JPRM-2023-027-G — Reform Policies for Financial Statements and Chart of Accounts of the Central Bank of Ecuador

RESOLUTION No. JPRM-2023-027-G MONETARY AND FINANCIAL POLICY BOARD

CONSIDERING:

That, Article 226 of the Constitution of the Republic of Ecuador prescribes that public servants and persons acting under state authority shall exercise only the competencies and powers attributed to them in the Constitution and the Law;

That, Article 227 ibidem states that Public Administration constitutes a service to the community governed by the principles of effectiveness, efficiency, quality, hierarchy, coordination, planning, among others;

That, the first paragraph of Article 303 of the Magna Carta determines that the formulation of monetary, credit, exchange, and financial policies is the exclusive faculty of the Executive Function and will be implemented through the Central Bank of Ecuador;

That, Article 30 of the Organic Monetary and Financial Code determines that: “The net results of the Central Bank of Ecuador will be determined based on the financial statements prepared in accordance with internationally recognized accounting standards applicable to the institution, which must have the opinion of an independent external auditor (…)”;

That, Article 31 of the aforementioned Code provides: “The Monetary and Financial Policy Board will review and approve the annual financial statements provided they comply with the policies and accounting procedures of the Central Bank of Ecuador, which must be based on internationally recognized accounting standards. (…)”;

That, Article 47.1 ibidem created the Monetary and Financial Policy Board as part of the Executive Function, responsible for the formulation of monetary policy, the highest governing body of the Central Bank of Ecuador, and determined its composition;

That, numeral 21 of Article 47.6 of the aforementioned Code, as a function of the Monetary and Financial Policy Board, establishes: “(…) 21. Approve the plan and dynamics of the accounting chart and the accounting policies of the Central Bank of Ecuador in consonance with internationally recognized accounting standards; (…)”;

That, Article 128 of the Organic Administrative Code determines: “It is any unilateral declaration made in the exercise of an administrative competence that produces general legal effects, which is not exhausted with its compliance and directly”;

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That, the Monetary and Financial Policy Board, through Resolution No. JPRM-2021-009-G, of December 30, 2021, issued the “Policies for the Presentation and Preparation of Financial Statements, the Chart of Accounts of the Central Bank of Ecuador; and, the Methodology for the Distribution of Assets and Liabilities of the Four Systems for the Measurement of the Backing Rule”;

That, the Monetary and Financial Policy Board, in ordinary session by mixed modality, on December 28, 2023, reviewed the proposal sent via Memorandum No. BCE-BCE-2023-0285-M, of December 27, 2023, by the General Manager of the Central Bank of Ecuador to the President of the Monetary and Financial Policy Board, as well as the technical reports No. BCE-CGAF-054-2023 and BCE-CGAF-055-2023, of December 26, 2023; and the legal report No. BCE-CGJ-096-2023, of December 26, 2023.

In exercise of its functions and in accordance with Article 47.7 of the Organic Monetary and Financial Code, the Monetary and Financial Policy Board resolves:

REFORM THE POLICIES FOR THE PRESENTATION AND PREPARATION OF FINANCIAL STATEMENTS, THE CHART OF ACCOUNTS OF THE CENTRAL BANK OF ECUADOR; AND, THE METHODOLOGY FOR THE DISTRIBUTION OF ASSETS AND LIABILITIES OF THE FOUR SYSTEMS FOR THE MEASUREMENT OF THE BACKING RULE, ISSUED THROUGH RESOLUTION NO. JPRM-2021-009-G, OF DECEMBER 30, 2021

Article 1.- Add, at the end of Article 1 of Resolution No. JPRM-2021-009-G, the following text:

“The Central Bank of Ecuador may carry out its accounting records through Accounting Responsibility Centers (CRC) in all administrative units, which may be created, eliminated, or modified according to institutional needs, prior evaluation by the heads of the administrative units, in coordination with the Financial and Budget Directorate, or the entity that acts in its place.”

