Circular Letter No. 1/2024/CVM/SNC/GNC: Guidance on Accounting Disclosures Regarding the Climate Event in Rio Grande do Sul

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5º and 23-34º Floors, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º and 4º Floors, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brazil - Tel.: (11) 2146- 2000 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4º Floor, Brasília/DF – CEP: 70712-900 – Brazil -Tel.: (61) 3327-2030/2031 www.cvm.gov.br Circular Letter No. 1/2024/CVM/SNC/GNC Rio de Janeiro, June 20, 2024. Subject: Guidance on relevant aspects to be observed in the preparation of Financial Statements considering the effects of the climate event that occurred in the State of Rio Grande do Sul

Dear Investor Relations Director and Dear Independent Auditor,

1. The Circular Letters issued jointly by the Superintendence of Accounting Standards and Audit - SNC and the Superintendence of Corporate Relations – SEP aim to guide the preparation of financial statements and have been considered an effective instrument by the technical areas of the CVM to safeguard the quality of information disseminated in the market.

2. It is worth remembering that Circular Letters express the understanding of the CVM's technical areas regarding the adequate accounting representation of an economic event reflected in the financial statements of companies. Their topics originate from deviations identified and information obtained by the CVM's technical areas regarding operations that are being processed during the fiscal year, and others that will be processed, for which these technical areas deem it appropriate to alert the market about the position considered, as a rule, most adequate in their view.

3. The technical areas have been monitoring the impacts of extreme climate events that have been occurring in the State of Rio Grande do Sul, and, in particular, their effects on the Brazilian capital market.

4. A relevant portion of the Brazilian industrial park and national agricultural production is located in this state. Thus, publicly held companies that are directly or indirectly exposed to such an extreme climate event must, to the extent possible, reflect it in their financial statements.

5. For this purpose, it is emphasized the importance of Publicly Held Companies and their Independent Auditors carefully considering the consequences that this disaster may cause in their businesses, reflecting in the financial statements the main impacts, risks, and uncertainties arising from this analysis, observing the applicable accounting and auditing standards.

6. 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.

7. We also highlight the care that publicly held companies in the insurance sector must take, due to the disbursements for claim indemnities resulting from risks covered in the region affected by this climate event.

8. Regarding Companies that are in the process of preparing the 2nd ITR of 2024 (or the DF/DFP of 30.06.24, for Companies with a differentiated fiscal year), it is emphasized that the risks and uncertainties referred to here may impact the preparation of the period's financial statements.

9. Companies are reminded of the importance of providing specific information, especially regarding physical flood risk, in their sustainability disclosures made available in the securities market.

10. Companies that are in the process of voluntary adoption of IFRS S1 and S2 (CVM Resolution No. 193/23) at this time must pay attention, in particular, to items 41 to 44 of IFRS S1 and to items 22 to 26 of IFRS S2.

11. It is also essential that exposed Companies evaluate the need to disclose a material fact, in accordance with CVM Resolution No. 44/21, and the eventual revision of projections and estimates in the reference form, in accordance with CVM Resolution No. 80/22.

12. Despite the difficult task of monetizing the impacts of the mentioned events, it is necessary for the administrators of Publicly Held Companies and their Independent Auditors, observing their respective competencies, to exert their best efforts to provide information that reflects the economic reality of the reporting entity and that has predictive potential. At this moment of difficulties, the CVM reminds of the need to maintain high quality in the process of preparing and auditing financial statements, in line with international accounting and auditing standards.

Sincerely,

Document electronically signed by Paulo Roberto Gonçalves Ferreira, Superintendent, on 06/18/2024, at 18:06, based on art. 6 of Decree No. 8.539, of October 8, 2015.
Document electronically signed by Fernando Soares Vieira, Superintendent, on 06/19/2024, at 14:53, based on art. 6 of Decree No. 8.539, of October 8, 2015.
The authenticity of the document can be verified on the site https://sei.cvm.gov.br/conferir_autenticidade, informing the verification code 2068517 and the CRC code 5057632F.
This document's authenticity can be verified by accessing https://sei.cvm.gov.br/conferir_autenticidade, and typing the "Verification Code" 2068517 and the "CRC Code" 5057632F.
Reference: Process No. 19957.007890/2024-95 SEI Document No. 2068517