Circular No. 2.824

CIRCULAR N. 002824 ------------------ Amends procedures for the revaluation of properties for own use by financial institutions, other institutions authorized to operate by the Central Bank of Brazil and consortium administrators. The Board of Directors of the Central Bank of Brazil, in a session held on 17.06.98, in view of the provisions of arts. 8 and 182, paragraph 3, of Law No. 6.404, of 15.12.76, and based on art. 4, item XII, of Law No. 4.595, of 31.12.64, by competence delegated by the National Monetary Council, by act of 19.07.78, and in art. 14 of Law No. 9.447, of 14.03.97, D E C I D E D: Art. 1 Only properties for own use are subject to revaluation by financial institutions, other institutions authorized to operate by the Central Bank of Brazil and consortium administrators. Paragraph 1 Revaluations of properties for own use must be carried out covering all items corresponding to such assets. Paragraph 2 The amounts of the revaluations must be segregated in the monthly and semiannual publication model, document No. 2 of the Accounting Plan for Institutions of the National Financial System - COSIF, and recorded in the subheadings hereby created: Land - Revaluations, code 2.2.3.10.15-6, and Buildings - Revaluations, code 2.2.3.10.25-9, of the heading PROPERTIES FOR USE. Art. 2 The revaluations must be carried out based on the probable replacement value, observing the conditions of use in which the assets are found on the base date of the appraisal report. Art. 3 The revaluations must be carried out periodically, with regularity: I - not exceeding 1 (one) year, when significant variations in the probable replacement value of the properties in the market in relation to the previously recorded values are verified; II - not exceeding 4 (four) years, in the other cases. Paragraph 1 The provisions of this article apply only to revaluations carried out from the date of publication of this Circular. Paragraph 2 For the purposes of the provisions of item II, a rotation system may be adopted, whereby partial revaluations will be carried out, with defined schedules, provided that all items corresponding to properties for own use are revalued at the end of 4 (four) years. Art. 4 In the event that an institution is included in the composition of a financial conglomerate, under the terms of item 1.21 of COSIF, the decision to revalue properties for own use must be accompanied by all other institutions that are part of that conglomerate, on the same base date. Art. 5 The revaluations must be based on a report signed by at least 3 (three) experts or a company specialized in the matter pertinent to the object of the appraisal, not linked, directly or indirectly, to the institution or to any company connected to it, nor to its independent auditor or to any company connected to it, appointed in an extraordinary general meeting of shareholders or in a meeting of quotaholders - in the case of a limited liability company - observing the other applicable
legal formalities. Sole paragraph. The report of the experts or of the specialized company must contain, at a minimum, the following data: I - date of the act of their appointment; II - name, address and professional registration; III - complete list of the appraised properties, indicating for each one: a) address; b) net book value on the base date of the appraisal; c) appraisal value attributed by the report; d) remaining useful life; IV - amount of the revaluation reserve to be constituted before taxes. Art. 6 The minutes of the extraordinary general meeting or of the meeting of quotaholders that approves the revaluation must be available to the Central Bank of Brazil, accompanied by a document signed by the independent auditor with an express statement on the adequacy of the procedures used in the revaluation. Sole paragraph. A gap of more than 60 (sixty) days between the base date of the appraisal report and that of the meeting or meeting of quotaholders that approves it is not allowed. Art. 7 The revaluation reserve cannot be used for capital increase or to offset losses. Art. 8 The portions of the revaluation reserve corresponding to realized amounts of the revalued assets must be transferred to the heading ACCUMULATED PROFITS OR LOSSES, with realization being understood as the depreciation or write-off of such assets, including by disposal. Sole paragraph. For the purpose of calculating depreciation, the remaining useful life of the revalued properties, as stated in the respective appraisal report, must be considered. Art. 9 It is mandatory to constitute a provision for taxes and contributions incident on the revaluation reserve constituted, through the use of rectifying subheadings for internal use of the revaluation reserve. Paragraph 1 The provisions of this article do not apply to revaluation reserves constituted that are based on land. Paragraph 2 Any fluctuations in the rates of the taxes and contributions referred to in this article must be recognized, when applicable, against the corresponding rectifying account of the revaluation reserve. Art. 10. The negative result of the revaluation determined on the basis that the value of the appraisal reports is lower than the net book value of the corresponding assets must be recorded: I - as a reduction of property and equipment in use, against the revaluation reserve relating to the same assets and the corresponding provisions for deferred taxes and contributions, which shall be reduced in the same proportion as the reserve; II - as a capital loss, in the income for the period in which the revaluation occurs, through the recognition of a provision, to be controlled in a subaccount for internal use of the very account that records the asset subject to revaluation, subject to the following conditions: a) the revaluation reserve and respective provisions for deferred taxes and contributions are nonexistent or have already been absorbed as provided in item I; b) the loss is considered
