Accounting vs. Financial Management in Brazil: What Foreign Companies Need to Know

Foreign groups setting up in Brazil often hire an accounting firm and assume finance is covered. Months later, headquarters is asking questions nobody in Brazil is answering: why margins moved, whether the entity will need funding in the fourth quarter, what the tax reform does to prices. The books are correct, the tax returns are filed, and yet the subsidiary is not being managed. The reason is that accounting and financial management are different jobs. This article explains the difference, what Brazilian law requires from each and how to make sure neither is missing.

Two jobs, one set of numbers

Both start from the same transactions. Good financial management is impossible without reliable accounting, and accounting that nobody uses to make decisions is a compliance cost and little else.

What Brazilian law requires from accounting

Every Brazilian company must keep books and prepare financial statements. For companies organized as corporations (S.A.), Law 6,404/1976 sets the rules; limited liability companies (Ltda) follow the Civil Code (articles 1,179 to 1,195) and, in practice, the same accounting standards. Since Law 11,638/2007, Brazilian accounting standards are issued by the CPC and aligned with IFRS.

In practice, the accounting function of a subsidiary is responsible for:

• bookkeeping in reais and the monthly close;
• calculating and filing federal, state and municipal taxes, with the related monthly returns;
• the annual digital filings: the ECD (digital accounting bookkeeping) by the last business day of June and the ECF (corporate income tax bookkeeping return) by the last business day of July;
• financial statements, and, for “large companies” under Law 11,638/2007 (total assets above R$ 240 million or gross revenue above R$ 300 million), an independent audit.

The financial statements and the ECD must be signed by an accountant registered with a regional accounting council (CRC). This is why, even in groups with a global shared service center, a local accounting professional is always involved.

What financial management adds

Financial management uses the accounting numbers, and other information, to run the subsidiary. For a foreign-owned company in Brazil, it usually covers:

• Budget and forecast: translating the group budget into a Brazilian plan, tracking budget vs. actual and reforecasting.
• Management reporting: a management P&L by product, customer or business line, with commentary that explains the numbers.
• Cash and funding: the cash flow forecast, the timing of funding requests to the parent and the choice between capital and loans (see cash flow management for Brazilian subsidiaries).
• Pricing and margins: how taxes on revenue, payroll costs and exchange rates affect the price of what the subsidiary sells.
• Controls: approval limits, segregation of duties and the review of contracts before they are signed.
• Decisions: supporting management and headquarters on investments, hiring, new products and restructuring.

Where foreign groups usually see the gap

• The reporting package is late or does not tie. The books are right, but nobody owns the mapping to the group chart and the commentary. See monthly financial reporting from Brazil to foreign headquarters.
• Cash surprises. December payroll, a large tax payment or a slow customer catches the entity short because no one keeps a forward-looking forecast.
• Tax decisions made by accident. Contracts, intercompany charges and the choice of tax regime were never reviewed with the financial impact in mind.
• Headquarters answers its own questions. The group CFO ends up analyzing the Brazilian numbers from abroad, without local context.

Who should do what

Smaller subsidiaries rarely need separate teams for each function, but they do need each job to have an owner. A practical division:

The pieces work best when they share the same ledger and calendar. Our guide to financial management for foreign-owned companies in Brazil explains how they fit together, and CFO as a Service in Brazil covers the leadership role.

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil. We run accounting and tax compliance with a dedicated accountant, finance operations under your approval rules, and provide senior finance leadership through CFO as a Service, all on the same ledger and calendar. See our accounting service or talk to our consultants.