This article will outline the accounting audit procedures in Brazil. You will also get information about the rules and regulatory agencies that estabilish the guides on these activities, the techniques that are used, and which companies are obliged to hire these services in the country.
Audit Accounting in Brazil
In Brazil, the evolution of auditing has occurred together with the increasing presence of subsidiaries and branches of foreign multinationals in the country accentuated in the last two decades. Those corporations started to adopt the services of large audit accountings (normally the ones providing services to the headquarters) because the investors were unsure about the Brazilian internal environment.
It is also evident that the great development in certain sectors of Brazilian economy entailed the growth of some companies that did the reverse movement. National large companies that created domestic subsidiaries and branches abroad begin to use audit services to bring greater certainty to their activities in those countries.
Another reason for the increase of the use of auditing companies in Brazil was some the determinations of the Federal Revenue and the Brazilian Taxation Laws, which obliged determined companies to contract auditing services. These resolutions were implemented with the aim of making the information provided by these companies more transparent and avoid fraud.
The rules guiding the accounting audit services in Brazil are known by the acronyms “NBC Ts” (numbers 3, 4, 6, 8, 10, 11 and 12) and NBC Ps (numbers 1, 2 and 3), which can be consulted in their entirety here (in Portuguese).
Those guides were made by the Brazilian regulatory accountability agencies, the CFC (Federal Council of Accounting) along with its state bodies, and the IBRACON (Independent Auditors Institute).
The Central Bank of Brazil and the CVM (Securities Commission) also participate in the regulation of the accounting audit services in the country, as well as the IFAC (International Federation of Accountants), which determines the rules of this activity at an international level.
How does accounting audit works on practice?
The audit procedures in accounting are composed by a set of techniques that allow the auditor to obtain enough and appropriate evidence to base his opinion on the audited financial statements he will analyze. The techniques consist of:
Compliance testing: aims at obtaining a reasonable assurance that the internal control procedures established by the management are in effective operation and in accordance to the rules.
Substantive testing: aims at obtaining assurance as to the sufficiency, accuracy and validity of the data produced by the analyzed company's accounting system. Divided into tests of transactions and balances and analytical review procedures.
The accounting audit does not have the scope to the full verification of all documents of the organization. It is used a technique of sampling, which consists in selecting some situations/documentation of all tests to apply and replicate the conclusions of this sample to the whole.
Therefore, the accounting audit that aims to deliver the opinion, cannot issue an opinion stating that the financial statements are completely correct, but issues an opinion stating that the financial statements present fairly the situation.
In order to meet the current legislation in Brazil and abroad, the accounting audit services must be done by an independent auditor, to give an opinion about the real financial situation of the company to be audited. These professionals do not have strings attached to the company they are auditing.
What companies are obliged to adopt audit services in accounting?
The following companies are obliged to submit their financial statements to the review of independent auditors:
- Sociedades Anônimas (SAs)
- Financial Institutions (banks, brokers etc.)
- Insurance companies
- Pension funds
- Public or Private foundations considered of public interest
- Companies subject to national regulatory agencies, such as ANEEL (National Electric Energy Agency), ANATEL (National Telecommunications Agency), ANAC (National Civil Aviation), among many others
- Large corporations, with revenues exceeding USD 300 million, comprising both SAs and Ltdas.
- Philanthropic entities raising more than BRL 2.4 million per year
For other companies not framed in any of the conditions listed above, the contracting of audit accounting is optional, which can be engaged at any time and according to the specific needs of each organization and their managers.
Many companies will hire audit services only for a specific purpose on a temporary basis, for example, in the process of acquisition, merging etc with other organizations. Also, Brazilian companies controlled by foreign companies generally are audited to meet statutory requirements or the demands of the parent companies.
The responsibility for accounting audit services
Upon detecting errors or fraud in the course of their work, the auditors have the obligation to communicate them to the management of the entity and suggest corrective measures, reporting on the possible effects in its opinion, if the corrections were decided to be not adopted.
The primary responsibility in preventing and identifying fraud and error is the management of the company, through the implementation and maintenance of proper accounting system and internal control. However, the auditor should plan his work towards detecting fraud and errors involving a significant effect on the company’s financial statements.
It is part of the auditor work to produce the Independent Auditors' Report (Parecer dos Auditores Independentes), a document in which the auditor expresses his opinion, clearly and objectively, on the financial statements audited by him.
Under normal conditions, the report is addressed to the company’s shareholders, cotaholders or partners, the board of directors or other equivalent body, according to its nature. In other circumstances, the opinion is addressed to the contractor of the services.
As the auditor assumes, through the report, technical and professional responsibility, involving matters of public order, it is essential that the document complies with the intrinsic and extrinsic characteristics, established in the auditing rules of the Federal Council of Accounting. Or else, the professional can suffer punitive measures before the law and the CFC.