The European Committee's Central Balance Sheet Data Offices' (CBSO) 2007 report observes that the European Commission (EC) Regulation No. 1606 of 2002 was implemented in Portugal by Law-Decree No. 35 of 2005 that came into force in February 2005. In line with the above mentioned EC Regulation, Portuguese listed companies, beginning 2005 are required to apply International Financial Reporting Standards (IFRSs) as endorsed by the EC in preparation of consolidated accounts. Further, a 2008 EC report on the implementation of Regulation No. 1606 of 2002 points out that in addition to the required application of national generally accepted accounting principles (GAAP), Portuguese listed companies are also permitted the use of IFRSs in their annual accounts except for listed banks, insurance companies, and other financial institutions, which are required to apply IFRSs in preparation of annual accounts. As for unlisted entities, IFRSs are permitted in the preparation of consolidated accounts and annual accounts. However, unlisted banks and financial institutions are required to apply IFRSs in their consolidated accounts. Portuguese companies not applying IFRSs follow national GAAP which primarily consists of the Portuguese Accounting Plan (POC). A 2005 comparison by the CBSO highlights many differences between the POC and the international standards.

General Overview

According to the European Committee's Central Balance Sheet Data Offices' (CBSO) 2004 report, Portuguese Generally Accepted Accounting Principles (GAAP) derive from the following rules in the given order of priority: (1) the Portuguese Accounting Plan (POC); (2) the Accounting Directives issued by the Portuguese Accounting Standards Board (CNC); and (3) the International Accounting Standards Board pronouncements in the absence of national rules and guidelines. The CNC website further clarifies that the following entities are required to apply the POC: (1) national and foreign enterprises which are under the scope of the Commercial Companies Code; (2) enterprises governed by the Commercial Code; (3) single partner enterprises; (4) governmental enterprises; (5) co-operative enterprises; (6) complementary arrangements of enterprises and European arrangements of economic interest; and (7) other entities legally required to apply the POC under specific laws. The POC, a 2005 comparison document by the CBSO highlights, differ from the international standards.

A 2007 CBSO report observes that the European Commission (EC) Regulation No. 1606 of 2002 was implemented in Portugal by Law-Decree No. 35 of 2005 that came into force in February 2005. In line with the above mentioned EC Regulation, Portuguese listed companies, beginning 2005 are required to apply International Financial Reporting Standards (IFRSs) as endorsed by the EC in preparation of consolidated accounts. Further, a 2008 EC report on the implementation of Regulation No. 1606 points out that Portuguese listed companies are permitted to use IFRSs in their annual accounts, except for banks, insurance companies and other financial institutions which are required to apply IFRSs. As for unlisted entities, IFRSs are permitted in the preparation of both consolidated accounts and annual accounts. However, unlisted banks and financial institutions are required the application of IFRSs in their consolidated accounts.

According to the description of the legal and regulatory framework provided in the 2005 Institute of Public Accountants (OROC) self-assessment, governed by the Decree-Law No. 486 of 1999, the Securities Exchange Commission (CMVM) is the central regulatory and supervisory institution for capital markets and investment services. The CMVM controls the accounting and disclosure requirements and also collects and examines the independent auditors' opinions for listed entities. The CMVM cooperates with the CNC and the OROC in the accounting and auditing standard setting process. With regard to banks and financial institutions, the self-assessment explains that the Bank of Portugal (BdP) has the responsibility to issue accounting standards independent from the CMVM and the CNC for entities under its supervision. The applicable accounting framework for banks is called "Instruction on Chart of Accounts for Banking System" and enforcement is performed by the supervisory department of the BdP. In addition, the BdP lays down the disclosure requirements for reporting institutions. Governed by the Decree-Law No. 289 of 2001, insurance companies are regulated by the Insurance and Pension Funds Supervisory Authority (ISP) and are required to apply specific standards issued by the ISP. The self-assessment adds that with regard to disclosure, the ISP issues a separate standard that requires insurance companies to disclose certain financial information in schedules. The ISP also reviews the financial statements of all insurance companies, including listed entities.

The Portuguese Code of Ethics was issued in December 2001 and, per the 2008 CNC self-assessment, "the IFAC Code of Ethics was considered and incorporated to some extent in our own Code of ethics" (p. 50),. At the time of the self-assessment, the OROC had a project on "limited revision" of the national code of ethics so as to incorporate the IFAC Code effective June 2006. The OROC is listed as a member on the International Federation of Accountants (IFAC) website.

The Principles

IFRS 1: First-time Adoption of International Financial Reporting Standards (effective 2006)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IFRS 2: Share-based Payment (effective 2005)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IFRS 3: Business Combinations (effective 2004)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national requirements, when fair value is superior to acquisition cost, two alternative treatments are allowed: "(1) Assign the difference to the non-monetary assets proportionally to their fair value; (2) Consider the difference under Deferred Income, and impute it to results in a systematic manner in a period not greater than 5 years (exceptionally up to 20 years can be accepted)" (p. 6).

IFRS 4: Insurance Contracts (effective 2006)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national requirements, "discontinuing operations do not need to be divulged so thoroughly" (p. 6). Further, the report explains that "in the Account of Profit and Loss by Functions the Company has to include a line before Extraordinary Results to isolate the results (after taxes) related to the activities or divisions, which are in the process of discontinuation or have already been discontinued" (p. 6).

IFRS 6: Exploration for and Evaluation of Mineral Resources (effective 2006)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 1: Presentation of Financial Statements (effective 2007)

NC

According to a 2005 CBSO comparison of Portuguese GAAP and IFRSs, unlike national requirements, extraordinary items are not allowed under IFRS. Further, the report explains that "Cash Flow Statements are obligatory only for companies who, in two consecutive years, surpass two of these three limits: Total Assets 1,500,000 Euro; Turnover 3,000,000 Euro; Average number of employees 50" (p. 26).

