The Americanas crisis has raised doubts about the control and accounting mechanisms used by the Brazilian retail giant. Last January 11, the then CEO Sérgio Rial announced to investors inconsistencies in the company’s balance sheets which, according to him, have reached R$ 20 billion. Amid the scandal, Rial resigned just nine days after taking office. The case rocked the financial market, with the retailer’s shares dropping about 80% the day after the breach was announced.
The debts, which a few days later reached R$ 43 billion, had not been included in Americanas’ financial results, i.e. they were “hidden”.
According to Rial, the damage has come, in large part, from “thrown risks,” or forfeit operations, in which bank loans are used to pay suppliers. Even these values were not identified by the audit, carried out by the multinational consultancy PwC.
Last week, Americanas got its judicial recovery request granted by Rio’s 4th Corporate Court. Founded in 1929, in Niterói (RJ), and having as majority shareholders, since 1982, the 3G Capital group of billionaires Jorge Lemann, Marcel Telles and Carlos Sicupira, the retailer currently has more than 3,600 physical stores and approximately 40,000 employees. Of the creditors alone, there are more than 16,000.
DW Brasil spoke to financial experts and listed some flaws that could have led to the colossal gap in the accounts of the national retail giant.
1. Treat “pick risk” as a debt owed to the supplier
The so-called “withdrawal risk”, or lump sum, is a method of anticipating payments to suppliers, used in the retail sector, which normally works with installment payments and long-term creditors to customers.
Since suppliers require payment for products within tight deadlines, the retailer uses bank loans to pay off these amounts. Thus, the vendor’s creditor becomes the financial institution that made the payment to the vendors.
However, what may have happened in the case of Americanas is that the liabilities to banks were not recorded as financial payables, but, instead, as accounts payable, which does not appear in the results sent to the market by publicly traded companies. , such as the dealer.
As a result, the interest on the bank loan may not have been reported as an increase in debt, but as an expense, explains Insper finance and accounting professor Eric Barreto. “At first, this doesn’t change the size of the debt, because it is the present value. Over time, it would have to take into account the interest on this liability, the counterpart of which would be an increase in debt,” he highlights.
According to Barreto, the legislation on “stretch risk” is recent. “This product was sold by financial institutions even with this appeal, which did not result in debt,” he specifies.
The expert adds that, starting in 2016, the Securities and Exchange Commission (CVM) began to warn about the risks of this practice with circulars sent to the market. “For the CVM to put this, he had already noticed the problem in some companies,” he says.
According to David Massara, a corporate law specialist and partner of Gotlib Massara Rocha Advogados, the disclosure of transparent financial results is essential for the proper functioning of the financial market. “The whole market must have access to the same information so that everyone can make investment decisions, buy and sell, fairly. If the company discloses false or inconsistent information, it hurts investors,” he says.
FGV economics professor Joelson Sampaio says the practice of “designed risk” should enter the market radar more prominently after the Americanas episode. “More rigor should be required in relation to accounting and the way it is communicated to the market,” he predicts.
2. Failure of independent audits
One of the big four by the independent audit, the English PricewaterhouseCooper, known as PwC, has been in charge of auditing the financial statements of Americanas since the end of 2019, following the departure of KPMG, which is also among the four largest in the sector in the world.
In the latest findings released by the retailer, PwC found no inconsistencies or reservations, nor did it raise any concerns about the “risk withdrawn” procedures. Following Americanas’ disclosure of the violation, the Federal Accounting Council (CFC) initiated a process to investigate the conduct of the independent audit.
The issue, according to corporate lawyer David Massara, is part of a discussion of the very role of audits as truly “independent”, since they are paid for by the audit itself. Furthermore, he says that another point is whether the size and volume of business, which is currently very large, can be monitored by these monitoring companies.
“What we have seen over the course of two decades is a sequence of problems in publicly traded companies that these accounting firms fail to identify and somehow end up getting involved in. This discussion will come back again: auditing is it really efficient, is this model flawed and needs to be fixed?” asks Massara, who is a professor at Milton Campos Law School.
Massara recalls the case of Enron, an American energy company that went bankrupt in the early 2000s, after hiding debts of 25 billion dollars for two years. The scandal involved the auditor Arthur Andersen, one of the largest in the world, which was part of the then big five.
Barreto, from Insper, explains that audits are usually based on statistics, without reviewing all processes, but evaluating samples and, based on them, analyzing the big picture. “The kind of procedure that does an audit to certify that the company is demonstrating all liabilities is an undervaluation test,” says the finance professor.
