Brazilian GAAP Vs IFRS Overview
An overview of significant
differences for Companies
converting to IFRS from
Brazilian GAAP
Table of Contents
Brazilian GAAP Vs IFRS Overview
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.
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Brazilian GAAP Vs IFRS Overview
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.
No significant differences.
No significant differences.
No significant differences.
No significant differences.
CPC 07 includes examples specific
to the Brazilian environment as
government grants are common
in Brazil.2
Brazilian GAAP Standard IFRS Standard Significant Differences
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
No significant differences.
No significant differences.
No significant differences.
No significant differences.
No significant differences.
CPC 15Business Combinations
CPC 16 (R1)Inventory
IFRS 3 (R)Business Combinations
IAS 2Inventory
No significant differences.
No significant differences.
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.)
Brazilian GAAP Standard IFRS Standard Significant Differences
3
Brazilian GAAP Vs IFRS Overview
Brazilian GAAP Standard IFRS Standard Significant Differences
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.
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Brazilian GAAP Standard IFRS Standard Significant Differences
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.
No significant differences.
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.
No significant differences.
CPC 32 requires more disclosure as it
relates to gross versus net revenue and
various taxes specific to Brazil.
No significant differences.
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Brazilian GAAP Vs IFRS Overview
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.
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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
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relates to their particular circumstances.
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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.
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