CVM Resolution 105 Approves Consolidated Technical Pronouncement CPC 24 on Subsequent Events

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL (CVM) 7 de Setembro Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 Approves the Consolidation of Technical Pronouncement CPC 24 of the Accounting Pronouncements Committee - CPC, which deals with subsequent events.

The PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM makes public that the Board, in a meeting held on April 14, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6,404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6,385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10,139, of November 28, 2019,

APPROVED the following Resolution:

Art. 1. It is made mandatory for publicly-held companies to apply Technical Pronouncement CPC 24, which deals with subsequent events, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. Deliberation 593, of September 15, 2009, is revoked, from the effective date of this Resolution.

Art. 3. This Resolution enters into force on July 1, 2022.

Signed electronically by
Marcelo Barbosa
President

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL (CVM) 7 de Setembro Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000

ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL PRONOUNCEMENT CPC 24
Subsequent Events
Correlation with International Accounting Standards - IAS 10

Summary Item
OBJECTIVE 1
SCOPE 2
DEFINITIONS 3 – 7
RECOGNITION AND MEASUREMENT 8 – 13
Subsequent event to the period to which the financial statements refer that results in adjustments 8 - 9 Subsequent event to the period to which the financial statements refer that does not result in adjustments 10 - 11 Dividends 12 – 13 GOING CONCERN 14 – 16 DISCLOSURE 17 – 22 Date of authorization for issue 17 – 18 Updating disclosure about conditions existing at the end of the period to which the financial statements refer 19 – 20 Subsequent event to the period to which the financial statements refer that does not result in adjustments 21 – 22

Objective

1. The objective of this Pronouncement is to determine:
   (a) when an entity should adjust its financial statements in respect of subsequent events to the period to which those financial statements refer; and (b) the information that an entity should disclose about the date at which authorization for issue of the financial statements was given and about subsequent events to the period to which those financial statements refer.

This Pronouncement also establishes that an entity should not prepare its financial statements on a going concern basis if subsequent events to the period to which the financial statements refer indicate that the going concern assumption is not appropriate.

Scope
2. This Pronouncement shall be applied in the accounting for and disclosure of subsequent events to the period to which the financial statements refer.

Definitions
3. The terms below are used in this Pronouncement with the following meanings:

Subsequent events are those events, favorable or unfavorable, that occur between the end of the period to which the financial statements refer and the date at which the financial statements are authorized for issue. Two types of events can be identified:
(a) those that provide evidence of conditions that existed at the end of the period to which the financial statements refer (subsequent event to the period to which the financial statements refer that results in adjustments); (b) those that are indicative of conditions that arose after the period to which the financial statements refer (subsequent event to the period to which the financial statements refer that does not result in adjustments).

4. The process involved in the authorization of the issue of financial statements varies depending on the structure of management, legal and statutory requirements, as well as the procedures followed in the preparation and finalization of those financial statements.

5. In some circumstances, entities have to submit their financial statements to the approval of their shareholders after their issue. In such cases, the financial statements are considered as authorized for issue on the date of issue and not on the date when the shareholders approve the financial statements.

Example:
The entity’s management completes its draft financial statements for the period ended December 31, 20x2 on February 28, 20x2. On March 18, 20x2, the board of directors reviews the financial statements and authorizes their issue. The entity announces its profit and other selected financial information on March 19, 20x2. The financial statements are made available to shareholders and other interested parties on March 31, 20x2. The shareholders approve the financial statements at their annual meeting on April 30, 20x2, and the approved financial statements are then forwarded for registration with the competent authority on May 17, 20x2.

The financial statements are authorized for issue on March 18, 20x2 (the date of authorization by the board of directors for issue).

6. In some cases, the entity’s management is required to submit its financial statements to the approval of the board of directors and/or supervisory board and/or audit committee (composed only of non-executives), if any. In such cases, the financial statements are considered authorized for issue when management authorizes their presentation to such board and/or committee.

Example:
On March 18, 20x2, the executive board of the entity authorizes the issue of financial statements to its board. The board is constituted exclusively by non-executives and may include representatives of employees and other interested parties. The board approves the financial statements on March 26, 20x2. The financial statements are made available to shareholders and other interested parties on March 31, 20x2. The shareholders approve the financial statements at their annual meeting on April 30, 20x2, and the financial statements are forwarded for registration with the competent authority on May 17, 20x2.

The financial statements are authorized for issue on March 18, 20x2 (the date of authorization by management for submission of the financial statements to the board’s review).

7. Subsequent events to the period to which the financial statements refer include all events occurring until the date at which authorization for the issue of the financial statements is granted, even if those events occur after the public announcement of profits or other selected financial information.

Recognition and measurement
Subsequent event to the period to which the financial statements refer that results in adjustments
8. An entity shall adjust the amounts recognized in its financial statements to reflect subsequent events that provide evidence of conditions that existed at the end of the period to which the financial statements refer.

9. The following are examples of subsequent events to the period to which the financial statements refer that require the entity to adjust the amounts recognized in its financial statements or to recognize items that were not previously recognized:
   (a) a court case concluded after the end of the period to which the financial statements refer, confirming that the entity had a present obligation at the end of that period. The entity shall adjust any provision previously recognized related to the case in accordance with Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets or record a new provision. The entity does not merely disclose a contingent liability because the decision provides additional evidence that would be considered in accordance with item 16 of CPC 25; (b) obtaining information after the period to which the financial statements refer, indicating that an asset was impaired at the end of that period or that the amount of the impairment loss previously recognized in respect of that asset needs to be adjusted. For example:
   (i) customer bankruptcy, occurring after the period to which the financial statements refer, normally confirms that there was an impairment loss on the receivable at the end of the reporting period; and (ii) sale of inventory after the period to which the financial statements refer may provide evidence about the net realizable value of those inventories at the end of that period; (c) determination, after the period to which the financial statements refer, of the cost of assets purchased or the value of assets received in exchange for assets sold before the end of that period; (d) determination, after the period to which the financial statements refer, of the amount of payment of profit sharing or bonuses, in the case where the entity had, at the end of the period to which the statements refer, a present legal or constructive obligation to make such payments as a result of events occurring before that date (see CPC 33 – Employee Benefits); (e) discovery of fraud or errors that show that the financial statements were incorrect.

