BRAZILIAN GAAP

vs. IFRS
The Basics
September 2010

Table of Contents
Introduction

04

Converged Standards
Framework for the Preparation and
Presentation of Financial Statements

06

Accounting Standard for Small and

Medium-sized Entities (CPCs for PMEs)

06

CPC 20 - Borrowing Costs

12

CPC 01 (R1)- Impairment of Assets

07

CPC 02 - Changes in Foreign Exchange Rates

and Financial Statements Conversion

07

CPC 03 - Statement of Cash Flows

08

CPC 21 - Interim Reporting, CPC 22

Operating Segments, CPC 23 Accounting
Policies, Changes in Accounting Estimates
and Errors, CPC 26 Presentation of Financial
Statements

13

CPC 04 - Intangible Assets

08

CPC 05 - Related Party Disclosures

08

CPC 24 - Subsequent Events; ICPC 08

Accounting for the Payment of Proposed
Dividends

13

CPC 06 - Leases

08

CPC 25 - Provisions, Contingent Liabilities

and Contingent Assets

14

CPC 07 - Government Grants

08

CPC 27 - Property, Plant & Equipment,

CPC 28 Investment Property, CPC 31
Non-Current Assets Held for Sale and
Discontinued Operations, ICPC 01
Concession Contracts

14

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

09

CPC 10 - Share Based Payment

09

CPC 11 - Insurance Contracts

09

CPC 29 - Biological Assets

14

CPC 32 - Income Taxes

15

CPC 33 - Employee Benefits

15

CPC 41 - Earnings per Share

16

Standards without a direct IFRS equivalent

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

10

CPC 15 - Business Combinations

11

CPC 16 (R1) - Inventory

11

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
Financial Statements; ICPC 09 Individual
Financial Statements, Separate Financial
Statements and Consolidated Financial
Statements and Equity Method
12

11

CPC 09 - Value Added Statement

17

CPC 12 - Adjustments to Present Value

17

Areas for Future Consideration by the CPC

CPC 34 - Exploration for and Evaluation
of Mineral Resources

18

CPC 42 Financial Reporting in

Hyperinflationary Economies

18

CPC 44 Combined Financial Statements

19

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

Introduction

It is of no surprise today that many people

who follow the development of worldwide
accounting standards may well be confused.
GAAP convergence is a high priority on
the agendas of several countries and
convergence is a term that suggests
the elimination or coming together of
differences.
In Brazil, a number of steps have been
taken towards the use of International
Financial Reporting Standards (IFRS),
with two distinct but related paths to
IFRS adoption being taken.
First, the Brazilian securities regulator,
the Comisso de Valores Mobilirios
(locally CVM) and the Brazilian Central
Bank (locally BACON) have determined
that IFRS should be used for consolidated
financial statements of public companies

and companies regulated by BACON from

2010 onwards, with early adoption being
permitted. Similar decisions will most
likely be taken by the insurance regulator
(locally SUSEP), meaning that insurance
companies will also have IFRS reporting
requirements from this date.
Secondly, a new corporate Law 11,638,
which was enacted in 2007 and took effect
in 2008, requires all Brazilian companies
to prepare their financial statements
in accordance with a new set of local
standards which are currently being issued
and are based on IFRS. This means that all
Brazilian companies, both public and nonpublic, are currently required to use local
standards which are identical to IFRS.
The local standards are being issued by
Comit de Pronunciamentos Contbeis
(locally CPC), a newly established Brazilian

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

accounting standard setter. These new

standards replace the existing accounting
standards (Normas Profissionais de
Contabilidade or NPCs issued by Instituto
dos Auditores Independentes do Brasil
IBRACON) and other guidance issued by
regulators. As of December 31, 2008,
a total of fourteen CPC standards and 1
technical orientation (OCPC) had been
issued and most of these were required to
be applied to calendar year 2008. Since
then, an additional 27 CPCs have been
issued along with 14 interpretations (ICPC)
and 2 technical orientations (OCPC). There
are also 2 additional standards relating to
the framework for preparing and presenting
financial information and specific to small
and medium sized entities. 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:

The Basics, 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
entitys financial statements depends
on a variety of specific factors. This
guide 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.
We hope you find this guide a useful tool
for that purpose.

