and debt components, and where possible also the derivative component.
Another difference occurs on embedded derivatives. While CPC 14 of the Brazilian GAAP is silent on embedded derivatives, under the IFRS, embedded derivatives are described as an element of a hybrid instrument, which also includes a derivative host contract. According to IFRS, embedded derivatives must be detached from the host contract and accounted for as a distinct derivative in cases where they are not deemed to be closely linked to the host contract. In light of discontinuation of Hedge accounting, according to the Brazilian GAAP, when a designated cash flow hedge can no longer meet the criteria for such classification, the amount posted in equity is to be instantly reversed to the income statement. On the other hand, when a designated cash flow hedge can no longer meet the criteria for such classification under the IFRS, the cumulative gain or loss which occurs in equity during the specific period of time remains in equity till when the forecast transaction occurs. However, if the forecast transaction is not anticipated to occur, then that sum of money is recognized in profit or loss.
Another major difference between the Brazilian GAAP and the IFRS is depicted in the way they deal with financial impairment. Whereas CPC 14 of the Brazilian GAAP is silent on impairment of financial assets, the IFRS standards stipulate that impairment losses should be recognized when and only when there is an objective evidence, or when there is an occurrence of one or many events ensuing the initial recognition of the financial asset which impact on the projected future cash flows, and which can only be reliably estimated. In light of disclosure of financial assets, CPC 14 of the Brazilian GAAP stipulates that basic disclosures are carried out with regard to IAS 32 and 39. In addition, CVM 475 is considered in some aspects of IFRS 7 (focus on derivatives) for public companies.
The major similarity which occurs with regard to CPC 14 is that both the Brazilian GAAP and the IFRS require that financial instruments are categorized into specific classes so as to determine the measurement of these instruments. Both of them also call for the inclusion of all derivatives on the balance sheet. In addition, all of them permit Hedge accounting to almost similar conditions.
Differences and Similarities with regard to Presentation, Segments and Interim Financial Statements
The first difference which occurs under this classification is with regard to segment disclosure. Under the Brazilian GAAP, CVM allows public companies to disclose segments based on IAS 14, which was the IFRS standard that used to be in place before the issuance of IFRS 8. On the other hand, IFRS 8 is based on US GAAP SFAS131 which stipulates that reported segment information should be consistent with what is provided to key decision makers internally. Another difference occurs in value added statement. CPC 09 of the Brazilian GAAP stipulates that a value added statement is compulsory for all public companies. On the other hand, a value added statement is not mandatory under IFRS, and therefore not usually presented.
In light of balance sheet presentation, the Brazilian GAAP requires that assets and liabilities are presented in descending order of liquidity, with deferred income taxes being allocated between current and non-current portions. On the other hand, IAS1 of IFRS stipulates that current and non-current assets and liabilities are presented as separate entities on the balance sheet unless it is a situation where a presentation that is based on liquidity would provide more relevant and reliable information. In addition, deferred income taxes are presented as non-current.
There are many similarities which exist between the Brazilian GAAP and IFRS with regard to statement presentation. Most important is that the conceptual framework of the Brazilian GAAP is built upon the framework of IFRS, and NPC27, which is the current Brazilian presentation standard. Under both frameworks, the elements of a comprehensive set of financial statements include: income statement, balance sheet, statement of cash flows and statement of changes in equity, and notes which accompany financial statements. In addition, both frameworks stipulate that financial statements should be prepared in consideration of the accrual basis of accounting, with the exemption of the cash flow statement under very rare situations. Lastly, the two GAAPS have similar concepts with regard to consistency and materiality requirements that are to be considered during the preparation of financial statements.
Differences and Similarities with regard to Revenues
Major differences here occur in terms of fair value, multiple elements, customer loyalty programs and construction contracts. The concept of fair value under the Brazilian GAAP is similar to the IFRS, but it was reinforced by CPC 12 which stipulates that receivables should be discounted to present value when they are thought of as being material. On the other hand, under the IFRS standards, revenue is measured at the fair value of the consideration received or receivable. Secondly, whereas the Brazilian GAAP is silent on the concept of multiple elements, IAS 18, under the IFRS, requires that revenue be recognized on an element of transaction as long as that element can be commercially substantiated; otherwise the separate elements must be correlated and justified as a single transaction. Nevertheless, IAS 18 does not provide an explicit criterion for making such determination.