Subsequent event to the period to which the financial statements refer that does not result in adjustments
10. An entity shall not adjust the amounts recognized in its financial statements for subsequent events that are indicative of conditions that arose after the period to which the financial statements refer.

11. An example of a subsequent event to the period to which the financial statements refer that does not result in adjustments is the decline in the fair value of investments occurring in the period between the end of the period to which the financial statements refer and the date of authorization of issue of those financial statements. The decline in fair value does not normally relate to the condition of the investments at the end of the period to which the financial statements refer, but reflects circumstances that arose in the subsequent period. Therefore, the entity shall not adjust the amounts recognized for investments in its financial statements. Likewise, the entity shall not update the values disclosed for investments at the balance sheet date, although it may need to give additional disclosure in accordance with item 21.

Dividends
12. If an entity declares dividends to holders of equity instruments (as defined in Technical Pronouncement CPC 39 – Financial Instruments: Presentation) after the period to which the financial statements refer, the entity shall not recognize those dividends as a liability at the end of that period.

13. If dividends are declared after the period to which the financial statements refer, but before the date of authorization of issue of those financial statements, those dividends shall not be recognized as a liability at the end of that period, because they do not meet the criteria of a present obligation at the date of the financial statements as defined in Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets. Such dividends shall be disclosed in the notes in accordance with Technical Pronouncement CPC 26 – Presentation of Financial Statements.

Going Concern
14. An entity shall not prepare its financial statements on a going concern basis if its management determines after the period to which the financial statements refer that it intends to liquidate the entity, or to cease trading, or that it has no realistic alternative but to do so.

15. Deterioration of operating results and financial position after the period to which the financial statements refer may indicate the need to consider whether the going concern assumption is still appropriate. If the going concern assumption is no longer appropriate, the effect is so fundamental that this Pronouncement requires a fundamental change in the accounting criteria adopted, rather than merely an adjustment of the amounts recognized by the original criteria.

16. Technical Pronouncement CPC 26 – Presentation of Financial Statements specifies the disclosures required if:
    (a) the financial statements are not prepared on a going concern basis; or (b) management is aware of uncertainties relating to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. The events and conditions that require disclosure may arise after the period to which the financial statements refer.

Disclosure
Date of authorization for issue
17. An entity shall disclose the date at which authorization for issue of the financial statements was given and who gave that authorization. If the entity’s partners or others have the power to amend the financial statements after their issue, the entity shall disclose that fact.

18. It is important that users know when the issue of the financial statements was authorized, since they do not reflect events subsequent to that date.

Updating disclosure about conditions existing at the end of the period to which the financial statements refer
19. If an entity, after the period to which the financial statements refer, receives information about conditions that existed up to that date, it shall update the disclosure relating to those conditions, in light of the new information.

20. In some cases, an entity needs to update the disclosure of its financial statements so that they reflect information received after the period to which the financial statements refer, even when the information does not affect the amounts recognized in those financial statements. An example of the need to update disclosure is when evidence becomes available, after the period to which the financial statements refer, of a contingent liability that existed at the end of the period to which the financial statements refer. In addition to considering whether to recognize or modify a provision based on Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets, the entity shall update its disclosure about the contingent liability in light of that evidence.

Subsequent event to the period to which the financial statements refer that does not result in adjustments
21. If subsequent events to the period to which the financial statements refer are significant, but do not result in adjustments, their non-disclosure may influence the economic decisions to be made by users based on those financial statements. Consequently, the entity shall disclose the following information for each material category of subsequent events to the period to which the financial statements refer that do not result in adjustments:
(a) the nature of the event;
(b) an estimate of its financial effect or a statement that such an estimate cannot be made.

22. The following are examples of subsequent events to the period to which the financial statements refer that do not result in adjustments, which normally result in disclosure:
    (a) a significant business combination after the period to which the financial statements refer (Technical Pronouncement CPC 15 – Business Combinations requires specific disclosure in such cases) or the disposal of a significant subsidiary; (b) announcement of a plan to discontinue an operation; (c) significant purchases of assets, classification of assets as held for sale in accordance with Technical Pronouncement CPC 31 – Non-Current Assets Held for Sale and Discontinued Operations, other disposals of assets or expropriation of significant assets by the government; (d) destruction by fire of a significant production facility after the period to which the financial statements refer; (e) announcement or commencement of implementation of a significant restructuring (see Technical Pronouncement CPC 25 - Provisions, Contingent Liabilities and Contingent Assets); (f) significant actual and potential transactions involving ordinary shares subsequent to the period to which the financial statements refer; (g) extraordinarily large changes in asset prices or exchange rates after the period to which the financial statements refer; (h) changes in tax rates or tax legislation, promulgated or announced after the period to which the financial statements refer that have a significant effect on current and deferred fiscal assets and liabilities (see Technical Pronouncement CPC 32 – Income Taxes); (i) assumption of significant commitments or contingent liabilities, for example, through the granting of significant guarantees; (j) commencement of significant litigation, arising exclusively from events that occurred after the period to which the financial statements refer.