IAS 2: Inventories (effective 2005)

NC

According to a 2005 CBSO comparison of Portuguese GAAP and IFRSs, unlike IFRS, under national requirements, "it is sufficient to indicate the valuation criteria used for the items in the balance sheet and profit and loss account" (p. 26).

IAS 7: Cash Flow Statements (effective 1994)

NC

According to a 2005 CBSO comparison of Portuguese GAAP and IFRSs, unlike IFRS, under national GAAP, "Cash Flow Statements are obligatory only for companies who, in two consecutive years, surpass two of these three limits: Total Assets 1,500,000 Euro; Turnover 3,000,000 Euro; Average number of employees 50" (p. 26).

IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors (effective 2005)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 10: Events after the Reporting Period (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, recognition and disclosure of events after balance sheet date is not foreseen in national rules. However, situations that significantly affect future taxes must be referred in the annexes to the annual accounts.

IAS 11: Construction Contracts (effective 1995)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national requirements, "costs and revenues on construction contracts can be recognized according to two methods: stage of completion or complete contract" (p. 24).

IAS 12: Income Taxes (effective 2001)

EN

According to the Deloitte IAS Plus website update, the CNC issued Accounting directive 28, Income Taxes. This directive is applicable for all companies for periods beginning on or after January 1, 2002. The update notes that "basically the new accounting directive is in line with International Accounting Standard (IAS) 12 (revised 2000)."

IAS 14: Segment Reporting (effective 1998)

EN

According to the Deloitte IAS Plus website update, the CNC issued accounting directive 27 - Segmental Reporting in July 2000. The update notes that this standard is mandatory for listed companies and for all companies that decide to present segment information, for accounting periods beginning on or after January 1, 2001 and "is in line with International Accounting Standard (IAS) 14."

IAS 16: Property, Plant and Equipment (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national GAAP, "most revaluations of property, plant and equipment (legally based on price indexes) are not generally at fair value and are not kept up to date" (p. 24).

IAS 17: Leases (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national requirements, recognition of operating leases payments and incentives and accounting by lessors of financial leases are not subject to detailed guidance.

IAS 18: Revenue (effective 1995)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 19: Employee Benefits (effective 2006)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national GAAP, "employee benefit calculations generally do not take account of expected future salary increases due to promotion" (p. 24).

IAS 20: Accounting for Government Grants and Disclosure of Government Assistance (effective 1984)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 21: The Effects of Changes in Foreign Exchange Rates (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike international requirements, under Portuguese GAAP, "gains on foreign currency originating from medium and long term debts will not be considered profit of the period when there are reasonable expectations that the gain can reverse, in which case they will be considered as a deferred profit" (24). Also, foreign currency losses arising from loans for financing of an asset can be included in its value only while it is being constructed.

IAS 23: Borrowing Costs (effective 1995)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 24: Related Party Disclosures (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national requirements, "related party transactions do not have to be divulged. However, financial liabilities towards related parties have to be indicated separately" (p. 26).

IAS 26: Accounting and Reporting by Retirement Benefit Plans (effective 1998)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 27: Consolidated and Separate Financial Statements (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national GAAP "dissimilar subsidiaries can be excluded from consolidation if its inclusion will peril the true image of the financial situation and of the results of the group of consolidated companies" (p. 24).

IAS 28: Investments in Associates (effective 2005)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 29: Financial Reporting in Hyperinflationary Economies (effective 1990)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 31: Interests in Joint Ventures (effective 2005)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 32: Financial Instruments: Disclosure and Presentation (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, there are differences in presentation and required information under international and national accounting standards. The report explains that "when issued, compound financial instruments are not split into liability and equity components, being registered according to their legal form" (p. 24). Further, "in the case of current assets it is obligatory to globally indicate the materially relevant differences between their costs, calculated according to the adopted valuation criteria, and the amounts that correspond to their market prices, per type of asset" (p. 26).

IAS 33: Earnings per Share (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike international requirements, under national GAAP,"earnings per share computation aggregates (net profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares) are not subject to detailed guidance" (p. 25).

IAS 34: Interim Financial Reporting (effective 1999)

II

There is insufficient publicly available information as to Portugal's compliance with this principle.

IAS 36: Impairment of Assets (effective 2004)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national GAAP, "impairment tests are usually based on single assets rather than cash generating units and on market value or replacement cost rather than discounted cash flows" (p. 24).

IAS 37: Provisions, Contingent Liabilities and Contingent Assets (effective 1999)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national GAAP, "rules for the quantification of provisions are not subject to detailed guidance: they simply must obey the principle of caution" (p. 25).

IAS 38: Intangible Assets (effective 2004)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, unlike IFRS, under national GAAP, "research costs can be capitalized (over a maximum of 5 years) in exceptional cases when it can be proved beyond any doubt that they will produce future economic benefits" (p. 24). Other inconsistencies between IFRS and national rules include "start-up costs, such as expenses to create, organize and expand the Company, are considered intangible assets and can be capitalized over a maximum of 5 years" (p. 24).

IAS 39: Financial Instruments: Recognition and Measurement (effective 2006)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, there are differences in accounting for financial instruments under IFRS and national GAAP. Further, the report notes that financial assets and liabilities are valued at cost and hedge accounting for derivatives is permitted more widely.

IAS 40: Investment Property (effective 2005)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, investment property is valued at cost which results in inconsistency between IFRS and national GAAP.

IAS 41: Agriculture (effective 2003)

NC

According to a 2005 comparison of Portuguese GAAP and IFRSs published by the European Committee of CBSO, under national GAAP "there is no detailed guidance on the treatment of biological assets or agricultural produce" (p. 25).