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In the current world, there are various accounting standards which are being applied differently as per the country. If one takes a closer look and in-depth analysis of the details of the accounting standards which are being applied in the various countries will be absolutely surprised and there are high chances of being confused as per the latest developments. GAAP convergence has been the leading in the priorities of countries in convincing that there should be no differences in the accounting standards. There is use of the term convergence which refers to the eradication or bringing together of the prevailing differences. The Brazilian securities has identified and advised that the IFRS should specifically be used in all the years after 2010 in the areas of preparing consolidated financial statements. This is to be applied to all the public companies with an acceptance for them to utilize at an earlier time at their disposal. There is also the law which was enforced in the year 2007 which stipulates that all the companies which are public and private to adhere to the local accounting standards which are in agreement with the IFRS.
In this paper, we are going to critically examine the contents of the existing GAAP differences and similarities in the use of the accounting standards.
Differences and similarities
Presentation of the financial statements
In relation to the methods of financial presentation, there are similarities between Brazilian GAAP and IFRS. The basic notion that is used in Brazilian GAAP is related to what is used in IFRS structure. For a financial statement to be termed as complete there are some components that are there, for example, balance sheet, cash flows, income statement, and an accompanying note of financial statement (Zack, 2009). Except in cash flow these two frameworks use accrual bases in the preparation of the financial statement. The concept of materiality and consistency is very essential in both frameworks in preparation of the financial statement. The procedures, practices, methods, and accounting principles are some of the things that an accountant is required to use from one period to another in order to maintain consistency. In materiality the whole thing allows the accountant to violate some of the accounting standards in case one does not want do mislead the reader of the financial statement.
There is a difference in segment disclosures; in GAAP organizations are given a chance by CVM on the issue of disclosure segment but in IFRS it is the work of reporting segment to identify the reportable segment together with disclosure requirement. In GAAP value added statement is a must for all public organizations, but in IFRS it is not mandatory. In Brazilian GAAP the balance sheet is presented in a manner that the assets and liabilities are put in terms of liquidity and in a descending manner. In IFRS every organization is expected to put their assets and liabilities that is, current and non current as a separate categorization at the front of the balance sheet. In GAAP the minority interests are presented differently while in IFSR minority interests are included in the investor's equity. GAAP does not require the whole presentation of the income statement but in IFSR the income statement must be displayed comprehensively and they are put as two statements, one which shows profit and loss and the other that shows a complete income.
There are various differences and similarities in methods of recording and calculating transactions between IFRS and Brazilian GAAP principles. The standards on acquaintances, consolidations and for joint ventures for both frameworks are expected to be recorded and issued so as to be implemented by the companies. Some of the similarities include consolidation which is applied in both IFRS and Brazilian GAAP. For both frameworks consolidation is viewed as a special unit though IFRS applies both combined and separate financial statements. The frameworks therefore play a major role in making sure that subsidiaries are consolidated by applying the concept of control. The other similarity is the presence of what is referred to as an investment. This is the record in which the investor has too much power over it and can be calculated using the equity method. The equity method is applicable for both frameworks as it enables them to record the investments (Valores & Paulo, 2007).
There are various differences between the two frameworks in the principles they offer on the way they record financial statements. First the preparation of the consolidated financial statements is a requirement for all the public companies for Brazil GAAP hence to them the company cannot function without the consolidated financial statements. For IFRS, this is a general condition with few exemptions on those companies that are owned fully by the government but has not been taken as the main company and also those that are not owned fully if they are in a position to meet some conditions required for it to be for the government.
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Secondly, there is the issue of staging of non-controlling or the minority attention. For Brazilian GAAP it is staged in the balance sheet as a detached item and is outside equity while for IFRS it is a section in equity within the balance sheet.
For Brazil the presentation of financial reports for both the main and the consolidated company is a requirement while for IFRS it is not a requirement. For Brazil there is a law that needs the equity system to be applied when a body has great impact or when it's voting interest exceeds 20% in a different unit while IFRS there is a law which states that the use of equity method is only applicable with the presence of important influence. According to it, equity accounting is not used on investments where one holds more than 20% interest from ownership.
There is also a difference that comes due the joint ventures .For Brazil, the use of proportionate consolidation is the only one allowed while IFRS allows both proportionate consolidation and equity method.
The Brazilian GAAP calculates the amount of dividend payable to the respective company employees in accordance to the net income which has been reported unlike the IFRS. This also includes the profits which are to be paid to the employees. When calculating the errors, there is restating of the errors in the IFRS similar to the Brazilian GAAP. The calculation of the employee benefits is equivalent to the ways and calculation in IFRS framework. Arriving at the details of the pension of an employee is determined by the employer's contribution at all the times. The actuarial method is the one which is being used to determine the amount to which an employee is to be paid (Nandakumar & Mehta, 2010).
In recognition of the plan asset, the Brazilian reports it depending of the future certainty of the contributions. The IFRS bases it on the ceiling test. The actuarial gains and losses are treated by the Brazilian as per the corridor approach while the IFRS utilizes the equity method. The provisions of the constructive obligations are not common in the Brazilian reporting while in the IFRS, they are made or recognized as part of the obligatory and legal point of view. Onerous contracts are rarely taken up as the records of the provisions in the Brazilian unlike the IFRS where they are taken up as costs which cannot be ignored. On the legal obligations, there is a legal interpretation in the Brazilian reporting while in the IFRS has no obligation to give an interpretation of the same.
The fair value in Brazilian is that the receivables are actually subjected to the discounting so as to be indicated s the current value. In the IFRS framework, the fair value is recognized as the receivables. On the part of the deferred tax assets, the Brazilian GAAP recognizes it as to be mandatory to take it up in regards to the inclusion of the profits data (records). In the IRFS, the deferred tax is recognized to the level at which it is determinable. The assets revaluation under the Brazilian GAAP is not allowed while in the IFRS, the revaluation covers a certain set of the assets. These assets are later revalued under the fair value which is on ordinary basis.
How the differences/similarities would make it easier/harder for Brazil once IFRS becomes the global standard
The IFRS will make things easier for Brazil because it will manage to move away from strict rules. This particular country will be in a better position when using IFRS because; it can present its securities in other countries like USA without considering GAAP. It will be easier for all investors in Brazil to compare their performance internationally. It is important for Brazil to adopt this framework because it will not have limitations in international market. It will also be easier for Brazil to make comparisons which are very efficient because they enable companies to report using different rules. This comparison enhances transparency and accountability within organizations. Companies that use this method may register a rise in cost which may improve the economy of the country. This framework will seem to be harder in the sense that this process will affect judgments that are made in management in terms of depreciation, amortization and provisions (Bonham, 2008). On the other hand, investors may complain that they require various frameworks where they can make a list of their exchange.
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