According to the assessment of accounting and auditing practices conducted by the World Bank in 2004, since 1997, Chilean standard setting authorities have been converging their national standards with international accounting and auditing standards. Nonetheless, significant differences between national and international standards still persist. The World Bank, therefore, recommended adopting International Financial Reporting Standards (IFRSs) promulgated by the International Accounting Standards Board for all public interest entities and developing simplified accounting standards for small and medium sized enterprises. In line with these recommendations, according to the Financial Sector Reform and Strengthening Initiative website, Chile embarked upon a project for the gradual adoption of IFRSs laid out in four phases. The Deloitte IAS Plus website explains that Chile will be adopting IFRSs for all companies registered with the Superintendency of Securities and Insurance (SVS) and all Superintendency of Banks and Financial Institutions (SBIF) regulated entities over a three-year period beginning 2009 and ending 2011. Other than a few exceptions, according to this plan, all major listed (open) companies, as well as banks and financial institutions will present financial statements in accordance with IFRSs by 2009. As for smaller listed (open) companies, insurance companies, mutual funds, pension funds, stock brokers and dealers, insurance agents, companies that issue publicly traded debt securities and listed companies unable to switch to IFRSs in 2009, will prepare financial statements in line with the international standards by December 31, 2010. Finally, other entities registered with the SVS, such as non-issuers that have voluntarily registered, will transition into IFRSs by 2011. Non-listed companies that do not fit in the above mentioned categories continue to adhere to the Chilean Generally Accepted Accounting Principles.

General Overview

Accounting and auditing requirements for corporate entities in Chile are governed by the Corporations Law that distinguishes between two corporate forms ¨C "open" and "closed" resulting in different financial reporting requirements for these entities. As explained in a 2004 World Bank assessment of accounting and auditing practices in Chile, open corporations are statutorily regulated by the Superintendency of Securities and Insurance (SVS) and, therefore, follow SVS-issued accounting regulations. On the other hand, closed corporations are not required to be registered with the SVS, although they may voluntarily choose to do so. Regardless of the requirements set by a specific industry regulator, the Corporations Law mandates all corporations prepare annual financial accounts in accordance with the Chilean Generally Accepted Accounting Principles (GAAP) which according to the World Bank report, differ from the international standards. Furthermore, the assessment notes that although since 1997 the authorities have been converging Chilean GAAP (which were previously based on the U.S. accounting standards) with International Financial Reporting Standards (IFRSs) the World Bank finds national standards "significantly less demanding" than their international counterparts. The World Bank, therefore, recommended adopting international standards for all public interest entities including listed companies, banks, insurance companies, pension funds and large corporations, as well as developing simplified accounting standards for small and medium-size enterprises.

In line with the World Bank recommendations, per the July 2008 Deloitte IAS Plus website update, Chile will be adopting IFRSs for all SVS registrants and all Superintendency of Banks and Financial Institutions (SBIF) regulated entities over a three-year period beginning 2009 and ending 2011. According to this plan, all major listed (open) companies will present financial statements in accordance with IFRSs by 2009; however, companies not ready to make the switch to IFRSs will be given an additional year for the transition. Smaller listed (open) companies, insurance companies, mutual funds, pension funds, stock brokers and dealers, insurance agents, companies that issue publicly traded debt securities and listed companies that were unable to switch to IFRSs in 2009 will prepare financial statements in line with the international standards by December 31, 2010. Finally, other entities registered with the SVS, such as non-issuers that have voluntarily registered, will start using IFRSs by 2011. Non-listed companies that do not fit in the above mentioned categories continue to adhere to the Chilean GAAP. Under the Corporations Regulations (RSA), the SVS has wide enforcement powers over financial reporting requirements of registered corporations and insurance companies. With regard to enforcement, the World Bank notes that although the SVS has made commendable efforts to improve compliance with financial reporting requirements; however, further improvement is required.

