It's the 80's All Over Again

The 80's were wonderful --- unless of course we're discussing fashion or technology in the practice of public accounting! Fortunately, we've come a long way since then. Unfortunately (for them) our counterparts in Brazil have not.  Many of you know that I recently led a Rotary Group Study Exchange (GSE) Team to Brazil.One of the benefits of the GSE program is the opportunity for "professional visits". In Chapeco, Santa Catarina, Brazil (pop 210,000) Rotarian and Contrador Luis Klanert arranged a wonderful series of meetings for me. Luis and his English-speaking university aged son first took me to meet with Avaci Gazoni, Diretor of the Sindicato das Emprasas de Servicos Contabeis Assessormento, Pericias, Informacoes e Pesquisas no Estado de Santa Catarina [translation: Executive Director of the CPA Society of Santa Catarina]. Avaci was very helpful and most interested in understanding the similarities and differences in how the profession is practiced in our respective countries. We compared demographics and found that while Brazil has more firms per capita than the U.S., both countries have an overwhelming majority of small (under 10) firms. In reviewing the state of small business in Brazil it's easy to understand why ---- there are very few franchises and most businesses are small "Mom & Pop" owner-managed style. These businesses utilize precious little technology (the most advanced retailers have just rolled out scanners and bar codes!) and most are required by law to engage a "Contrador" (i.e. CPA). Once engaged the Contrador (actually the firm) performs virtually all bookkeeping and accounting services. No Sarbanes-Oxley management rules here --- the outside firm does EVERYTHING and at year-end issues a signed and certified "book" that contains a printed record of EVERY transaction, including all appropriate adjusting journal entries, for the year. This "book" is kept by the client and must be presented upon demand of a bank creditor or of the Brazilian Internal Revenue Service. I tried, without success, to find something that vaguely resembled a financial statement in the "book" I was shown. It seems that management prepares and issues financial statements and the role of the independent accountant is to capture, classify, and record every transaction and prepare a record of such. Avaci proudly told me that the Society is working with vendors to develop a method to deliver the "book" electronically! [Ya think?]

My next stop was the Revenue Service where I met Roberto Forselius, District Manager of the Brazilian Internal Revenue Service. Roberto confirmed that the IRS and CPAs in Brazil have the same "love/hate" relationship as in the U.S. --- with certain significant differences. The format of the "book" is prescribed by the Service and the accountant's license is at risk for virtually any material error. In sharp contrast with the U.S. young accountants in Brazil begin their careers in private practice and aspire to land a prestigious, high-paying position with the IRS. I was surprised to hear that the Brazilians estimate a 50% revenue loss attributable to under-reporting and failure to file ---- sorta made me feel proud to realize that they admire our success in voluntary compliance!

My last stop was at the offices of the largest firm in Chapeco --- about 160 people. The firm looks exactly like a typical U.S. firm of the 80's. Two partners, six managers, about 20 seniors, and 130 clerk/data-input/bookkeepers. Professionally licensed "Contradors" are 4 year college graduates while clerks are basically trained "on the job". I observed no "sense of urgency" here and everywhere I looked I saw vestiges of the "the olden days" for the profession. From a wall full of rubber stamps to rooms full of data entry clerks --- Brazil is decidedly  behind the U.S. in the delivery of professional services. Managing  Partner Vilmar Tadeu Da Silva told me that people are cheap in Brazil and while they are trying to advance technology the costs are very steep. During this discussion I heard an interesting complaint --- one that I heard at a small office in Compos Novos a few weeks ago and also at the Society office earlier today. It seems that the market leading provider in Brazil (I.O.B.) was recently purchased and prices have increased substantially. The purchaser? None other than Thomson. (No further comment!).

While Brazil is technically considered a "third world" country their financial infrastructure seems solid, albeit mostly manual. They understand their need for technology and they keep a close eye on the U.S. as an aspirational example. They have a vibrant economy and an enviable entrepreneurial work ethic. My prediction is that they will move 30 years in the next 10. It's an exciting time for this South American giant and I'm fortunate to have had the opportunity to share with and learn from them.

Obrigado, amigos!

gll

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