Transition of the Brazilian accounting practices to IFRS and its effects on the Financial Statements of Eletrobras. March 2011

Transcription

1 Transition of the Brazilian accounting practices to IFRS and its effects on the Financial Statements of Eletrobras March 2011

2 Context The transition from the Brazilian accounting rules to IFRS (international accounting standard issued by IASB) had as a milestone the issuance of CVM Instruction no. 457/07, which determined that public companies should prepare consolidated financial statements based on accounting standards issued by the IASB for the year ended December 31, During the years that followed the issuance of such standards, the CVM and the Accounting Pronouncements Committee - CPC organized a schedule of joint regulation with the goal of aligning the Brazilian accounting rules with the rules issued by the IASB. The intention was that the individual financial statements of the Brazilian companies, be prepared with the same rules applied in preparing the Consolidated Statements. We present below the main points to be observed in the Eletrobras Financial Statements which represent, in our view, an important conceptual shift with regard to recognition, measurement and disclosure of the accounting information. 01

3 New Financial Statements: Comprehensive Statement of Income The Comprehensive Statement of Income provides the results that go beyond one fiscal year and therefore are recognized in the Stockholders Equity. Such comprehensive income is recognized in the item line Equity Valuation Adjustments (classified in Stockholders' Equity) and derive from marking to market of financial instruments classified as available for sale; conversion adjustments of financial statements of subsidiaries/affiliates abroad and comprehensive income recognized by subsidiaries/associated companies (evaluated by equity pick up method) This statement can be presented separately or included in the Statement of Income for the period, as defined in CPC no Presentation of the Financial Statements. In its structure, the results for the year increased/reduced by the adjustments mentioned above are shown 02

4 03 Financial Instruments: Fair Value Assessment (fair value) As per the definitions in CPC no Financial instruments, the financial instruments must be classified by the Company intention for the following: -Trading; -Available for sale and - Held to maturity. Based on this classification we have the following evaluation criteria: For trading, are measured at fair value through profit or loss for the year Available for sale, also valued at fair value, but in counterpart with stockholders' equity as Comprehensive Income. Held to maturity, are evaluated by the amortized cost (yield curve) and reduced to its fair value, if applicable.

5 Permanent Asset As to the items that comprise Permanent Asset, several new rules affect the criteria of recognition and measurement. In this group there are the following standards: -Pronouncement of the CPC no. 01 Impairment of assets -Pronouncement of the CPC no. 06 Leasing operations -Pronouncement of the CPC no. 20 Borrowing costs -Pronouncement of the CPC no. 27 Permanent assets -Interpretation of the CPC, ICPC no. 01 Concession agreements -Interpretation of the CPC, ICPC no. 03 Complementary aspects of leasing transactions -Orientation of the CPC, OCPC no. 05 Concession agreements Among the new mentioned rules, those that have significant effects on Financial Statements of Eletrobras refer to those dealing with the concession agreements. 04

6 Concession Agreements The application of the ICPC 01 - Concession contracts in the companies of the electric power sector has caused considerable changes in the structure of the assets of these companies. This change was made differently in the generation, transmission and distribution companies. Whereas Eletrobras operates in these three segments of the electricity sector, its asset structure will change substantially, mainly due to the application of the ICPC 01 in the transmission and distribution subsidiaries. The expected impacts on these segments are: The Permanent Assets are split into Intangible Assets and Financial Assets Transmission The Financial Assets represents the right to receive cash or another financial asset during the concession The assets that were recognized as fixed assets are recognized as Financial Assets Distribution The Financial Assets represent the right to receive cash or another financial asset at the end of the concession The Intangible Assets represent the remuneration of the concessionaire by the users of public services, according to the right to charge them a certain price for a period agreed with the grantor 05

7 Shareholders Remuneration In accordance with accounting practices adopted in Brazil, interest on own capital and dividends are recognized at the end of year, although the dividends have not been officially declared, which will happen during the following year. According to the Interpretation of CPC, ICPC 08 - Accounting of the proposed payment of dividends, the dividends are recognized only when it is constituted a legal obligation. Therefore, any payment above the minimum mandatory dividend is recognized only when approved by the Shareholders Meeting. The proposal of dividend distribution above the mandatory dividend will be recognized in the Stockholders Equity, in a specific account (called Additional Proposed Dividend) until approved by the Annual General Meeting. Finance Executive Office Accounting Department 06

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