Part 1 - AL-Tax

Chapter 15government needs and not to inform equity investors. Third, Brazil is consideredto be a continental model country because its accounting model is strongly influenceby its Iberian colonizers. Fourth, tax rules have a strong influence onBrazilian financial reporting and sometimes it is indistinguishable. Tax laws areclearly influenced by a wider range of factors than the needs of equity investors.Recent research by Luyz and Wusteman (2004) suggested that the accountingloses relevance in countries that adopt a financial ‘insider model’. An insidermodel is characterized when firms rely on special relationships and dealsto obtain funding instead of using the public capital and credit markets. Publiclyavailable financial accounting information is of no relevance in countrieswhere this kind of arrangement is predominant. Brazil clearly adopts an ‘insidermodel’.To efficiently impose the new tax rate, an effective auditing process must beimplemented. This is a problem in Brazil, since most firms need not submit to anextensive auditing system. Even very large firms are not audited in Brazil, becauseonly public firms are subject to external auditing. This aspect may present animportant obstacle to the implementation of the tax reforms proposed.In summary, any attempt to improve the tax system in an emerging marketdemands a solid foundation on an effective accounting system. This system mustencompass education and training of students and professionals, as well as profoundreform in the auditing and assurance services. Otherwise, those importantreforms will not leave the desks of academics.ReferencesAli, A. and Hwang, L.S. (2000). Country-specific Factors Related to Financial Reporting and theValue Relevance of Accounting Data. Journal of Accounting Research, 18(1):1–25.Bergoeing, R. and Kehoe, T. (2001). Trade Theory and Trade Facts. Federal Reserve Bank ofMinneapolis Research Department, Staff Report 284. Available at http://minneapolisfed.org/research/sr/sr284.html.Cunha, A. and Teixeira, A. (2004). The Impacts of Trade Blocks and Tax Reforms on the BrazilianEconomy. Revista Brasileira de Economia, 58(3):325–342. Available at http://ideas.repec.org/a/fgv/epgrbe/5312.html.Herrendorf, B. and Teixeira, A. (2001). How Trade Policy Affects Technology Adoption and TotalFactor Productivity. Unpublished manuscript, Ibmec Business School, Sao Paulo, Brazil.Holmes, T. and Schmitz, J. (1995). Resistance to New Technology and Trade Between Areas. FederalReserve Bank of Minneapolis Quarterly Review, 19(1):2–17. Available at http://minneapolisfed.org/research/qr/qr1911.html.Holmes, T. and Schmitz, J. (2001). A Gain from Trade: From Unproductive to ProductiveEntrepreneurship. Journal of Monetary Economics, 47(2):417–446.353