Ernst & Young Terco

September 2010

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

Converged Standards

As of September 2010, the CPC has issued

forty-three accounting standards of which
thirty-eight are essentially translations of the
BR GAAP Standard

Basic Concepts
Framework for the
Preparation and
Presentation of
Financial Statements

CPC PME
Accounting Standard
for Small and Mediumsized Entities (CPCs
for PMEs)

equivalent IFRS standard. However, there are

some subtle differences, usually due to additional guidance or clarification being inserted

IFRS Standard

Significant Differences

BR GAAP prior to CPC

Framework for
the Preparation
and Presentation
of Financial
Statements

The Framework under BR GAAP

contains differences from the
IFRS Framework as it relates to
items that are not allowed by
Brazilian Corporate Law such
as the revaluation of assets.

Prior to the framework,

BR GAAP did not have a
specific framework relating
to financial statements. The
framework formalizes certain
items such as the definition
of assets, liabilities, revenues
and expenses and the concept
of substance over form.

The International
Financial
Reporting
Standard for Small
and Medium-sized
Entities (IFRS for
SMEs)

Both standards include criteria

that entities must meet in order
to utilize the pronouncement
such as no public debt or
equity and no fiduciary
responsibilities, but the BR
GAAP standard also includes
specific size requirements
which are consistent with
Brazilian Corporate Law in
order for an entity to qualify
as an SME. In Brazil, an entity
is qualified to use this standard
as long as the specific criteria
in the standard are met and its
revenues are not greater than
R$300 million and its total
assets are not greater than
R$240 million.

Prior to the accounting

standard for SMEs, BR
GAAP did not have a
specific standard for small
and medium-sized entities.
This standard simplifies the
requirements for entities that
qualify as SMEs by omitting
certain topics such as EPS
and operating segments,
removes and simplifies,
options contained in the
complete set of CPCs,
simplifies recognition and
measurement principles
and reduces disclosure
requirements.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

into the CPC standards. The information in

this document is summarized and does not
include a detailed analysis of the standards.
BR GAAP Standard

CPC 01 (R1)
Impairment
of Assets

CPC 02
Changes in Foreign
Exchange Rates and
Financial Statements
Conversion

IFRS Standard

IAS 36
Impairment
of Assets

IAS 21
The Effects of
Changes in Foreign
Exchange Rates

Entities should consult the standards in full

to ensure proper application. A summary of
these thirty-eight standards are as follows:

Significant Differences

BR GAAP prior to CPC

No significant differences.

Prior to CPC 01 (R1),

the Comisso de Valores
Mobilirios (locally CVM)
required public companies
to write down fixed assets
to their recoverable
amounts when events and
circumstances indicated
that permanent impairment
existed. However, in
practice there was little
guidance regarding the
calculations of these
write offs and recorded
impairment losses were
unusual.

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 includes
an explicit requirement
for subsidiaries that are
considered an extension of
the parent company. These
subsidiaries must use the same
functional currency as the
parent.

Prior to CPC 02, BR GAAP

had no specific standards
relating to currency
conversion of financial
statements with a functional
currency different from the
parents functional currency
and the currency in which
the financial statements
were presented.
Exchange differences
related to the
remeasurement of foreign
subsidiaries were usually
recorded in the income
statement, rather than
directly in shareholders
equity as required by
CPC 02 and IAS 21.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

Converged Standards

BR GAAP Standard

CPC 03
Statement of
Cash Flows

IFRS Standard

IAS 7
Statement of
Cash Flows

Significant Differences

BR GAAP prior to CPC

No significant
differences.

Prior to CPC 03, BR GAAP required

a Statement of Changes of Financial
Position (locally DOAR). Although
not mandatory, the Statement of Cash
Flows was considered supplemental
information and was usually disclosed by
public companies.

