The origins of modern accounting in Brazil: Influences leading to the adoption of IFRS

doi:10.1016/j.racreg.2011.12.003

Research in Accounting Regulation

Volume 24, Issue 1, April 2012, Pages 15-24

https://doi.org/10.1016/j.racreg.2011.12.003 Get rights and content

Abstract

Despite the increasing importance of Brazil, there has been little documentation of how accounting developed and about the significant formative influences involved. This paper explores the significant influences on Brazilian accounting and the path to the adoption of International Financial Reporting Standards (IFRS). Several important influences are emphasized: the equity theory of the Italian school of accounting in the early 20th century; the birth of the Brazilian accounting profession in 1931 and the certified accountants association in 1946; the impact of US trade and American accounting in the 1950s; and the high rates of inflation that occurred from the beginning of the 1960s. Modern Brazilian accounting had its beginning in the 1970s with the development of the stock market, the reforms of the financial system, and the decrease of tax influences on accounting. The globalization process and the need for Brazilian accounting to converge with international accounting led to the decision to adopt IFRS in 2007.

Introduction

Brazil is one of the fastest growing emerging economies in the world. It is expected to overtake both Britain and France by 2050 and move into fourth place in the ranking of world economies (PWC, 2011). As one of the BRIC countries (the media shorthand of Brazil, Russia, India and China), Brazil is an increasingly important player in the world economic stage – as evidenced by its recent membership to the G-20. Until the early 1990s, it was seen as an economy which had huge assets but which lacked the structure to provide long-term success. Inflation had long been out of control but the measures taken in the 1990s have overcome these difficulties.

In this environment of economic stability and with inflation under control, there was a major change in the Brazilian capital markets with strong institutional development and rules to improve corporate governance. To support the development of capital markets, the decision was made to move away from a domestic to a global financial reporting system. The gradual convergence of Brazilian accounting rules with International Financial Reporting Standards (IFRS) began in 2006 for financial intermediaries under the supervision of the Central Bank and in 2008 for public companies with a deadline of 2010 for full convergence. In January, 2010, a Memorandum of Understanding was signed between the relevant Brazilian accounting bodies and the International Accounting Standards Board (IASB) which confirmed the end of 2010 as the target date for full convergence.²

Despite the increasing importance of Brazil, there has been little documentation of how accounting developed and about the significant formative influences involved. This paper seeks to portray the development of accounting in Brazil, namely the significant influences which occurred in the 20th century and the path to IFRS adoption. It is organized as follows. “The significant influences leading to the modern Brazilian accounting” section identifies the main drivers of accounting development: in the early years of the 20th century, the influence of the equity theory of the Italian school of accounting on the Brazilian accounting; the birth of the modern accounting profession in 1931 and the formation in 1946 of the certified accountants association (Conselho Federal de Contabilidade); the change in accounting thought in the 1950s as a consequence of trade with the USA; the high rates of inflation that occurred from the beginning of the 1960s that led to Brazilian contributions to inflation accounting methods. “Brazilian accounting in the modern area” section explores Brazil’s modern accounting which has its beginning in the 1970s, with the development of the stock market, and the reforms of the financial system. In this period there was a decrease of tax influence on accounting and an increased influence of the American school of accounting. In 2005, the globalization process and the need for Brazilian accounting practices to converge with international accounting led to the decision to adopt the International Reporting Financial Standards (IFRS) issued by the International Accounting Standards Board (IASB). In the last section of the paper, the main conclusions of the study are presented.

Section snippets

The Italian influence on Brazilian accounting thought

At the end of the 19th century, there was a need to introduce bookkeeping for business management associated with strong economic development that was taking place in São Paulo, especially as a consequence of the expansion of the coffee industry and its multiplier effect on urban activities. New schools were created that offered an accounting degree that certified accounting professionals: in 1894, the Polytechnic School of São Paulo and in 1902 the Practical School of Commerce (Rodrigues,

The decrease of tax influence on accounting and the increased influence of American accounting

The modern history of accounting in Brazil had its beginning in the seventies, with the development of the stock market, and the reforms of the financial system (Niyama & Silva, 2005). These reforms led to a progressive separation of tax rules from accounting rules, in line with the American model of accounting.

In 1972, Brazilian accounting was encouraged by the Central Bank of Brazil by the issuance of Resolution 220, which included Circular 178 and 179. Circular 178 determined the

Conclusions

The development of financial reporting in Brazil has been influenced by the country’s economic, social and political evolution. Traditionally, at least until 1972, Brazilian accounting was also strongly influenced by tax legislation. In recent years, the standards of government bodies such as Central Bank of Brazil, Brazilian Securities Exchange Commission (CVM) as well as the Insurance Supervision Agency were influential (Niyama & Silva, 2005).

In Brazil, accounting has always had its

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The origins of modern accounting in Brazil: Influences leading to the adoption of IFRS

Abstract

Introduction

Section snippets

The Italian influence on Brazilian accounting thought

The decrease of tax influence on accounting and the increased influence of American accounting

Conclusions

Research in Accounting Regulation

Research in Accounting Regulation

World Development

Research in Accounting Regulation

A Influência dos Usuários da Contabilidade no Estabelecimento dos Procedimentos e Padrões Contábeis

Contabilidade Vista e Revista

Cartels, cooperatives, and corporatism: Getúlio Vargas in Rio Grande do Sul on the eve of Brazil’s 1930 revolution

Hispanic American Historical Review

A Construção do Nacional-Desenvolvimentismo de Getúlio Vargas e a Dinâmica de Interação entre Estado e Mercado nos Setores de Base

EconomiA

Primeiros princípios de contabilidade pura

The evolution of financial statement indexation in Brazil

Accounting Historians Journal

Advances in international accounting (Vol. 10)

Aprendendo contabilidade em moeda constante

Contribuição à teoria dos ajustamentos contábeis