XBRL Developments in Brazil

Written by Caetano Nobre Posted on September 15, 2010

Everyone knows that Brazil’s importance in the global scenario has grown substantially in recent years. That includes its capital market:  between 2005 and 2009, hundreds of panies went public, raising funding for their expansion, most ing from foreign investors. As a result, Brazilian firms were forced to mature rapidly and adopt exemplary rporate ernance practices.

Today, it is safe to say that the untry maintains exceptionally high standards of transparency. Still, despite the rapid development of new rporate munications practices for the dissemination of financial information, XBRL has still not gained the attention it deserves from Brazilian panies. Some of the main factors responsible for its delayed aeptance are the lack of public regulation, the absence of standardization, and low demand from users of financial information.

Currently, there is no Brazilian ernment body obliging listed firms to disclose their financial statements in XBRL. Despite having signaled its interest in the new format, similar to what the SEC did in the US, the CVM (Brazil’s SEC) has still taken no ncrete steps in this direction. However, there is a ernment fiscal body studying the use of XBRL for the exchange of financial data between two or more ernment institutions. From a global perspective, this would certainly be an atypical situation, given that XBRL is generally adopted by listed panies or banks.

Even though Brazil possesses no formal regulations erning the use of XBRL in the untry and, for this reason, there are no approved taxonomies for official use, such regulations are expected to be adopted soon as part of a process led by the Federal Acunting uncil (CFC) and public and private partner institutions.

The first version of a Brazilian taxonomy, in line with local acunting practices (BR GAAP), was submitted for approval to XBRL International in 2007 by a group of academics and IT professionals at the University of São Paulo. Currently, this taxonomy is being revised in order to inrporate a series of changes to the untry’s acunting practices introduced by the Acunting Pronouncements mmittee (CPC), a subdivision of the CFC, and by Law 11638/07. The latter was promulgated in 2007 and became effective in 2008, and was designed to bring BR GAAP closer to International Financial Reporting Standards (IFRS) issued by the International Acunting Standards Board (IASB).

One important factor is that users of rporate financial information know absolutely nothing (or almost nothing) about XBRL. upled with the absence of tools for its use, this ignorance is one of the main reasons why XBRL aeptance is low. Shareholders, buy- and sell-side analysts, and risk rating agencies still do not use XBRL to analyze the financial statements of the panies they track. This means that the main users of financial information are not requiring panies to produce data in the new format.

Among those Brazilian firms which possess Level I or II American Depositary Receipts (ADRs) and are obliged to periodically file financial statements with the SEC, only five are included in the first phase of the final rule requiring that such information be reported in XBRL. The great majority will be reporting in XBRL in 2012 (2011 data), owing to the migration from US GAAP to IFRS, also adopted by BR GAAP.

There is no doubt that Brazil’s adoption of XBRL will be gradual, relying more on the regulatory bodies and local jurisdiction than on the panies themselves. This is very similar to other untries where XBRL is being implemented; however, given Brazil’s history of adopting good international practices, the process is unlikely to be protracted or unduly arduous.

For a untry still heavily dependent on foreign capital and undergoing such rapid growth, delays in aepting such a pertinent technology as XBRL are unthinkable. In a untry like Brazil, where most publicly-held panies are small/mid caps, the transparency, data precision, and parability provided by XBRL can make a vital ntribution to their international exposure… a factor almost as important as meeting revenue expectations.