CPC 04
Intangible
Assets

IAS 38
Intangible
Assets

No significant
differences.

Prior to CPC 04, there were no specific

standards relating to intangible assets in
Brazil. However, the concept of deferred
assets under BR GAAP allowed entities
to capitalize pre-operating expenses and
research and development costs. Under
CPC 04, many of these amounts can no
longer be capitalized.

CPC 05
Related Party
Disclosures

IAS 24
Related Party
Disclosures

No significant
differences.

Prior to CPC 05, certain related parties

disclosures were required for public
companies.

CPC 06
Leases

IAS 17
Leases

No significant
differences.

Prior to CPC 06, all leases were normally

treated for accounting purposes as
operating leases and the expense was
recognized at the time that each lease
installment fell due. Disclosure regarding
leases was limited.

CPC 07
Government
Grants

IAS 20
Accounting
for Government
Grants and
Disclosure of
Government
Assistance

CPC 07 includes
examples specific to the
Brazilian environment,
as government grants
are common in Brazil
and take many forms.

Prior to CPC 07, government grants

were usually recorded as a credit in
shareholders equity rather than being
recorded in the income statement
immediately or over time, as appropriate.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

BR GAAP Standard

CPC 08
Transaction Costs
and Premium on
the Issuance of
Debt and Equity
Instruments;
CPC 38 Financial
Instruments:
Recognition and
Measurement
(replaces CPC 14);
CPC 39 Financial
Instruments:
Presentation;
CPC 40 Financial
Instruments:
Disclosure

CPC 10
Share Based
Payment

CPC 11
Insurance
Contracts

IFRS Standard

Significant Differences

BR GAAP prior to CPC

IAS 32
Financial
Instruments:
Presentation;
IAS 39
Financial
Instruments:
Recognition and
Measurement;
IFRS 7
Financial
Instruments:
Disclosures

No significant
differences.

Prior to CPC 38, 39 and 40, certain

financial instruments were classified
as trading without considering whether
or not they should be classified for
available-for-sale or held-to-maturity.
There were no specific rules in
regard to preference shares with
debt characteristics, convertible
debt, or puts and calls.

IFRS 2
Share Based
Payment

No significant
differences.

Prior to CPC 10, no amounts relating to

share options were recognized. Certain
disclosures were, however, required for
public companies.

No significant
differences.

Prior to CPC 11, there was no specific

guidance for embedded derivatives
in insurance contracts. CPC 11 is
effective for periods beginning on
or after January 1, 2010, for
consolidated financial statements
rather than for calendar 2008.

IFRS 4
Insurance
Contracts

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

Converged Standards

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

10

Description

BR GAAP prior to CPC

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 differences
eliminating 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 2
statements), and the effective date of when businesses
combinations must be revalued (under the CPC, business
combinations can only be revalued back to January 1,
2009 but the IFRS allows companies to go back further
than this so companies in Brazil should be following the
CPC requirements).
We expect CPC 37 and 43 to be revised to be aligned
with IFRS 1.

Under BR GAAP, NPC

12 Accounting Policies,
Changes in Accounting
Estimates and Errors
was used, with the CPC
providing an additional
option on the adoption
of Law 11,638. NPC
12 is similar to IAS 8
Accounting Policies,
Changes in Accounting
Estimates and Errors. CPC
23 Accounting policies,
changes in estimates
and errors, is effective in
2010.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

BR GAAP Standard

CPC 15
Business
Combinations

CPC 16 (R1)
Inventory

CPC 17
Construction
Contracts;

IFRS Standard

IFRS 3 (R)
Business
Combinations

IAS 2
Inventory

Significant Differences

BR GAAP prior to CPC

No significant
differences.

Prior to CPC 15, goodwill was commonly

calculated as the net difference between
the amount paid for the investment and
the book value of net assets acquired at
the date of acquisition rather than the
fair value of net assets acquired.
Goodwill amortization was permitted
until December 31, 2008 and for certain
regulated companies until 2009 while it
is not permitted under the new guidance.

