Abstract
ABSTRACT This research aims to evaluate the impacts of the elimination of the proportionate consolidation method to recognize joint ventures investments, with the adoption of the Technical Pronouncement CPC 19 (R2), on the accounting amounts reported by Itaúsa - Investimentos Itaú S.A., and identify which accounting adjustments are necessary to explain the differences in reported amounts. Until December 31, 2012, there were two methods to recognize these investments: proportionate consolidation and equity method. The adoption of CPC 19 (R2), from January 1, 2013, brought relevant changes and the elimination of the proportionate consolidation method was the most controversial one. There are many users and researchers that argue that this method provides more relevant information. The effects of this change, with significant impacts on the amounts reported by the joint venturer firm, were even more relevant in Brazil, since almost all Brazilian firms used the proportionate consolidation. It was chosen the case of Itaúsa and, consequently, of Itaú Unibanco Holding because this is the largest private group in Brazil and represents a relevant investment for its joint venturers. The analyses indicated that the total asset reported by Itaúsa using proportionate consolidation was 832% higher than the value reported by the equity method. For liabilities and revenues, this percentage was even higher: 5,096% and 17,771%, respectively. This impact affects financial indicators, industry rankings, and other financial analyses. For example, the debt indicator decreased from 91% to 16%, when the accounting method was changed to the equity method. The analyses also indicated a set of accounting adjustments that explain the differences in the accounting amounts reported by Itaúsa, and these adjustments are beyond the recognition of the proportionate amounts of joint ventures, including goodwill, unrealized intercompany results, among others. The main contribution of this research is to discuss the relevance of CPC 19 (R2) to the Brazilian market and its consequences for the largest private group in Brazil.
Highlights
Until December 31, 2012, prior to the e ective date of the International Financial Reporting Standards (IFRS) 11, there was no consensus between the international and American standards bodies, namely the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), on conceptual aspects to evaluate investments in joint ventures (Furuta, 2005; Richardson, Roubi & Soonawalla, 2012).ere were basically two methods: proportionate consolidation and equity method
The joint venturer rm adds the proportional participation that it holds in each of the amounts of its investees to its own assets, liabilities, revenues and expenses. e use of one method to the detriment of the other can result in signi cant di erences in the values reported by joint venturers (Furuta, 2005; Richardson et al, 2012; Santos, 2011) and, in the understanding and analyses made from them
It is important to note that, this accounting choice was not allowed for the Brazilian companies regulated by the securities exchange commission (Comissão de Valores Mobiliários – CMV), it was allowed in the international accounting standards issued by the IASB. us, there was a great variability of accounting practices among companies, with the equity method predominating in countries of Anglo-Saxon origin and proportionate consolidation in Continental European countries (Santos, 2011)
Summary
Until December 31, 2012, prior to the e ective date of the International Financial Reporting Standards (IFRS) 11, there was no consensus between the international and American standards bodies, namely the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), on conceptual aspects to evaluate investments in joint ventures (Furuta, 2005; Richardson, Roubi & Soonawalla, 2012). Given the above, considering both the impact generated for companies and the controversy of this standard, this paper aims to answer the following research question: what are the impacts of the elimination of the proportionate consolidation method, with the adoption of CPC 19 (R2), on the accounting amounts reported by Itaúsa - Investimentos Itaú S.A.?. We decided to choose the Itaúsa case for three main reasons: (i) Itaú Unibanco Holding, a joint venture of Itaúsa, is Brazil’s largest private bank, as well as the largest private group in Brazil, according to Exame magazine’s Anuário Melhores & Maiores; (ii) Itaú Unibanco Holding represents a relevant investment for Itaúsa, being its main asset; and (iii) as it will be evidenced throughout this paper, among all the publicly traded companies in the Brazilian capital market, Itaúsa was the one that had the highest impact with the elimination of the proportionate consolidation method, when adopting CPC 19 (R2).
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