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5 Chapter Accounting
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Overview.
■Overview.
The Accounting system is regulated by the Ministry of Finance, for Accounting Standards, Chile has adopted the International Financial Reporting Standards, the accounting rules are defined in the Tax code, (Código Tributario). In August 21 of 2018, the President of Chile Sebastian Piñera, announced a tax reform, in order to modernize and simplify the Chilean tax system and to provide incentives, growth and employment.
■Accounting System in Chile.
Authorities require that all individuals or entities that start a business activity in Chile must comply with certain administrative requirements, the main requirements are to get a taxpayer number by registering at the Internal Revenue Service, and no business can operate without this number. There must be a declaration of initiation of activities, made to the Internal Revenue Service within the two months following the month that activities start. This declaration has to contain a description of the company's capital. Companies have to get as well a municipal license, for any establishment, office or warehouse. There are other permits required that depend on the activity the company develops.
■Accounting Laws.
There are different types of laws in Chile regarding accounting, the financial framework is established under the Companies Law No. 18.046 of 1981. This law contains basic requirements for financial reporting for all companies in Chile, including requirements for the preparation of financial statements. There are two types of corporations, the open and closed corporations, and each is regulated differently, open corporations are regulated by the Financial Market Commission and closed corporations may voluntarily register and be regulated by the CMF under the Registry of Informants.
Law No. 13.011 of 1958 delegates the school CCCH (Colegio De Contadores De Chile) the responsibility for setting accounting standards for non-regulated companies. The CCCH has adopted IFRS for non-regulated companies including small and medium sized entities (SMEs) since 2013. The financial sector is regulated by the CMF for open corporation, listed and insurance companies and the Superintendent of Banks and Financial Institutions (SBIF) is in charge of overseeing banks and financial institutions, this institution has the power to set accounting and financial reporting requirements for companies under their supervision. The CMF and SBIF have adopted IFRS since 2009.
■Accounting period.
The fiscal year begins on January 1st and ends on December 31st of the same calendar year. Companies have to produce their annual financial statement to the shareholders of the company. The accounting books must be published in Spanish and use the Chilean currency as reference.
■Accounting Standards.
Accounting records must be carried in Chilean pesos and there are several legal formalities that must be fulfilled there a few authorized exceptions, authorization to use foreign currencies can be granted by the IRS and depends on a clear demonstration of that being the functional currency. The basic financial statements include the Balance sheet, Statement of income, Statement of cash flows and notes to the financial statements.
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As mentioned before, Chile has already adopted IFRS Standards, the Colegio de Contadores de Chile, CCCH (Institute of Accountants of Chile) by law is the sole setter of standards for generally accepted accounting principles and auditing standards in Chile.
About Companies registered with the SVS (Superintendencia de Valores y Seguros) the Chilean Company Law, indicates that public corporations ( with 500 or more shareholders or 10% of the equity shares are held by 100 or more shareholders) and debt securities issuers are regulated by the Superintendence of Securities and Insurance and are registered in the Securities Registry. Reporting entities, companies that do not issue securities, and which by legal disposition are overseen by the Superintendence of Securities and Insurance, are registered in the Registry of Informants.
For companies registered with the Superintendence of Securities and Insurance, IFRS Standards have the following phases:
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Corporations registered with the Superintendence of Securities and Insurance send their audited financial statements to the Superintendence of Securities and Insurance, which posts them on the website.
Banks and other financial institutions.
Banks and other financial institutions are regulated by the Superintendent of Banks and Financial Institutions (SBIF) rather than the Superintendence of Securities and Insurance. They must follow the accounting rules issued by the SBIF. The SBIF adopted IFRS starting 31 December 2009. In adopting IFRS Standards, the SBIF made significant modifications here are some examples:
1) Banks must measure loan loss provisions using an expected loss approach (with note disclosure of the IAS 39 amount).
2) Banks are prohibited from using the 'fair value option' in IAS 39.
These modifications are highlighted in the financial statements. The financial statements of banks and other financial institutions are described as complying with the standards issued by SBIF, not IFRS Standards.
For Private companies not registered with the Superintendence of Securities and Insurance, Chile has adopted the IFRS for SMEs Standard effective in 2013. As well, the extent of the application is that all domestic and foreign companies with securities trade in a public market are required to use IFRS Standards in their Consolidated financial statement.
Some of the accounting changes for 2019 are the following:
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■Internal and external audit
About auditing requirements, non-regulated companies are required to have their financial statements audited in accordance with the Chilean Generally Accepted Auditing Standards (NAGA) issued by the CCCH, in accordance the Law 13.011 of 1958. T The CMF and the SBIF have the authority to set the auditing standards for entities under their regulation and require application of standards issued by the CCCH. External audits are compulsory for companies with capital and foreign investors with repatriated profits. External auditors include Deloitte, KPMG, Ernst & Young, PricewaterhouseCoopers among others. There is no independent audit oversight authority in Chile. Only audit firms under the supervision of the Financial Market Commission (CMF) and the Superintendent of Banks and Financial Institutions (SBIF) are subject to their respective regulation. Audit reviews are only carried out when a suspicion or risk is identified.
■About Quality assurance:
By law, there is no requirements to establish a quality assurance review system for all audits of financial statements in Chile. The only law that may mention this issue is, Law No. 18.045 that sets the legal foundation for the establishment of Quality Assurance for auditors providing services to listed companies, but as of 2019 no mandatory Quality Assurance review system has been implemented. Only the Financial Market Commission (CMF) and the Superintendent of Banks and Financial Institutions (SBIF) require audit firms listed in the External Audit Firms Register to establish quality control mechanisms. However, audit reviews are only carried out when there is suspicion of risk from a company.
About Code of Ethics: Law No. 13.011 of 1958 authorizes the Colegio de Contadores de Chile to set ethical requirements for its members. Since then, the CCCH has developed its own Code of Ethics, and uses the 2009 IESBA Code of Ethics as a supplement to its own code.
The Financial Market Commission and the Superintendent of Banks and Financial Institutions have the authority to determine ethical requirements for auditors of entities under their supervision. As of to date , the financial sector regulators have not issued a specific regulation related to ethical requirements, but in practice, audit firms listed in the External Audit Firms Register, adhere to the CCCH Code of Ethics.
About Investigation and discipline: Law No. 13.011 of 1958 authorizes the Colegio de Contadores de Chile to establish an investigative and disciplinary system for its members and has established and implemented I&D procedures accordingly since then. The CCCH conducted an assessment of its I&D policies and processes against the requirements of SMO 6 and has identified gaps, such as the composition of members of the I&D committee, results of the investigative and disciplinary proceedings are not made available to the public, and the CCCH is prohibited by the Chilean Constitution to impose penalties like loss of professional designation or exclusion from membership, among others.
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References:
Chile, IFAC, 2019
https://www.ifac.org/about-ifac/membership/country/chile
Chile, IFRS, 2019
https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/chile/#extent
Chile: las nuevas normas contables que preocupan a las empresas, America Retail, January 2018.
https://www.america-retail.com/chile/chile-las-nuevas-normas-contables-que-preocupan-a-las-empresas/
Deloitte, Doing business in Chile 2011.
https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/international-business-support/deloitte-cn-ibs-chile-country-invest-en-2011.pdf
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