Article 2.- At the end of numeral 3 of Article 6 of Resolution No. JPRM-2021-009-G, before the period, add the following text:

“as detailed below: a) Changes in revaluation surplus; b) New measurements of defined benefit plans;

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c) Gains and losses arising from investments in equity instruments designated at fair value through other comprehensive income; and, d) Gains and losses on financial assets measured at fair value through other comprehensive income.”

Article 3.- Substitute Article 15 of Resolution No. JPRM-2021-009-G, with the following:

“Art. 15.- Property, Plant and Equipment, Numismatic Goods, and Intangibles.- a) Property, Plant and Equipment (PPE) An element of Property, Plant and Equipment, upon initial recognition, shall be measured and recorded at acquisition cost and presented net of accumulated depreciation and any accumulated impairment loss. An element of Property, Plant and Equipment, upon subsequent recognition, shall be measured under the revaluation model, such that fair value can be measured reliably, it will be accounted for at its revalued amount; that is, it corresponds to the fair value at the time of revaluation, less accumulated depreciation and the accumulated amount of impairment losses suffered. (IAS 16 Subsequent Measurement, paragraphs 29 and 31) Elements considered as PPE will be recorded in the Property, Plant, and Equipment account at acquisition value, considering expenses incurred for the transfer of ownership, transport, financing, and others until the acquired asset is put into operation. Complementarily, the budget will be affected by the same value, the income statement account (expense for fixed asset investment) against the special reserves account in Equity; this, with the purpose of recognizing the depreciation of the asset in subsequent years, and reflecting the progressive valuation of the asset according to the linear depreciation method. The revaluation of real estate, movable property, and equipment will be carried out at least every 5 years, based on a valuation study by a qualified expert; if an element of Property, Plant and Equipment is revalued, the book value of that asset will be adjusted to the revalued amount, eliminating accumulated depreciation against the book value established in the asset's accounting account. For years in which a valuation study is not obtained, a verification of assets will be carried out to detect changes in the useful life of PPE. In the case of depreciation of Property, Plant and Equipment elements, it will be adjusted prospectively, using the accounting technique of the straight-line method in accordance with international accounting standards.

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The Central Bank of Ecuador will determine the impairment loss of Property, Plant, and Equipment elements when there are indications of impairment or loss of cash flow from them. For years in which a valuation study is not obtained, a verification of Property, Plant and Equipment elements and intangible assets will be carried out to detect their impairment. The analysis, the effects of impairment, and the recording will be carried out in the month of December, charged to the equity valuation account where applicable. b) Numismatic Goods In account 185 “Library, Museums and Historical Archive”, historical artistic and/or cultural heritage assets are presented. Since IFRS do not establish specific accounting treatment for historical artistic and/or cultural heritage assets, they will be maintained at acquisition cost. According to the acquisition modality, the initial costs for the Banknote and Coin Collection and Artworks correspond to: i) acquisition cost when the asset is purchased, ii) donation value when the asset is donated, or USD 0.01 when the cost is not reliable. Historical, artistic, and/or cultural heritage assets for non-operational use are not subject to depreciation. c) Intangible Assets An intangible asset, upon initial recognition, shall be measured at acquisition cost and presented net of accumulated amortization and any accumulated impairment loss. Subsequent to its recognition as an asset, an Intangible Asset will be recorded under the cost model less accumulated amortization and the accumulated amount of impairment losses. The valuation of the intangible asset developed by the Central Bank of Ecuador will be carried out based on the methodology established by the General Coordination of Information and Communication Technologies or the entity that acts in its place, and the determined value will be affected in the Software account, in Assets, against the Special Reserves account, in Equity; with the purpose of recognizing the amortization of the asset in subsequent years and reflecting the progressive valuation of the asset according to the linear depreciation method. The purchase of an intangible asset will be recorded at acquisition value, considering expenses incurred for the transfer of ownership, transport, financing, and others incurred until the acquired asset is put into operation. With the purpose of recognizing the amortization of the asset in subsequent years, and reflecting the progressive valuation of the asset according to the linear depreciation method, the budget will be affected by the same value, the income statement account (expense for intangible asset investment) against the special reserves account in Equity. Once a year, a verification of intangible assets will be carried out to detect changes in useful life and indications of impairment of intangible assets. The analysis, the effects of impairment, and the recording will be carried out in the month of December, charged to the equity valuation account where applicable. The Central Bank of Ecuador will determine the impairment loss of Intangible Assets when there are indications of impairment or loss of cash flow from them. In the case of amortization of intangible assets, the amortization will be adjusted prospectively, using the accounting technique of the straight-line method in accordance with international accounting standards.”