The supposedly independent auditors then contact financial institutions that had relationships with the audited ones, confirming balances and investments. “In the investigation, PwC will have to defend itself and show what the banks answered when it asked for information on debt transactions or ‘withdrawal risk’. It may be that the information did not come from financial institutions”, he underlines. Barrett.
3. Omission of the creditor banks
This is where another important point of the process comes into play, especially in the case of “drawn risk”. If the banks had carried out the operation with the suppliers, they should, in principle, have warned the auditors of the amounts.
Major creditors of Americanas include Santander (R$3.7 billion), Itaú (R$3.4 billion), Safra (R$2.5 billion) and BTG Pactual (R$1.9 billion). BTG has also publicly fought back, in a lawsuit sent to Justice against the retailer, calling the scandal “fraud” and saying 3G Capital’s majority shareholders were “caught with their hand in the box.”
For Barreto the “stretched risk” should have been informed by the banks just as the auditors got in touch to confirm Americanas’ debt numbers. “The auditor, in his defense, will have to demonstrate that he has carried out this process. And I think he is safe if the entity does not respond that he had withdrawn this risk disclosure. It is a possibility”, underlines the professor.
“Lenders knew they were ‘taking a risk,'” Massara says. “These financial institutions have billions of reais lent to a company. Shouldn’t there have been better due diligence? It’s a flag that can be raised,” the lawyer points out.
4. Failure of Americanas Internal Controls
The main question in the case, however, remains how a publicly traded company the size of Americanas managed to hide the billion-dollar gap from its directors and executives for so long.
Last weekend, the company’s main partners, billionaires Jorge Paulo Lemann, Marcel Telles and Carlos Sicupira – three of Brazil’s four richest people – spoke in a statement. “Like all of the company’s other shareholders, creditors, customers and employees, we strongly believed that everything was absolutely right,” they said.
For corporate specialist David Massara, however, the revelation last week that members of the company’s board sold more than BRL 200 million in shares at the end of 2022 raises suspicions.
“If the market has seen the potential for higher appreciation, and the directors, who have more information than everyone else, sell, it is a sign that they have not seen the same potential. This could be an indication that something wrong could be going on. “, he says, adding that, if the thesis is proven, the directors could be guilty of using privileged information, the so-called exchange of privileged information.
In publicly traded companies, board members must approve financial statements. With that, they can also be held accountable, explains Eric Barreto, from Insper. “The signature is not pro forma,” he explains, pointing out that a company’s controllers have access to all the necessary information.
According to FGV professor Joelson Sampaio, however, the impact on the 3G Capital group should be minimal, at least a priori. “That could change if some kind of more strategic action from the group is shown,” he estimates.
What’s up now
The judicial recovery process is used by a company to ensure that, even in a complicated situation, such as in the case of Americanas, commitments are honored. Some of the main ones are, for example, maintaining workers’ jobs and paying suppliers. A restructuring plan is presented 60 days after the start of the procedure. It must be approved by at least half of the creditors.
At least initially, this should ensure that the company’s approximately 40,000 employees continue to receive their salaries. However, there will most likely be layoffs in the process and the unions are already trying to negotiate with the retailer.
“The judicial reorganization device is to adjust the debt to a new company size. If Americanas has to adjust its size, it is very likely that it will have a new size of employees. It is a consequence,” says Barreto , from Insper.
But the effects don’t end there. “From a financial point of view, the company will no longer have access to credit. No one will lend them. It is arguing with the financial system, hence the judicial recovery,” says Massara. She says there may be difficulties with suppliers, who will not want to sell to the company, or even migration of market to other resellers’ platforms with more credibility.
In the financial market there are already reflections with bond investors and funds that have used Americanas shares – as is the case of Nu Reserva, of Nubank, which has suffered a flight of about 175 thousand shareholders after recording a negative profitability.
“Other funds that are already suffering are real estate funds, which have large properties, and often rent to these department stores. There are many real estate funds that have properties leased to Americanas», explains Massara.
For Joelson Barreto, of FGV, the ripple effect of Americans could end up scaring investors, at least initially. “We already have few individual investors on the stock exchange compared to other countries. I think they will be more cautious in relation to upcoming acquisitions,” he says.
Finally, even the creditors will pay the consequences, underlines Barreto of Insper. “Existing debts, during judicial recovery, are renegotiated so that the company remains viable. The request is also to adjust the debt to a new corporate reality”, he says.
The question can also affect other commercial groups, also in accounting terms, especially in relation to how these companies account for the procedures of “drawn risks”, Massara underlines. “I believe all dealers will be looked at in an accounting entry,” she concludes.
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