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 corporate split transactions between independent parties, the market value of all identifiable assets and liabilities capable of valuation, including contingent assets and liabilities, must be determined. At the same time, the Instruction provides that until the CVM has issued specific rules on the matter, transactions that occur during 2008 may be recorded at book value and then adjusted at the end of the fiscal year.

Zancan is concerned that in periods of crisis the mark-to-market standard can create significant distortions in the values of assets and liabilities, which are presented at fixed moment in time in financial statements. Since CVM Instruction 469/08 addresses only the provisional measures to be adopted by listed companies, he hopes that the rules to be issued by the CVM will provide for a means to minimize the effects of sudden changes in the market. "In a market in crisis, there is heightened volatility in the price of assets and the rules should contain provisions that offer more security to interested groups. In addition, interest rates in Brazil continue to be extremely high compared to more developed economies, and adjustments to present value can have a significant effect on financial statements. Average market values and average interest rates are components that should be carefully considered," asserts Zancan.

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