Article 4.- Substitute Article 17 of Resolution No. JPRM-2021-009-G, with the following:

“Art. 17.- Other Assets.- Inventories for sale are initially recorded at acquisition cost plus associated transaction costs. Subsequently, they are measured considering the weighted average cost valuation method. In the specific case of gold and silver coins acquired for sale, they will be valued monthly to recognize the price of gold or silver as a fundamental part of the cost. In the case of non-financial assets not included in the above classifications, the recording will be at acquisition cost.”

Article 5.- Substitute numeral ii) of Article 30 of Resolution No. JPRM-2021-009-G, with the following:

“ii) Statement of Comprehensive Income: It is composed of the Statement of Results of the period and the Statement of Other Comprehensive Income. The Statement of Results presents the Results of Administrative Management composed of income from investment of the International Reserve, other operations with the Exterior, internal operations; and, administrative expenses and others specific to the operational management of the Central Bank of Ecuador.

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It presents the Monetary Policy Management Result comprising income from interest accrued on Government Bonds, open market operations, rediscount window; and, Monetary Policy expenses such as transport of remittances and financial expenses on Central Bank securities. Additionally, it presents Closed Banking Accounts informatively, until their permanence in the Central Bank of Ecuador. The Statement of Other Comprehensive Income corresponds to income and expense items that are not recognized in the profit or loss of the period because they are recorded in equity accounts. As detailed below: a) Changes in revaluation surplus; b) New measurements of defined benefit plans; c) Gains and losses arising from investments in equity instruments designated at fair value through other comprehensive income; and, d) Gains and losses on financial assets measured at fair value through other comprehensive income. Its presentation begins with the profit or loss of the period.”

Article 6.- Regarding the Chart of Accounts of the Central Bank of Ecuador, approved in Article 31 of Resolution No. JPRM-2021-009-G, in Annex No. 6 “Assets”, in the section of Legal Provisions of sub-account 1152 “GOLD ABROAD”, substitute with the following text:

“LEGAL PROVISIONS: Art. 135, Art. 137, Fifty-First Transitional Provision of the Organic Monetary and Financial Code.”

UNIQUE GENERAL PROVISION.- The Central Bank of Ecuador shall ensure that the reforms established in this resolution are incorporated for the preparation and presentation of the financial statements corresponding to the fiscal year of 2023. FINAL PROVISION.- This resolution shall enter into force from the present date, without prejudice to its publication in the Official Register. Its publication on the institutional website of the Central Bank of Ecuador is entrusted to the Document Management and Archive Directorate.

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NOTIFY AND PUBLISH.- Given in the Metropolitan District of Quito, on December 28, 2023. THE PRESIDENT Dr. TATIANA MARIBEL RODRÍGUEZ CERÓN The aforementioned resolution was signed by Dr. Tatiana Maribel Rodríguez Cerón, in her capacity as President of the Monetary and Financial Policy Board, in the Metropolitan District of Quito, on December 28, 2023.- I CERTIFY. ADMINISTRATIVE SECRETARY Attorney MARÍA ALEXANDRA GUERRERO DEL POZO