CVM Resolution 112 Approves Consolidated Financial Statements Standard CPC 36 (R3)

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 makes mandatory for publicly-held companies the Technical Pronouncement CPC 36 (R3), which deals with consolidated financial statements, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. Deliberation 698, of December 20, 2012, is revoked, from the effective date of this Resolution.

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

Electronically signed by
Marcelo Barbosa
President

Summary Item
OBJECTIVE 1 – 3
Achieving the objective 2 – 3
SCOPE 4 – 4B
CONTROL 5 – 19
Power 10 – 14
Returns 15 – 16
Relationship between power and returns 17 – 18 ACCOUNTING REQUIREMENTS 19 – 26 Non-controlling interests 22 – 24 Loss of control 25 – 26
APPENDIX A – Definition of terms
APPENDIX B – Implementation Guide B1 – B99
Assessment of control B2 – B85
Objective and structure of investee B5 – B8
Power B9 – B54
Exposure to, or rights to, variable returns of investee B55 – B57 Relationship between power and returns B58 – B73 Relationship with other parties B73 – B85 Control of specified assets B76 – B79 Ongoing assessment B80 – B85 Accounting requirements B86 – B99 Consolidation procedures B86 Uniform accounting policies B87 Measurement B88

Objective

The objective of this Pronouncement is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more entities.

Achieving the objective
2. To achieve the objective of item 1, this pronouncement:
(a) requires an entity (parent) that controls one or more entities (subsidiaries) to present consolidated financial statements; (b) defines the principle of control and establishes control as the basis for consolidation; (c) defines how to apply the control principle to identify whether an investor controls the investee and, therefore, should consolidate it; (d) defines the accounting requirements for the preparation of consolidated financial statements; and (e) defines an investment entity and establishes an exception for the consolidation of specific subsidiaries of an investment entity.

This Pronouncement does not deal with the accounting requirements for business combinations and their effects on consolidation, including goodwill resulting from business combinations (see Technical Pronouncement CPC 15 – Business Combinations).

Scope
4. An entity that is a parent shall present consolidated financial statements. This Pronouncement applies to all such entities, with the following exceptions:
(a) a parent may be exempt from presenting consolidated financial statements only if it meets all of the following conditions, in addition to being legally permitted:
(i) the parent is itself a subsidiary (wholly or partially) of another entity, which, together with the other owners, including those without voting rights, has been consulted and has not objected to the parent not presenting consolidated financial statements;

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 (ii) its debt or equity instruments are not traded in a domestic or foreign public market (a stock exchange or an over-the-counter market, including local and regional markets); (iii) it has not filed or is not in the process of filing its financial statements with a Securities and Exchange Commission or other regulatory body for the purpose of issuing any class of instruments in a capital market; and (iv) the ultimate parent, or any intermediate parent of the parent, makes its consolidated financial statements available to the public in accordance with CPC Pronouncements, in which the subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with this pronouncement; (b) (eliminated); (c) (eliminated).

4A. This pronouncement does not apply to post-employment benefit plans or other long-term employee benefit plans to which CPC 33 – Employee Benefits applies.

4B. A parent that is an investment entity shall not present consolidated financial statements if it is required, in accordance with item 31 of this pronouncement, to measure all of its subsidiaries at fair value through profit or loss.

4C. If the ultimate parent, or any intermediate parent of the parent, makes consolidated financial statements available in IFRS, as issued by the IASB, it meets the condition set forth in item 4(a)(iv).

4D. The exemption referred to in item 4(a)(iv) can only be obtained if the ultimate parent, or any intermediate parent of the parent, is subject to Brazilian regulation and makes consolidated financial statements available in Brazil.

Control
5. An investor, regardless of the nature of its involvement with an entity (investee), shall determine whether it controls the investee by assessing whether it controls the investee.

An investor controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Thus, an investor controls an investee if, and only if, the investor has all of the following:
(a) power over the investee (see items 10 to 14);

The investor shall consider all facts and circumstances when assessing whether it controls the investee. The investor shall reassess whether it controls the investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed in item 7 (see items B80 to B85).
Two or more investors collectively control an investee when they must act together to direct the relevant activities. In such cases, because no investor can direct the activities without the cooperation of the others, no investor individually controls the investee. Each investor shall account for its interest in the investee in accordance with the relevant CPC Technical Pronouncements, Guidelines and Interpretations, such as Technical Pronouncements CPC 19 – Joint Arrangements, CPC 18 – Investments in Associates, Jointly Controlled Entities and Controlled Entities and CPC 38 – Financial Instruments: Recognition and Measurement.