Whereas the Brazilian GAAP is silent on customer loyalty programs, under the IFRS, an entity must account for award credits as a distinct identifiable element of the sales transaction in which they are granted. A further detailed interpretation on this area is provided on INFRIC 13 on customer loyalty programs which were set up in 2008. Another difference comes in terms of construction contracts. Under the Brazilian GAAP, construction contracts, which include those of the real estate, are usually justified using a method referred to as percentage-of-completion method. On the other hand, this method can be used under IFRS standards only if certain criteria are met. If such criteria are not met, revenue recognition becomes limited to recoverable costs that are incurred. Nevertheless, the completed contract method should be used under certain circumstances such as in the sale of real estate.
The major similarity which occurs with regard to revenue recognition under both the IFRS and the Brazilian GAAP is linked to the finalization of the earning process and asset realization from such a completion. It is worth to note that under both GAAPS, revenue is not recognized until the time when it is both realized and earned.
Perhaps, the most significant difference which exists between the two GAAPS is the fact that whereas the IFRS specifies rules which relate to derecognition of financial instruments, the Brazilian GAAP does not talk about derecognition of financial instruments which is mainly based on the concept of the transfer of risks and rewards. It is therefore imperative to note that the Brazilian GAAP must come up with standards which must be based on the applicable standards of IFRS if it has to be followed. This disparity and many more others will make it hard for Brazil to implement its GAAP as accounting standards are moving towards globalization and IFRS is becoming the global standard.
- Leader-member Exchange Model
- Steel and Iron Export in China
- Why Kuwait Airways is Great
- Globalization Issues
![]() |
James C.
New Orleans, LA
|
|
I am required to do more writing this semester that I possibly have time for. Right after class, I have to go straight to my job. It’s a good thing I have EssaysEmpire.com to help me out with the writing. You guys always do such excellent work. Thanks! |
![]() |
Mary R.
New York
|
|
Writer #48376 was very easy to work with. My professor made some changes to his requirements after he had assigned the paper. All I had to do was call your customer service and request to speak with the writer directly. Was able to relay the changes that my professor wanted, and he (writer #48376) accommodated them with no problem. I thought that was great. No headaches and perfect work. I couldn’t ask for a better experience! |
![]() |
Mike G.
Rochester, NY
|
|
Your writing service is different from other writing services. Yours is the only one I have ever dealt with that I can truthfully say is legitimate. The staff is very professional. The writers are the best in the business. I am pleased with the results of my last three orders and plan to return for more soon. |
![]() |
George Sparlin
Nashville, TN
|
|
You guys are fabulous to offer such amazing guarantees for your work. I hired you for my last two papers because there was no risk involved. That was a pretty attractive option, if you ask me. Of course, I didnРІР‚в„ўt have to cash in on any kind of guarantee, because the work was perfect! Go figure. Thank you, EssaysEmpire.com. |
![]() |
Cleo C.
Wichita, KS
|
|
To the writers at EssaysEmpire.com: Next week, I will be graduating with a degree in clinical psychology. Over the course of my college years, I have had to turn to you for help many times. Each and every time, you produced some of the highest quality writing my professors had ever seen. Because of you, I was able to keep a high grade point average and get into an excellent grad school. There are simply no words adequate enough to fully express my appreciation, so I’ll simply say, “thank you” and let it go at that. Please know that you are appreciated. |
![]() |
Brianne H.
Tampa, FL
|
|
The paper that I purchased from EssaysEmpire.com was well written. Thank you. I will have another order for you soon. Since I was so happy with the way things went, I see no reason to use any other writing service. Your service delivers the goods, just like you say you will. |
![]() |
Alexandra Z.
Dallas, TX
|
|
I am sitting here reading over what your writing service offers and I just realized that you are the only one that offers free rewrites and full guarantees on your work. This tells me that you are an honest company that I want to do business with. |
![]() |
Tricia A.
