Law 11.638/07: Bringing Brazil Into The Context Of International Accounting Practices

Law 11.638/07, which deals with the accounting aspects of

Brazilian corporations (sociedades anônimas), is

intended to bring Brazilian accounting concepts and principles into

line with those adopted in developed economies, ensuring a more

reliable picture of companies' financial health. In recent

years, international efforts have been made to make businesses'

financial statements uniform and understandable anywhere in the

world, in view of the global securities market. During 2008 and

2009, the Brazilian securities commission, the Comissão

de Valores Mobiliários ? CVM and the

Accounting Standards Committee (Comitê de Pronunicamentos

Contábeis) will issue rules to promote this

harmonization. The first of these rules is CVM Instruction 469,

which was published on May 2, 2008.

In practice, the new rules adopt the principles established by

the International Accounting Standards Board, and should be

followed by any company which currently prepares financial

statements according to US GAAP. "Internationally, there is an

urgent demand for financial statements to be prepared in a more

consistent matter, so that public authorities, regulatory agencies,

international organizations and the capital market, which is highly

globalized, can read and analyze information disclosed by companies

and extract consistent conclusions on the companies' financial

health and results, regardless of the companies' country of

origin. In this way, the reconciliation of financial statements to

the standards of a given country, usually the United States or one

of the countries within the European Community, can be

avoided," explains Leandro Luiz Zancan, one of BM&A's

corporate law partners.

The principal change is the valuation of a company's assets

and liabilities at their market value, or "adjustment to

present value", to use the expression adopted in CVM

Instruction 469/08, rather than their book value. With the adoption

of the market value standard, merger and corporate split

transactions can be transitionally recorded at book value to the

end of 2008. "Companies under the Central Bank of Brazil's

jurisdiction operating in Brazilian financial market are already

required to use the mark-tomarket standard in preparing annual and

quarterly reports for submission to the CVM. The new regulation

makes the standard compulsory for all companies," says

Zancan.

CVM Instruction 469/08 also provides that where an effective

change in control occurs in connection with merger and...