Banks, pension funds, insurance companies and other financial institutions are subject to separate financial reporting regulation. Banks and financial institutions are regulated by the SBIF and follow accounting rules issued by the SBIF, including a specific accounting format for submission of monthly, quarterly, and annual year-end financial reports. The SBIF rules, the World Bank notes, differ significantly from IFRSs. As for pension funds, these are regulated by the Superintendency of Pensions (SP) and, similar to banks, must submit daily, quarterly, and annual year-end financial reports in a SP-specific format. However, as mentioned earlier, all this is likely to change soon as the SBIF-regulated entities and pension funds will be required to use IFRSs beginning December 31, 2009 and 2010, respectively.

With regard to the standard setting powers of the three regulatory bodies ¨C the SVS, SBIF, and SP ¨C the World Bank notes that "these standard-setting powers extend beyond the form of the financial reporting and include accounting standards" (p. 6). In fact, with regard to the 25 standards set by the SVS the assessment notes that these are "more than mere precisions on the CCC [Chilean College of Accountants] Technical Bulletins, and take precedence over [the latter]" (p. 6). The World Bank report recommends establishing a Chilean Accounting Standards Board under the CCC domain as the only official body empowered to set accounting standards. The CCC ¨C a voluntary organization ¨C is legally empowered under Law No. 13,011 of 1958 to set accounting and auditing standards in Chile. Law No. 13,011 of 1958 was superseded by Decree-Law No. 3.621 of 1981.

With regards to the Code of Ethics, the 2007 CCC self-assessment states that the translation of the International Federation of Accountants (IFAC) Code was in process at the time of the assessment and was likely to be available the same year for all CCC members. The CCC is a member of both the IFAC and the Inter-American Accounting Association.

The Principles

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

II

According to the IAS Plus website, Chile is in the process of adopting IFRSs. By 2009, all SBIF regulated entities will be applying the international standards while SVS and SP regulated companies will achieve convergence with IFRS over a three-year period from 2009-2011. As of 2008, companies follow the Chilean GAAP which differ from IFRSs. Nonetheless, there is insufficient information publicly available specifically addressing Chile's compliance with this principle.

IFRS 2: Share-based Payment (effective 2005)

II

See IFRS 1.

IFRS 3: Business Combinations (effective 2004)

II

See IFRS 1.

IFRS 4: Insurance Contracts (effective 2006)

II

See IFRS 1.

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

NC

According to the 2004 World Bank assessment, there is no equivalent standard in Chilean GAAP. As explained in the World Bank report, "Technical Bulletin 56 states that, absent a specific pronouncement on a matter by the CCC (vis-§Ñ-vis a Technical Bulletin), companies are to default to the relevant IAS standard" (p. 12). In practice, Technical Bulletin 56 is not consistently applied, so several critical areas of accounting and disclosure, including discontinued operations, not explicitly covered by Chilean standards are often not treated in locally issued financial statements.

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

II

See IFRS 1.

IFRS 7: Financial Instruments: Disclosures (effective 2007)

II

According to the 2004 World Bank assessment, banks and financial institutions are required to follow standards issued by the SBIF, which differ significantly from IFRSs. With regard to SBIF regulated entities that is likely to change as SBIF will require use of IFRSs in preparation of financial statements by 2009. However, there is insufficient information on whether all other entities are likely to adopt IFRSs as well.

IAS 1: Presentation of Financial Statements (effective 2007)

II

See IFRS 1.

IAS 2: Inventories (effective 2005)

II

See IFRS 1.

IAS 7: Cash Flow Statements (effective 1994)

II

See IFRS 1.

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

II

See IFRS 1.

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

NC

According to the 2004 World Bank assessment, there is no equivalent standard in Chilean GAAP. As explained in the World Bank report, "Technical Bulletin 56 states that, absent a specific pronouncement on a matter by the CCC (vis-§Ñ-vis a Technical Bulletin), companies are to default to the relevant IAS standard" (p. 12). In practice, Technical Bulletin 56 is not consistently applied, so several critical areas of accounting and disclosure, including events after the balance sheet date, are often not treated in locally issued financial statements.