Calabasas, CA
|
|
Thanks for everything. I like your writing service a lot. Your staff is friendly and they’re always open. The papers that you’ve written for me have been very good. |
![]() |
Jaffar M.
Salt Lake City, UT
|
|
My sincere thanks for a job well done. My professor loved my paper and commended me for handing in the one that your writing service helped me with. The paper flowed very well. It was logical and intelligent-sounding. I was very pleased overall. |
![]() |
Sylvia B.
Lakeview, MA
|
|
Your writers did an excellent job writing my four papers last semester. I don’t think I could have possibly made it through the semester without any help of EssaysEmpire.com. I deeply appreciate the help |
![]() |
Kyle N.
Tempe, AZ
|
|
Dear Sirs: I have just placed my third order from EssaysEmpire.com this term. I feel confident that my paper will be written on time and that the quality of it will be out of the ballpark. The first two papers I ordered from you got A+ marks, and I know this one will, too. It is so great to be able to sit back and concern myself with my reading and exams while you do the difficult writing projects for me. That is really great. You guys are a class act! |
![]() |
Langley R.
Los Angeles, CA
|
|
One of the things that I appreciate most about EssaysEmpire.com, is that they don’t resell your paper. Only you own it, if you hire them to write something. Other writing services that I have used, just circulate the same paper over and over, and if you get caught turning one in, too bad. You are expelled. EssaysEmpire.com will even give you a plagiarism report after they run it through their anti-plagiarism check. Such details set EssaysEmpire.com above the rest. |
![]() |
Della M.
Belfast, IR
|
|
I had to turn on my laptop for the express purpose of writing to you. I had to let you know what lifesavers you people are! I had never even considered hiring a professional writer to help me and was almost resigned to dropping out of school altogether. Then, I thought about it, and asked myself what it would hurt to try EssaysEmpire.com for just one paper. That paper was written astonishingly well! From that one paper, I learned many of the things that I did not know about writing. It was perfect, so I learned all about formatting in the APA style. I learned a lot, so I want to thank you for that. |
![]() |
Doreen A.
Malibu, CA
|
|
Due to a family emergency, I was unable to complete a very important paper. Thanks to EssaysEmpire.com, I was able to hand in a well written paper and not sacrifice my grade. I will be forever grateful to your writing service for providing such outstanding work. Thank you so much. |
![]() |
Mark M.
Cambridge, MA
|
|
The paper I ordered from EssaysEmpire.com is incomparable! Thanks for doing such stellar work. I have recommended your services to a few other folks who plan to try you out soon. EssaysEmpire.com gets my vote for best writing service every time. |
![]() |
Royce E.
Dallas, TX
|
|
I first approached EssaysEmpire.com with skepticism. However, now, I have none. I am convinced that you are probably the best writing service on the Internet. Plus, you don’t overcharge, as so many writing services do. Thank you for the quality writing at affordable prices. You offer such a valuable service to students such as me. |
![]() |
Kris K.
San Francisco, CA
|
|
I would like to say thanks to writer #48376 for doing such an astonishing job on my paper. I really gave him very little to go on. Still, he was able to do the research and come up with a champion paper for me. I am speechless. I didn’t expect anything nearly this good. |
![]() |
Benjamin P.
Beaumont, TX
|
|
Thank you for your diligence! Your writers got it right down to the last word! I appreciate how closely they paid attention. |
![]() |
Nancy B.
Lawrence, KS
|
|
I accidentally read the wrong chapters for my history assignment. Therefore, when it came down to the wire and I needed to hand in my history paper, I had to reach out for help very quickly. Your writers were able to put something together for me so fast! I couldn’t believe it! I handed the paper in and got a very high score on it. I was stunned! Thank you so much for your help! |
![]() |
Hannah B.
Tulsa, OK
|
|
I am happy. I am happy because I got an A+ on my research paper. I did this by hiring the professional writers at EssaysEmpire.com to write it for me. It was everything I had hoped it would be. Thanks, EssaysEmpire.com! |