No significant
differences.

CPC 30
Revenue
Recognition;

IFRIC 12 Service
Concession
Arrangements;

ICPC 01
Concession
Contracts

SIC 29
Service
Concession
Arrangements:
Disclosures

Inventory was recorded at the lower of

cost or market value, which included
replacement costs compared to lower of
cost or net realizable value under the CPC.

Prior to CPC 17 and 30, construction

contracts including those of real estate,
were generally accounted for using the
percentage-of-completion method.

IAS 11
Construction
Contracts;
IAS 18
Revenue;

Prior to CPC 16 (R1), disclosures were

not required for inventory write offs or
losses.

O CPC 17 requires
additional disclosure
relating to gross and
net revenues.

BR GAAP was silent on customer

loyalty programs although the general
practice was to record a provision for the
estimated future costs.
Also, receivables were normally recorded
at nominal value rather than at present
value as required by CPC 12.
BR GAAP had no specific accounting
guidance on concession arrangements.
Generally infrastructure assets were
included in the operators property, plant
and equipment.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

11

Converged Standards

BR GAAP Standard

IFRS Standard

CPC 18
Investments in
Associates;
CPC 19
Interests in Joint
Ventures;
CPC 35
Separate Financial
Statements;
CPC 36 (R1)
Consolidated
Financial
Statements;
ICPC 09
Individual Financial
Statements,
Separate Financial
Statements and
Consolidated
Financial
Statements and
Equity Method

CPC 20
Borrowing Costs

12

IAS 28
Investments in
Associates;
IAS 31
Interests in
Joint Ventures;
IAS 27
Consolidated and
Separate Financial
Statements

IAS 23
Borrowing Costs

Significant Differences

BR GAAP prior to CPC

CPCs 35 and 36 (R1)have a third type

of financial statements called individual
financial statements. These are parent
company 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 associate with a
different reporting period as long as it is
within 3 months of the entitys reporting
date. CPC18 only allows a difference of
2 months.
CPC 18 has an additional paragraph
(22A) which says that profit cannot
be recorded on individual financial
statements on intercompany
transactions that remain within the
group of related parties.

Prior to CPC 36 (R1),

non-controlling minority
interests were presented
outside of equity as a
separate line item in the
balance sheet rather
than as a separate
component in equity.

IFRS is silent as to whether or not

exchange differences should actually
create a credit to the asset due to
favorable exchange rates while the CPC
indicates that exchange rate differences
should be captured in the capitalization.

Prior to CPC 20, only

interest related to debt
was capitalized by public
companies.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

BR GAAP Standard

IFRS Standard

Significant Differences

BR GAAP prior to CPC

CPC 21
Interim Reporting;
CPC 22
Operating
Segments;
CPC 23
Accounting
Policies, Changes
in Accounting
Estimates and
Errors;
CPC 26
Presentation
of Financial
Statements

IAS 34
Interim Financial
Reporting;
IFRS 8
Operating
Segments;
IAS 8
Accounting
Policies, Changes
in Accounting
Estimates and
Errors;
IAS 1
Presentation
of Financial
Statements

IAS 1 does not require

the Value Added (locally
DVA) statement that
is required by CPC
26, it would only be
required if there was
a legal requirement
or a requirement by a
regulator.

Prior to CPC 22, public companies had an

option to disclose segments based on IAS
14. IAS 14 was superseded by IFRS 8 and
the criteria for defining segments are now
different.
Prior to CPC 26, assets and liabilities
were presented in the descending
order of liquidity rather than by using
current and non-current classifications.
Minority interests were included in a
separate line from equity. A statement of
comprehensive income was not required.

ICPC 08 explains how

dividends are recorded
and explicitly states that
mandatory dividends
under Law 6.404/76
must be recorded as
a liability. The same
conclusion would
be reached under
IFRS but there is no
interpretation in IFRS
similar to ICPC 08.

