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The Bruce Column – The Brazilian benefits of IFRS in full

15 Nov 2011

IASB Chairman, Hans Hoogervorst, has been praising the Brazilian IFRS effort. Robert Bruce, our regular resident columnist, looks at how the enthusiastic use of IFRS is transforming and boosting a whole region.

'Gone are the days when Brazil seemed destined to always remain “the country of the future”', said Hans Hoogervorst. Speaking at the recent IFRS conference in Sao Paulo he continued: 'For Brazil, the future is now'. And international financial reporting standards, IFRS, have been a significant factor in this change. Brazil has enthusiastically embraced IFRS and has reaped the benefits.

As Hoogervorst continued: 'In many ways Brazil has offered a textbook example of how to adopt IFRSs. When Brazil adopted IFRSs it did so in full, with no carve-outs. It eliminated some options and required additional disclosure requirements', he said, 'but it resisted the temptation to tweak the standards to meet local desires. If Brazil had made such adjustments', he continued, 'Brazilian companies would have had the pain of transition to new standards without the gain of full international acceptance of those standards. Instead, by adopting IFRSs in full Brazilian companies are able to raise capital on markets across Asia, Europe and the Americas – including the United States'.

Brazil is turning into an effective case study of how to do IFRS implementation and how to reap the benefits. A recent survey carried out by Deloitte and the Brazilian Investor Relations Institute, IBRI, of 46 of the largest public companies in Brazil, produced extraordinarily mature results. Looking at the changes brought about by IFRS implementation and its impact on the business environment an overwhelming majority saw benefits flowing through from influencing investors and changing the way in which their business was being viewed by investors. But even more impressive were the figures of 65% taking the view that it was improving the efficiency of the capital markets and 64% arguing that it was benefiting companies beyond the simple accounting.

'It is bringing positive changes in management systems and internal controls', said Bruce Mescher, Deloitte Audit Partner and Leader of the Global IFRS & Offerings Services practice in Brazil. 'Improvements are really being embedded in the systems and processes of companies. It has gone well beyond simple accounting benefits'. There are still issues to overcome, but those have more to do with time and experience. 'There are challenges', said Mescher. 'The word is still out on comparability. Some have said it is easier to compare a Brazilian retail company with a Brazilian mining company than it is to compare it with a European retailer. There clearly is much more information available but now there is a drive on for quality. It's part of the maturity curve'.

But there is more to the Brazilian story than implementation of IFRS. Brazil also adopted, with the option available from 2009, the IFRS for small and medium-sized entities, (SMEs). It is estimated that more than half a million Brazilian companies use it. In Hoogervorst's words: 'That is quite a remarkable statistic'. This revolution is not only about better information and more secure companies. 'The accounting profession has seen stock rise as well', says Mescher. 'Accountants in business have traditionally held the roles of bookkeepers and tax preparers. We are increasingly seeing them become strategic advisors to the business'. And the SME revolution is also having a remarkable effect across the whole region, not just in Brazil. 'One common theme is the interest of SMEs in IFRS and specifically IFRS for SMEs. Spreading the message about IFRS for SMEs and providing training on how to apply it is a major priority for many countries in the region', said Mescher.

And this is the other effect that IFRS is having. Across Latin America moves are afoot to bring economic organisations together across borders. Next March sees the first meeting of GLASS, the Group of Latin American Accounting Standard Setters, the latest of the regional forums springing up around the world. 'GLASS will be very important', said Rogério Mota, Deloitte Audit Partner and Regional Professional Practice Director in Brazil. 'It will be representing the region and facilitating our dialogue with the IASB. It will enable us to participate in the future agenda of the IASB'.

It will also dovetail in with other efforts in the region. 'GLASS is a natural extension of collaborative forces in the region', says Mescher. There are already plans under the MILA initiative to bring the stock exchanges of Colombia, Peru and Chile together. And the BRAiN, (Brazil Investments and Business), project aims to make Brazil a regional hub for financial business. The whole region is making an effort to get its act together. 'There are more and more regional and international partnerships', says Mescher, 'and GLASS is part of that. It will be invaluable. It is an excellent opportunity to drive consistency in the region and that means consistency in interpretation and implementation'.

And as Hoogervorst pointed out in his conference speech: 'Almost all of the major Latin American economies now speak the same financial language'.

Robert Bruce
November 2011