IAS 11: Construction Contracts (effective 1995)

II

See IFRS 1.

IAS 12: Income Taxes (effective 2001)

NC

According to the 2004 World Bank, treatment of income taxes under Chilean GAAP differs from IFRS. Furthermore, "under Technical Bulletin 60, Accounting for Income Taxes and Deferred Taxes which became effective on January 1st, 2000, the effect on recognizing deferred tax assets or liabilities not recorded prior to that date can be spread over the estimated average reversal periods corresponding to the underlying temporary differences to which those deferred tax assets or liabilities relate," (p. 12) the World Bank report explains.

IAS 14: Segment Reporting (effective 1998)

NC

According to the 2004 World Bank assessment, there is no equivalent standard in Chilean GAAP. As explained in the World Bank report, "Technical Bulletin 56 states that, absent a specific pronouncement on a matter by the CCC (vis-§Ñ-vis a Technical Bulletin), companies are to default to the relevant IAS standard" (p. 12). In practice, Technical Bulletin 56 is not consistently applied, so several critical areas of accounting and disclosure, including segment reporting, not explicitly covered by Chilean standards are often not treated in locally issued financial statements.

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

II

See IFRS 1.

IAS 17: Leases (effective 2005)

II

See IFRS 1.

IAS 18: Revenue (effective 1995)

II

See IFRS 1.

IAS 19: Employee Benefits (effective 2006)

II

See IFRS 1.

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

II

See IFRS 1.

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

II

See IFRS 1.

IAS 23: Borrowing Costs (effective 1995)

II

See IFRS 1.

IAS 24: Related Party Disclosures (effective 2005)

NC

According to the 2004 World Bank assessment, "the disclosure standards for related party transactions do not fully comply with IAS 24. The definition of a related party does not include the idea of controlling groups" (p. 11).

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

II

See IFRS 1.

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

NC

According to the 2004 World Bank assessment, significant discrepancies between Chilean GAAP and IFRS exist in the area of subsidiaries excluded from consolidation. The report explains that "banking operations are not required to be consolidated with non-financial businesses under Chilean GAAP, the justification being primarily the dissimilarity of both the nature of the businesses and the related accounting policies. However, such practice leads to distorting certain of the key financial ratios of economic groups that include bank operations, and is not acceptable under IFRS or U.S. GAAP" (p. 11).

IAS 28: Investments in Associates (effective 2005)

II

See IFRS 1.

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

NC

According to the 2004 World Bank assessment, significant discrepancies between Chilean GAAP and IFRS exist in the area of foreign investments in hyperinflationary or unstable economies. The report explains that "in accordance with CCC Technical Bulletin 64, the financial statements of foreign subsidiaries whose activities do not constitute an extension of the Chilean operations, or which operate in countries that are exposed to significant risks, restrictions or inflation/exchange fluctuations, are re-measured using the U.S. dollar as the functional currency and then translated into Chilean Pesos, at the year-end exchange rate" (p. 10). However, the report adds that "IFRS would permit such treatment only if it could be demonstrated that the U.S. dollar is the measurement currency that best reflects the economic substance of the foreign subsidiary's transactions" (p. 10).

IAS 31: Interests in Joint Ventures (effective 2005)

NC

According to the 2004 World Bank assessment, there is no equivalent standard in Chilean GAAP. As explained in the World Bank report, "Technical Bulletin 56 states that, absent a specific pronouncement on a matter by the CCC (vis-§Ñ-vis a Technical Bulletin), companies are to default to the relevant IAS standard" (p. 12). In practice, Technical Bulletin 56 is not consistently applied, so several critical areas of accounting and disclosure, including interests in joint ventures, not explicitly covered by Chilean standards are often not treated in locally issued financial statements.