Prior to CPC 24 and ICPC 08, entities

were required to record dividends
proposed by management which
were normally subject to approval by
shareholders in the subsequent year.
Debt for which there was a covenant
violation was presented as non-current
if a lender agreement existed prior to
the issuance of the financial statements.
Also, short-term loans were reclassified
as long-term if the entity intended to
refinance the loan on a long-term basis
and, if prior to issuing the financial
statements, the entity presented
formal documents that supported the
reclassification of the loan.

CPC 24
Subsequent
Events;
ICPC 08
Accounting for
the Payment of
Proposed Dividends

IAS 10
Events after
the Reporting
Period

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

13

Converged Standards

BR GAAP Standard

IFRS Standard

CPC 25
Provisions,
Contingent
Liabilities and
Contingent Assets

IAS 37
Provisions,
Contingent
Liabilities
and Contingent
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

14

IAS 16
Property, Plant
& Equipment;
IAS 40
Investment
Property;
IFRS 5
Non-current
Assets Held
for Sale and
Discontinued
Operations;
IFRIC 12
Service
Concession
Arrangements

IAS 41
Agriculture

Significant Differences

BR GAAP prior to CPC

No significant
differences.

Prior to CPC 25, provisions for legal

obligations were sometimes recorded
regardless of the probability of the
eventual settlement. Provisions for
onerous contracts and constructive
obligations were uncommon.

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.
Under CPC 31, the
CPC has an additional
category of assets
called assets held to be
distributed to owners.

Prior to CPC 27, costs of major overhauls

were normally expensed. It was common
for entities to apply useful lives which
were determined by tax legislation.
Component depreciation was permitted
but not commonly applied.
Prior to CPC 28, investment property
was not separately defined and was,
therefore, accounted for as held for use
or held for sale.
Prior to ICPC 01, BR GAAP had no
specific accounting guidance on
concession arrangements. Generally,
infrastructure assets were included
in the operators property, plant and
equipment.

No significant
differences.

Prior to CPC 29, entities normally used

cost to measure these assets although
they could be measured at fair value
subject to certain conditions.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

BR GAAP
Standard

CPC 32
Income
Taxes

IFRS
Standard

IAS 12
Income
Taxes

Significant
Differences

BR GAAP
prior to CPC

CPC 32 requires more

disclosure as it relates
to gross versus net
revenue and various
taxes specific to
Brazil.

Prior to CPC 32, BR GAAP defined the tax basis

of an asset or liability to be the value assigned for
tax purposes rather than the amount deductible or
taxable.
For deferred tax asset recognition, CVM Instruction
371 considered not only probability of future
recovery but also required a profit history while IFRS
only allows recognition when it is probable that they
will be realized (similar to the more likely than not
standard under US GAAP).
The tax effects of transactions recorded directly to
equity were not clearly defined under BR GAAP.
Deferred taxes were classified in current or noncurrent based on their nature instead of all deferred
taxes being classified in non-current.

No significant
differences.

Prior to CPC 33, BR GAAP was not as detailed as

IAS 19 which could lead to different interpretations
regarding the definition of a defined contribution
plan and different considerations around the inputs
for actuarial assumptions.
Plan assets were only recorded if there was clear
evidence that the asset could reduce future
contributions, or would be reimbursed to the
employer but under the new guidance a plan
asset is recorded subject to a ceiling test.
Normally, Brazilian entities did not record plan
surpluses.
Actuarial gains and losses were recorded in the
income statements unless not required to be
recognized under the corridor approach while in
IFRS these gains and losses are recognized in equity.

IAS 19
Employee
Benefits;
CPC 33
Employee
Benefits

IAS 26
Accounting
and Reporting
by Retirement
Benefit Plans

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

15

Converged Standards

BR GAAP
Standard

CPC 41
Earnings
per Share

16

IFRS
Standard

Significant
Differences

BR GAAP
prior to CPC

IAS 33
Earnings
per Share

The appendix of
CPC 41 has
introduced
implementation
guidance that
is more specific
to the Brazilian
environment due
to the specific
intricacies of equity
capital in Brazil.

