Circular Letter CVM/SNC/SEP No. 02/2020: Effects of Coronavirus on Financial Statements

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
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CIRCULAR LETTER/CVM/SNC/SEP No. 02/2020
Rio de Janeiro, March 10, 2020

Subject: Effects of Coronavirus on Financial Statements

Dear Investor Relations Director and Dear Independent Auditor,

The Securities and Exchange Commission has been closely monitoring the impacts of the Coronavirus on global capital markets and, in particular, on the Brazilian market. Given the interconnectivity of the global production chain, some CVM-regulated entities may be subject to economic-financial impacts arising from the epidemic. Such impacts should be reflected, to the extent possible, in the financial statements of companies registered with the CVM.

To this end, the CVM Technical Areas highlight the importance of Publicly Held Companies and their Independent Auditors carefully considering the impacts of COVID-19 on their businesses and reporting the main risks and uncertainties arising from this analysis in their financial statements, observing the applicable accounting and auditing standards.

In this sense, among the various risks and uncertainties to which companies are exposed, special attention should be given to those economic events that relate to the going concern and/or to accounting estimates made, such as, for example, in the following areas: Asset Recoverability, Fair Value Measurement, Provisions and Active and Passive Contingencies, Revenue Recognition and Expected Loss Provisions.

Regarding Companies that closed their fiscal year on December 31, 2019, these impacts must be recorded as subsequent events in accordance with the provisions of CVM Deliberation No. 593 of September 15, 2009, which approves CPC 24 - Subsequent Events.

As for those with a fiscal year closing date after December 31, 2019, or those already in the process of preparing the 1st ITR of 2020, it is emphasized that the risks and uncertainties referred to here may directly impact the preparation of the period's financial statements.

Additionally, it is important that Companies evaluate, in each case, the need for disclosure of a relevant fact, in accordance with Instruction No. 358 of January 3, 2002, and projections and estimates related to COVID-19 risks in the preparation of the reference form, in accordance with CVM Instruction No. 480 of December 7, 2009.

The CVM Technical Areas understand that, despite the difficult task of monetary quantification of future impacts, it is necessary for Publicly Held Companies and their Independent Auditors, each exercising their role, to exert their best efforts to provide information that reflects the economic reality of the reporting entity and possesses predictive potential. In this sense, the CVM reaffirms the need to maintain the quality of the process of preparation and audit of financial statements, in line with international accounting and auditing standards.

Finally, the CVM Technical Areas inform that they continue to closely monitor the development of this situation and are in direct contact with other Capital Market Regulators in order to align understandings and to ensure adequate protection of those who invest in the Brazilian securities market.

Sincerely,

Original signed by
JOSÉ CARLOS BEZERRA DA SILVA
Superintendent of Accounting Standards and Audit

Original signed by
FERNANDO SOARES VIEIRA
Superintendent of Corporate Relations

Circular Letter CVM/SNC/SEP No. 02/2020: Effects of Coronavirus on Financial Statements

Lineage: In force