unrecoverable. Sole paragraph. Any subsequent increase in the recoverable value of the assets, verified in a new revaluation, must be recorded as follows: I - as a capital gain, in the income for the period in which the revaluation occurs, up to the limit of the original net book value; II - through the recognition of a revaluation reserve, for the net amount of the charges arising from taxes and contributions levied on its realization, as provided in art. 9, when the market value of the revalued asset is greater than its respective original net book value. Art. 11. The portion of the revaluation reserve corresponding to properties for own use in a process of discontinuation must be reversed, including the respective provisions for taxes and contributions, with the criterion for valuing the asset at cost being restored. Sole paragraph. Discontinuation is characterized as soon as management decides to deactivate, dispose of, or transfer the asset to the heading ASSETS NOT FOR OWN USE. Art. 12. In the event of revaluation of assets in associates and subsidiaries whose investments are measured by the equity method, the following must be observed: I - the increase in the investments account corresponding to the percentage of ownership must be recorded under the heading REVALUATION RESERVE OF ASSETS OF ASSOCIATES AND SUBSIDIARIES, considering its effects from the date of the revaluation; II - as the investee transfers to the heading ACCUMULATED PROFITS OR LOSSES the realized portions corresponding to the revaluation, the investor shall also make the proportional transfer to said account, even in the case where the investee, when a company not part of the National Financial System, uses the revaluation reserve to increase capital or offset losses. Paragraph 1. The equity variation arising from the recognition of a revaluation reserve made by associates and subsidiaries must only be recognized in the investor if the revalued asset is considered recoverable. Paragraph 2. The capital loss or gain arising from the revaluation of assets, recognized by associates or subsidiaries, must be recorded as an operating result from equity method. Paragraph 3. In the event that goodwill was paid on the acquisition of the investment, on the economic grounds of an undervalued asset: I - in an amount greater than the positive difference between the replacement cost, determined in the revaluation, and the net book value of the asset: a) the difference determined in the revaluation must be applied to amortize the goodwill balance, up to its limit; b) the amount relating to the goodwill balance not covered by the positive difference determined in the revaluation, after adopting the procedure provided for in the preceding subitem, must be recognized as a capital loss; II - in an amount less than the positive difference between the replacement cost, determined in the revaluation, and the net book value of the asset: a) the difference determined in the revaluation must be
applied to amortize the goodwill balance, up to its limit; b) the remainder of the amount corresponding to the positive difference, determined after adopting the procedure provided for in the preceding subitem, must be recorded under the heading REVALUATION RESERVE OF ASSETS OF ASSOCIATES AND SUBSIDIARIES; III - the amount of goodwill paid must be recognized as a capital loss, plus the negative difference between the replacement cost, determined in the revaluation, and the net book value of the asset, when such difference is verified to occur. Paragraph 4. In the event that an investment was acquired at a discount, on the economic grounds of an overvalued asset: I - in an amount greater than the negative difference between the replacement cost, determined in the revaluation, and the net book value of the asset: a) the difference determined in the revaluation must be applied to amortize the discount balance, up to its limit; b) the remainder of the amount relating to the discount balance, after adopting the procedure provided for in the preceding subitem, must be recognized as a capital gain; II - in an amount less than the negative difference between the replacement cost, determined in the revaluation, and the net book value of the asset: a) the difference determined in the revaluation must be applied to amortize the discount balance, up to its limit; b) the remainder of the amount of the negative difference, determined after adopting the procedure provided for in the preceding subitem, must be recognized as a capital loss; III - if there is a positive difference between the replacement cost, determined in the revaluation, and the net book value of the asset, the amount of the discount must be recorded as a capital gain, while the aforementioned positive difference must be recorded under the heading REVALUATION RESERVE OF ASSETS OF ASSOCIATES AND SUBSIDIARIES. Art. 13. While the effects of the revaluation of properties for own use last, institutions must disclose, in notes complementary to the financial statements, the criteria and procedures for realization of the reserve, for transfer to the account ACCUMULATED PROFITS OR LOSSES and for inclusion in the calculation basis for distribution of profit sharing, dividends and bonuses. Art. 14. The relevant valuation procedures referred to in art. 5 of this Circular must be observed, and the need to appoint experts by an extraordinary general meeting of shareholders or by a meeting of quotaholders is waived, in transactions for the purchase and sale of properties, for own use or not, between the institutions referred to in art. 1 and their affiliates, when the transaction value is greater than R$200,000.00 (two hundred thousand reais) and differs from the net book value. Art. 15. The provisions of this Circular do not cover tax aspects, and the institution is entirely responsible for complying with the relevant rules. Art. 16. This Circular enters into force on the date of its publication. Art. 17.
Circular No. 1.964, of 23.05.91, and art. 6 of Circular No. 2.192, of 26.06.92, are revoked. Brasília, 18 June 1998 Sérgio Darcy da Silva Alves Director