Law reform changes balances and puts Brazil in line with international standards
Valor Econômico - 12/20/2007
The Brazilian accounting is a signature away from being set free from the chains of the law. The sanction of Brazilian President Luiz Inácio Lula da Silva is all it needs for the new Brazilian legislation on the matter, passed yesterday by the Federal Senate, after seven years of development in the legislative branch. The Business Corporation Law, remodeled by the bill of law number 121/2007 (former 3,741/2000) will not subject the development of the accounting rules to the slow procedures of the law anymore. In other words, the country will be allowed to get updated according to the international debates faster. The changes may be carried out according to the instructions of the Brazilian Securities and Exchange Commission (CVM), the Central Bank (BC), and of other regulating agencies. Since the middle of this year, by the initiative of the participants, all those entities are organized and gathered in the Committee for Accounting Pronouncements (CPC) - instituted, precisely, to speed up and organize the topic, even before the approval of the new law. When the new rules come into force, the open companies will have to present, in addition to the traditional balance sheets, a statement for the cash flow and another one concerning the added value. The purposes of these new documents are, respectively, to make the flow of money in the company public and show how much wealth the company generated in the year, reflecting its contribution to the Gross Domestic Product (GDP). The cash-flow will replace the former Demonstração de Origem e Aplicação de Recursos, Doar (Statement of Changes in Financial Position),. Some topics will undergo major changes in the way they are dealt with. Used to entering assets and liabilities for their cost, the Brazilian companies will have to adjust themselves to the market value concept. With the reform, even the financial instruments and investments, including the volatile derivatives, will have to be entered according to the value of negotiation. The goods acquired from company mergers, acquisitions, and takeovers, will also have to be constantly adjusted by the probable realization value. Such concepts, all of which established in the law with the reform, aim at promoting the convergence with the International Financial Reporting Standards, IFRS. Such standard, which has been gaining more and more space in the national and international panorama, works essentially with the logics of the market value. By placing Brazil officially in the way of the harmonization of the international accounting rules, the new law brings several changes that will facilitate the life of investors, academics, journalists, and whoever needs to decipher the numbers of publicly-traded companies.