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Translating the Financial Statements of a Brazilian Bank into English
By Danilo Nogueira
(Professional translators, editors, consultants, trainers)
Brazil
danilo.tradutor@uol.com.br
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Before attempting to explain what a Brazilian bank must call a van Gogh, let
me try to explain how Brazilian banks prepare
their financial statements and how this affects
their form and content, as well as Dutch painters.
Brazilian banks are organized as Sociedades
Anônimas and, as such, must publish
financial statements in agreement with the rules
laid down by the Lei das Sociedades por Ações
a.k.a. Lei das S.A. (Business Corporation
Act, Law 6404/76, S.A. Law, or Companies’
Act—none of them satisfactory translations).
In addition, as financial institutions, they
are subject to the Comissão de Valores
Mobiliários—CVM (Brazilian Securities
and Exchange Commission). Finally, they
are subject to the Banco Central do Brasil—BACEN
(Central Bank of Brazil), each of which
has added something to the original Lei das
S.A. requirements.
Inflation Accounting
Law 6404/76 (the number means that this was
the 6404th law enacted in 1976) created the
indexation system known as correção
monetária (indexation). This, in
turn, required the creation of a new asset group
ativo permanente. Ativo permanente means
“all assets subject to indexation under Law
6404/76.” The group includes fixed
assets, investments and deferred charges.
There is no good translation for
Ativo Permanente. You may use permanent
assets, but this is a calque and open to
misunderstanding. Alternatively, you can use
fixed assets, investments and deferred charges,
which is far too long. Usually, in the balance
sheet itself, I use permanent assets
because space is at a premium and the general
layout will show any accountant what it is all
about. In the Notes to Financial Statements,
I often use permanent assets (fixed
assets, investments, and deferred charges)
the first time around, because there is more
room and the explanation will be more necessary.
If the term appears a second time, permanent
assets will do in most cases.
Much later, CVM implemented the
correção monetária integral
(full indexation), a system under which
all assets had to be indexed, not only those
deemed permanent. This rendered the permanent
asset group useless, and should have allowed
banks to revert to a more universally understood
grouping of accounts.
However, CVM cannot exempt anyone
from a legal requirement such as correção
monetária, and thus banks had to
publish financial statements with two columns
of numbers, one labeled pela legislação
societária (in accordance with the provisions
of the business corporation act—often shortened
to per S.A. Law in translation)
and the other pela correção
integral (fully indexed). The fact that
often one column showed a profit and the other
a loss may have been a source of concern to
foreign analysts, but Brazilians knew exactly
what that meant.
Both forms of indexation have been
extinguished but will be found in financial
statements up to 1996 and the ativo permanente
is still there.
The Standard Charts of Accounts—COBAN and COSIF
All Brazilian financial institutions are required
to use a standard chart of accounts, known as
COSIF, an acronym for Plano Contábil
das Instituições do Sistema Financeiro
Nacional (Standard Chart of Accounts
for Brazilian Financial Institutions). COSIF
replaced COBAN, the older chart, in 1988.
COSIF has been created by a Central
Bank Circular (Circular Letter) and may
thus be updated by other Circular Letters from
time to time to meet changing requirements.
It is a very detailed chart and is constructed
on a strict four-level plan. Let me show you
how this works.
Imagine BrazilBank holds a controlling
interest in PeruLease, a Peruvian company. Check
your friendly COSIF manual; it will show
2. [Ativo] Permanente (Permanent Assets)
2.1 Investimentos (Investment)
......
2.1.2 Participações em Coligadas
e Controladas (Interest in associated and
controlled companies)
....
2.1.2.10.20-2 Participações em
Coligadas e Controladas Avaliadas pelo Método
de Equivalênca Patrimonial—no Exterior
(Interest in associated and controlled companies
valued by the equity method—Foreign)
... and there you are. Account 2.1.2.10.20-2 is exactly what you wanted.
There are other accounts on the same level for
local companies, premium on investment and other
strange information banks must disclose in their
balance sheets. The longer 10.00-6 tag
leaves the Central Bank some maneuvering room
for updating the chart, which is done often
enough.
