Public Company Accounting Oversight Board, December 8, 2017 Directors and Investors Perspectives The views expressed are my own personal views and do not reflect those of the PCAOB, members of the Board, or the PCAOB staff. Santiago Chaher - Cefeidas Group, 2017
Audit Culture in Latin America Lack of a transparent culture missing the tone at the top Compliance approach to CG Culture improvements by private initiatives: Novo Mercado (Brasil) Nuevo Mercado (Argentina) S&P/BVL IBGC INDEX (Peru) S&P/BMV IPC Sustentable (Mexico) 2
Audit Standardization Impact of IFRS adoption in LATAM Harmonization vs. Standardization Link between accounting standards and Corporate Governance IFRS and Civil Law tradition countries Legal culture Judiciary Universities BAR associations Impact of IFRS on earnings Country level factors Lack of market and cultural incentives Convergence on enforcement and disclosure 3
Audit Standardization IFRS adoption For domestic companies whose debt or equity securities trade in a public market in the jurisdiction: Use of IFRS in consolidated financial statements Required Permitted Observations: Countries Argentina, Brazil, Chile, Colombia, Costa Rica Republic, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Venezuela, Uruguay Bolivia, Guatemala, Panama, Paraguay Honduras: doesn t have stock exchange with filling requirements. Panama: either IFRSs or US GAAP; Venezuela: IFRSs 2008 version, updated. Source: Standardization of Financial Reporting and Accounting in Latin American Countries 4
Audit Standardization IFRS in SMEs Economic importance of SMEs Mistrust of SMEs financial statements in LATAM Lack of access to capital Lost of investment opportunity IFRS for SMEs IASB 2009 Benefits: Access to capital Reduction of compliance risk Harmonization of regulatory environment IFRSs for SME Countries Required Required for come companies Dominican Republic, Venezuela Permitted Argentina, Chile, Ecuador, El Salvador, Honduras, Guatemala, Panama Source: Standardization of Financial Reporting and Accounting in Latin American Countries 5
Audit Standardization in LATAM Audit Committee and Fiscal Council Limited membership Responsibility from the Board Roles Overlap Inefficient allocation of resources Unknown by foreign investors Limited functions: Ex-post approach Regional standardization considering local complexity of tax systems Santiago Chaher - Cefeidas Group, 2017 6
External Audit Practices Rotation in LATAM countries Argentina Brasil Peru Chile Colombia Mexico Listed: Rotation of partner and senior staff every 7 years. No need to rotate audit firm. Unlisted: No limit. - Argentinian latest reforms - Audit firm interest vs CG improvements Listed: Instrução CVM nº 308/99. Rotation every 5 years, with a 3 year cooldown period. Unlisted: There is no limit in the duration of the EA term. Banks: every 4 years. Listed: No need to change the audit firm. The complete audit team must change every 5 years. Unlisted: No limit. There is no regulation that requires the rotation of external auditors. However, the securities market law establishes that partners who work more than 5 years in the same company are presumed to lose their independence. And SVS regulation establishes that companies should have an audit rotation policy in line with the securities market law. There is no regulation that establishes mandatory rotation, however the code of best practices recommends companies to rotate every 5 years all audit staff, with a cooldown period of 2 years. There is no regulation that establishes mandatory rotation, however the code of best practices recommends companies to rotate every 6 years the partners in charge of the audit. 7