The importance of criteria for provisioning and legal contingency in corporate accounting best practices

Companies in Brazil are legally obliged to carry out their accounting bookkeeping and annual assessment of the balance sheet and financial results, regardless of the corporate form adopted. Such bookkeeping should take into account the existence of judicial, administrative and other legal issues that may represent a liability.

With this in mind, the provisioning of amounts in the bookkeeping account should represent the actual situation of the company. However, many companies do not give due importance to best practices regarding criteria, standards and calculation, as well as methods of provisioning and contingency.

In each legal claim or liability, the provisioning and contingency estimates should be closer to the actual exposure of the company in accordance with best practices and applicable standards. From the accounting/regulatory point of view, the first step is to conform to the standards and norms of the Brazilian Accounting Standards Committee (CPC).

These standards are based on the International Accounting Standards (IASs) for best practices and provisioning and contingency criteria. They are reference standards/norms in relation to the recognition and bases of measurement of provisions and contingent liabilities, including those arising from judicial, administrative and/or contractual matters.

Demarest’s team is available to clients to assess whether the criteria of provisions and legal contingency of each company are in line with the best reference standards, in particular regarding the recognition and bases of measurement of provisions and passive contingencies, including those arising from legal, administrative and/or contractual matters.