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

NC

According to the 2004 World Bank assessment, significant discrepancies between Chilean GAAP and IFRS exist in the area of accounting for financial instruments. The report explains that "Chilean GAAP does not require the explicit recognition of investments in financial assets as one of the following three types of investment: (i) held to maturity, (ii) held for trading, or (iii) available for sale" (p. 10). Moreover, "unrealized losses on such investments are reflected in the statements of income, while under IAS 32, Financial Instruments - Disclosure and Presentation they would be excluded from the income statement" (pp. 10-11).

IAS 33: Earnings per Share (effective 2005)

NC

According to the 2004 World Bank assessment, there is no equivalent standard in Chilean GAAP. As explained in the World Bank report, "Technical Bulletin 56 states that, absent a specific pronouncement on a matter by the CCC (vis-§Ñ-vis a Technical Bulletin), companies are to default to the relevant IAS standard" (p. 12). In practice, Technical Bulletin 56 is not consistently applied, so several critical areas of accounting and disclosure, including earnings per share, not explicitly covered by Chilean standards are often not treated in locally issued financial statements.

IAS 34: Interim Financial Reporting (effective 1999)

II

According to the IAS Plus website, Chile is in the process of adopting IFRSs. By 2009, all SBIF regulated entities will be applying the international standards while SVS and SP regulated companies will achieve convergence with IFRS over a three-year period from 2009-2011. As of 2008, companies follow the Chilean GAAP which differs from IFRSs. Nonetheless, there is insufficient information publicly available specifically addressing Chile's compliance with this principle.

IAS 36: Impairment of Assets (effective 2004)

II

According to the IAS Plus website, Chile is in the process of adopting IFRSs. By 2009, all SBIF regulated entities will be applying the international standards while SVS and SP regulated companies will achieve convergence with IFRS over a three-year period from 2009-2011. As of 2008, companies follow the Chilean GAAP which differs from IFRSs. Nonetheless, there is insufficient information publicly available specifically addressing Chile's compliance with this principle.

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

NC

According to the 2004 World Bank assessment, significant discrepancies between Chilean GAAP and IFRS exist in the area of provisions. The report explains, "Chilean GAAP do not require the existence of an obligation for a provision to be recognized" (p. 11).

IAS 38: Intangible Assets (effective 2004)

II

According to the IAS Plus website, Chile is in the process of adopting IFRSs. By 2009, all SBIF regulated entities will be applying the international standards while SVS and SP regulated companies will achieve convergence with IFRS over a three-year period from 2009-2011. As of 2008, companies follow the Chilean GAAP which differs from IFRSs. Nonetheless, there is insufficient information publicly available specifically addressing Chile's compliance with this principle.

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

NC

According to the 2004 World Bank assessment, significant discrepancies between Chilean GAAP and IFRS exist in the area of accounting for financial instruments. The report explains that "the Chilean GAAP do not require the recognition of the so-called "embedded" derivatives (i.e., specific provisions in a contract of a commercial type that create rights and/or obligations similar to those of a derivative contract) and set less stringent conditions than IAS 39, Financial Instruments - Recognition and Measurement for treating such derivatives as hedges" (p. 11) and that this can lead in some instances costs or gains from the use of derivatives to be unnecessarily deferred to a subsequent year's income statement.

IAS 40: Investment Property (effective 2005)

II

According to the IAS Plus website, Chile is in the process of adopting IFRSs. By 2009, all SBIF regulated entities will be applying the international standards while SVS and SP regulated companies will achieve convergence with IFRS over a three-year period from 2009-2011. As of 2008, companies follow the Chilean GAAP which differs from IFRSs. Nonetheless, there is insufficient information publicly available specifically addressing Chile's compliance with this principle.

IAS 41: Agriculture (effective 2003)

II

According to the IAS Plus website, Chile is in the process of adopting IFRSs. By 2009, all SBIF regulated entities will be applying the international standards while SVS and SP regulated companies will achieve convergence with IFRS over a three-year period from 2009-2011. As of 2008, companies follow the Chilean GAAP which differs from IFRSs. Nonetheless, there is insufficient information publicly available specifically addressing Chile's compliance with this principle.