Prior to CPC 41, BR GAAP did not require diluted EPS.

Basis EPS was required but the denominator was
usually the number of shares outstanding at year
end versus the weighted average number of shares
outstanding during the period.
There was no distinction between ordinary versus
preferred shares while CPC 41 requires the calculation
for ordinary shares.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

Standards without a direct

IRFS equivalent

Description

BR GAAP prior to CPC

CPC 09
Value Added
Statement

CPC 09 regulates the presentation of

the Value Added Statement, which is
required in the financial statements of
public companies. This statement gives
further analysis into the nature of the
companys costs and expenses.

Although not mandatory, the Value Added

Statement was supplemental information
usually supplied by public companies.

CPC 12
Adjustments to
Present Value

CPC 12 is a conceptual standard focusing

on present value and its applicability.
It requires that assets and liabilities be
discounted to present value if material to
the financial statements.
There is no equivalent standard in IFRS.
However, as IAS 39 requires financial
assets and liabilities to be initially
recorded at fair value, no differences
would result if present value and fair
value are the same.

Prior to CPC 12, BR GAAP had no specific

standard on present value adjustment.
Normally receivables and payables were
recorded at nominal value.

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

17

Areas for Future Consideration

by the CPC

Exploration for and

Evaluation of Mineral
Resources
Convergence
The Brazilian CPC has not yet issued a
standard relating to mineral resources.
A standard on mineral resources
(CPC 34)is expected to be issued
and based on the IFRS 6.

IFRS 6
The Brazilian CPC has not issued a draft
of this pronouncement yet because it
doesnt cover all types of exploration and
evaluation (i.e. petroleum exploration).
The IFRS 6 states that expenditures related
to exploration for and evaluation of mineral
resources, incurred after an entity has
the legal right to explore the location and
before an entity has technical feasibility and
commercial viability relating to extracting
the mineral resource, should be accounted
for as either tangible or intangible assets
depending on their nature. It further states
that expenditures related to development of
mineral resources should not be recognized
as exploration and evaluation assets and
should instead be considered under the
Framework and IAS 38 - Intangible Assets.

18

Impairment analysis of these assets are

required when facts and circumstances
suggest the carrying amount is greater
than the recoverable amount and just
before the asset is reclassified because
the technical feasibility and commercial
viability of extracting a mineral resource
are demonstrable.

Current Practice
There is not a specific pronouncement
related to mineral resources in current
BR GAAP, so companies have historically
used the guidance under the accounting
framework and tangible and intangible
assets to determine which costs are
capitalizable relating to these activities.

Financial Reporting
in Hyperinflationary
Economies
Convergence
The Brazilian CPC has not yet issued a
standard relating to hyperinflationary
economies because they are waiting for
improvements to be made to IAS 29 by
the IASB. A standard on hyperinflationary

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

economies (CPC 42) is expected to be issued

and based on the IAS 29 after improvements.

Similarities
Both BR GAAP and IFRS indicate that Brazil
was a hyperinflationary economy during
certain periods of the 1990s.

Significant Differences

statements. Combined financial statements

differ from consolidated financial statements
because consolidated financial statements
have a parent-subsidiary relationship while
combined financial statements do not.
Instead, they are under common control
or management. There is no equivalent
IFRS standard related to combined financial
statements.

Current Practice

Timing differences
BR GAAP

IFRS

Hyperinflation in Brazil
is generally considered
to have ended as of
December 31, 1995.

Hyperinflation in Brazil
is generally considered
to have ended as of
December 31, 1997.

There was no specific accounting

pronouncement related to combined financial
statements under the previous Brazilian
GAAP although some groups prepared
combined financial statements.

Combined Financial
Statements
The Brazilian CPC intends to issue a standard
on combined financial statements (CPC 44).
There is no direct IFRS equivalent for this
standard.
CPC 44 will be issued to provide guidance
around the aggregation of individual financial
statements all under common control or
management to form combined financial

BRAZILIAN GAAP vs. IFRS | Ernst & Young Terco

19

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