It’s The ’80s All Over Again!

From the August 2008 Issue

The ’80s were wonderful — unless, of course, we’re discussing fashion or technology in the practice of public accounting! Fortunately, we’ve come a long way since then. Unfortunately (for them), our counterparts in Brazil have not.

Many of you know that I recently led a Rotary Group Study Exchange (GSE) team to Brazil. One of the benefits of the GSE program is the opportunity for “professional visits.” In Chapeco, Santa Catarina, Brazil (populate 210,000), Rotarian and Contrador Luis Klanert arranged a wonderful series of meetings for me. Luis and his English-speaking university-aged son first took me to meet with Avaci Gazoni, Director of the Sindicato das Emprasas de Servicos Contabeis Assessormento, Pericias, Informacoes e Pesquisas no Estado de Santa Catarina [translation: Executive Director of the CPA Society of Santa Catarina].

Avaci was very helpful and most interested in understanding the similarities and differences in how the profession is practiced in our respective countries. We compared demographics and found that while Brazil has more firms per capita than the United States, both countries have an overwhelming majority of small (fewer than 10) firms. In reviewing the state of small business in Brazil, it’s easy to understand why. There are very few franchises, and most businesses are small “Mom & Pop” owner-managed style. These businesses utilize precious little technology (the more advanced retailers have just rolled out scanners and bar codes!), and most (those with annual revenues over ~$600,000) are required by law to engage a “Contrador” (i.e., CPA). Once engaged, the Contrador (actually the firm) performs virtually all bookkeeping and accounting services. You’ll find no Sarbanes-Oxley management rules here. The outside firm does EVERYTHING and at year-end issues a signed and certified “book” that contains a printed record of EVERY transaction, including all appropriate adjusting journal entries, for the year. This “book” is kept by the client and must be presented upon demand of a bank creditor or of the Brazilian Internal Revenue Service. I tried, without success, to find something that vaguely resembled a financial statement in the “book” I was shown. It seems that management prepares and issues financial statements, and the role of the independent accountant is to capture, classify and record every transaction and prepare a record of such. Avaci proudly told me that the Society is working with vendors to develop a method to deliver the “book” electronically! (Ya think?)

My next stop was the Revenue Service, where I met Roberto Forselius, District Manager of the Brazilian Internal Revenue Service. Roberto confirmed that the IRS and CPAs in Brazil have the same “love/hate” relationship as in the United States … with certain significant differences. The format of the “book” is prescribed by the Service, and the accountant’s license is at risk for virtually any material error. In sharp contrast with the United States, young accountants in Brazil begin their careers in private practice and aspire to land a prestigious, high-paying position with the IRS. I was surprised to hear that the Brazilians estimate a 50 percent revenue loss attributable to under-reporting and failure to file. It sorta made me feel proud to realize that they admire our success in voluntary compliance!