So, there is never any doubt about
where you should pigeonhole something.
Repeats, other, miscellaneous and sundry
Nice and tidy, no doubt. Also easy to use. Bean
counters may change jobs and continue charging
and crediting the same accounts as if nothing
had happened. It also makes for a high degree
of comparability, always desirable in the case
of financial statements. It also has its shortcomings,
however.
First of all, BrazilBank cannot just show its interest in PeruLease (Peru),
under
Equity: R$ XXXX
in its balance sheet. No matter what, it must write out the full name of the
account and the full names of all of its controlling
(upper level) accounts, even if BrazilBank has
just this single investment. Of course, if BrazilBank
has just this single investment, accounts 2.1,
2.1.2 and 2.1.2.10.20-2 will show the same balance.
In addition, BrazilBank cannot simply
merge smaller balances into, say, a mere Investment
account. All must be detailed down to the fourth
level.
This results in extremely long balance
sheets. A very large US bank may summarize its
assets in about 15 lines, but a small Brazilian
bank often needs more than 45 lines for the
same purpose, not bad if the market seems to
be a bit slow at the moment.
Second, even the most detailed system
can not cover every detail and COSIF is liberally
sprinkled with “other” to accommodate what does
not fit anywhere else. For instance, there is
no specific account for interests not accounted
for by the equity method. So, such investments
go into 2.1.2.10.99-6 Outras Sociedades (Other
Companies).
This is all very good if BrazilBank
has investments in companies of several types
and 2.1.2.10.99-6 is used as a basket
account for some minor holdings. It does look
ridiculous, however, when the only investment
is a $10,000 holding in Xptosa and this investment,
for whatever reason, is not accounted for by
the equity method:
[Ativo] Permanente |
X,XXX,XXX |
..... |
|
Investimentos |
10,000 |
Participações em Coligadas e Controladas |
10,000 |
Participações em Coligadas e Controladas—Outras
Sociedades |
10,000 |
In other words, we’ll have “other” without anything before it and two accounts
that control a single account each. This only
makes sense if you have a complete copy of COSIF
before you to sort things out. Unfortunately,
neither the reader nor the translator are likely
to, and so what was intended to provide maximum
clarity actually results in maximum obscurity.
Things can get a lot worse, however.
The apex, I believe, is to be found in 1.9.8.10.99.9:
1. Ativo (Assets)
....
1.9 Outros Valores e Bens (Other Assets)
.....
1.9.8 Outros Valores e Bens (Other Assets)
1.9.8.10.00-9 Bens não de uso próprio
(Assets not used in banking operations)
.....
1.9.8.10.99.9 Outros (Other)
You will notice that we have Outros Valores e Bens twice in a row. That
is not my mistake; that is how it stands in
the COSIF chart. But the average reader will
think I am crazy. So I cheat a little
and translate that as
1. Ativo (Assets)
....
1.9 Outros Valores e Bens (Other Assets)
.....
1.9.8 Outros Valores e Bens (Miscellaneous)
1.9.8.10.00-9 Bens não de uso próprio
(Assets not used in banking operations)
.....
1.9.8.10.99.9 Outros (Sundry)
The big question is: what goes into that account? Easy. Account code 1.9.8.10.00-9
is for assets owned by the bank that cannot
be used in banking operations. Mostly stuff
received from insolvent debtors. There are specific
5-digit tags for imóveis (real
estate—in this particular case what a US Bank
would call OREO, Other Real Estate Owned) veículos
e afins (vehicles and similar assets), etc.—but
not for works of art. So, if the bank can not
collect a debt and accepts a van Gogh in accord
and satisfaction (dação em
pagamento), it is an Ativo, Outros Valores
e Bens, Outros Valores e Bens, Bens não
de Uso Próprio, Outros. Now you know.
What? You had forgotten about the van Gogh?
Sorry about that.
This article was originally published at Translation Journal (http://accurapid.com/journal).
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