10/06/2007
Country in Focus
Interview with Amaro Luiz de Oliveira Gomes, Head of Financial System Regulation Department, Central Bank of Brazil
The Central Bank of Brazil hás issued a regulation requiring Brazilian banks to apply IFRS starting in 2010. Brazil is the first country to move toward full adoption of international accounting standards.
CReCER interviewed Mr. Amaro Gomes to learn more about this important endeavor.
What have been the Central Bank’s main objectives in mandating IFRS starting in 2010?
Brazil hás a broad-based economy and a highly developed financial sector. With its increasing integration into global financial markets, it has become apparent that convergence with internationally-accepted accounting standards and auditing practices in necessary. Financial institutions that wish to participate in today’s globalized economy need to present financial statements that investors around the world can easily understand. Internationally-accepted standards increase the credibility of information disclosed, demonstrate a company’s ability to monitor and manage its risk exposure, and reduce market uncertainty. In turn, the companies themselves benefit from high quality corporate reporting that protects investors, by creating new opportunities to raise long-term financing and forge partnerships worldwide, and by reducing the cost of capital. Banks providing full and quality disclosure can access capital markets more efficiently than those with more opaque reporting.
Please give us a brief summary of what will change as a result of this new requirement.
The Central Bank has been committed to adopt IFRS for a long time, including by requiring fair value reporting for bonds, securities and derivatives in 2001. Then, in 2002, we required derivative financial instruments to be recognized as assets or liabilities, and that they be measured using fair value. We also allowed hedge accounting to be used accordingly. After these initial steps, the decision was made in March 2006 (BCB Communiqué no. 14.259) to require all financial institutions (including banks, leasing companies, savings and loans institutions and credit unions) operating in Brazil to prepare their consolidated financial statements under IFRS effective in calendar year 2010.
What are the main challenges for banks as they begin the IFRS adoption process? What is being done to overcome them?
The main challenges are education and the shift in culture, so that banks, auditors and supervisors are not only well trained but also able to operate in an environment where internal control systems and observance of best business practices are equally if not more important than rules imposed by the regulator. As banking supervisor we recognize that this process will require a significant investment of resources and it will take time, hence our gradual approach to harmonizing our accounting requirements with IFRS. I should also mention that we are a member of Brazil’s working group on IFRS, through the recently established Comitê de Pronunciamentos Contábeis. Finally, the Central Bank is investing heavily in training its own staff and adapting supervisory tools and practices to the new environment. It’s important to acknowledge that convergence is a dynamic process and that it poses an ongoing challenge.
How is the project going now that it’s been over a year since the requirement was issued?
In spite of the results already achieved, we decided to implement a strategic project, in two phases, to speed up the pace of convergence. The first phase aimed to identify the differences between IFRS and Central Bank accounting standards. Then we set a roadmap for accounting convergence by 2010. In December 2006, we completed the inventory of all points of divergence between the two sets of standards; this will be published shortly. We are now in the phase two of the project, and the objective is to set a detailed schedule for convergence by December 2007.
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(Fonte: CReCER Newsletter).
