From “Possible” to “Probable”: The Fine Line of CPC 25 in the Marisa Case

The controversy does not stem from a failure to disclose information or from non-compliance with accounting standards, but rather from differing interpretations regarding the degree of risk associated with significant tax disputes concentrated in its indirect subsidiary, M Serviços Ltda.

Under CPC 25 (Provisions, Contingent Liabilities and Contingent Assets), the company’s management classified these contingencies as presenting a “possible” risk, duly disclosing them in the explanatory notes without recognizing a provision in the financial statements. From a strictly regulatory standpoint, this treatment is appropriate when the likelihood of loss is not considered probable. However, the independent auditor disagreed with this assumption, taking the view that the advanced procedural stage of the tax disputes already indicated a probable loss, making the recognition of an accounting provision mandatory.

This disagreement resulted in the identification of a financial misstatement exceeding R$200 million, directly affecting the reported loss for the period and ultimately leading to the issuance of a qualified audit opinion, as well as concerns regarding the company’s ability to continue as a going concern.

The central issue lies in the fact that CPC 25 does not establish objective or mathematical criteria to determine the transition between a “possible” and a “probable” risk. Rather, it requires a technical assessment based on factors such as the stage of the proceedings, the history of administrative and judicial decisions, the strength of the legal arguments, and the prevailing case-law environment. Within this area of professional judgment, it is entirely possible for management and auditors to arrive at different conclusions, even when both positions are technically defensible.

The subsequent involvement of the Brazilian Securities and Exchange Commission (CVM) reinforces this understanding. On appeal, the regulator set aside the requirement for the company to restate its financial statements, accepting, at that time, the classification adopted by management. This does not invalidate the auditor’s qualification, but it demonstrates that the boundary between disclosure in the notes and recognition on the balance sheet is not rigid, being permeated by reasonable—yet conflicting—technical judgments.

The case provides important practical lessons. The classification of contingencies is not a neutral exercise: it directly affects shareholders’ equity, financial results, perceptions of solvency, and investor confidence. In this context, legal opinions cease to be merely instruments of procedural defense and become accounting inputs with immediate financial consequences. Overly optimistic classifications, unsupported by robust evidence in the case files, expose companies to accounting, legal, and reputational risks.

The Marisa case demonstrates that, beyond mere compliance with formal procedures, it is essential to substantiate, through robust and properly documented analysis, the technical judgment underlying the selection of a single word—“possible” or “probable”—capable of altering billions of reais in a company’s financial statements.