Power
10. An investor has power over an investee when it has existing rights that give it the current ability to direct the relevant activities, i.e., the activities that significantly affect the returns of the investee.

Power arises from rights. Sometimes, assessing power is straightforward, such as when power over the investee is obtained directly and exclusively from voting rights granted by equity instruments, such as shares, and can be assessed by considering the voting rights resulting from those shareholdings. In other cases, the assessment is more complex and requires more than one factor to be considered, such as when power results from one or more contractual agreements.
An investor with the current ability to direct the relevant activities has power even if its rights to direct have not yet been exercised. Evidence that the investor has directed relevant activities may help determine whether the investor has power, but such evidence, by itself, is not conclusive in determining whether the investor has power over the investee.
If two or more investors each have existing rights that give them the unilateral ability to direct different relevant activities, the investor that has the current ability to direct the activities that most significantly affect the returns of the investee has power over it.
An investor may have power over an investee even if other entities have existing rights that give them the current ability to participate in the direction of the relevant activities, such as when another entity has significant influence. However, an investor that holds only protective rights does not have power over the investee (see items B26 to B28) and, consequently, does not control the investee.

Returns
15. An investor is exposed to, or has rights to, variable returns as a result of its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the performance of the investee. The investor’s returns can be only positive, only negative, or both positive and negative.

Although only the investor can control the investee, more than one party may participate in the returns of the investee. For example, holders of non-controlling interests may participate in the profits or distributions of the investee.

Relationship between power and returns
17. An investor controls an investee if it has not only power over the investee and exposure to, or rights to, variable returns from its involvement with the investee, but also the ability to use its power to affect its returns from its involvement with the investee.

Thus, an investor with decision-making rights shall determine whether it is a principal or an agent. An investor that is an agent in accordance with items B58 to B72 does not control the investee when it exercises decision-making rights delegated to it.

Accounting requirements
19. A parent shall prepare consolidated financial statements using uniform accounting policies for transactions and other events in similar circumstances.

Consolidation of the investee begins from the date the investor obtains control of the investee and ceases when the investor loses control of the investee.
Items B86 to B93 provide guidance on the preparation of consolidated financial statements.

Non-controlling interests
22. A parent shall present non-controlling interests in the consolidated statement of financial position within equity, separately from the equity of the owners of the parent.

Changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control by the parent are equity transactions (i.e., transactions with owners in their capacity as owners, such as treasury stock transactions).
Items B94 to B96 provide guidance on the accounting for non-controlling interests in consolidated financial statements.

Loss of control
25. If a parent loses control of a subsidiary, the parent shall:
(a) derecognize the assets and liabilities of the former subsidiary from the consolidated statement of financial position; (b) recognize any retained investment in the former subsidiary and, subsequently, account for that investment and any amounts owed to or from the former subsidiary in accordance with the applicable CPC Technical Pronouncements, Guidelines and Interpretations. That retained interest shall be remeasured, as described in items B98(b)(iii) and B99A. The value remeasured at the time that control is lost shall be considered as the fair value on initial recognition of a financial asset in accordance with Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement or, when appropriate, as cost on initial recognition of an investment in an associate or joint venture, if applicable; (c) recognize any gain or loss associated with the loss of control attributable to the former subsidiary, as specified in items B98 to B99A.

Items B97 to B99A provide guidance on the accounting for loss of control.

Determination of whether an entity is an investment entity
27. A parent shall determine whether it meets the definition of an investment entity. An investment entity is an entity that:
(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; (b) commits its funding basis to its investor(s) for the purpose of carrying on business solely for the purpose of returning capital, investment income or both to the investor(s); and (c) measures and evaluates the performance of substantially all its investments on a fair value basis.

Items B85A to B85M provide implementation guidance on this matter.

When assessing whether it meets the definition described in item 27, an entity shall consider whether it has the following typical characteristics of an investment entity:
(a) it has more than one investment (see items B85O and B85P); (b) it has more than one investor (see items B85Q to B85S); (c) it has investors that are not related parties to the entity (see items B85T and B85U); and (d) it has ownership interests in the form of equity or similar interests (see items B85V to B85W); The absence of any of these typical characteristics does not necessarily prevent an entity from being classified as an investment entity. An investment entity that does not have all of these typical characteristics shall provide the additional disclosure required by item 9A of Technical Pronouncement CPC 45.
If facts and circumstances indicate that there are changes to one or more of the three elements that constitute the definition of an investment entity, as described in item 27, or to the typical characteristics of an investment entity, as described in item 28, a parent shall reassess whether it qualifies as an investment entity.
A parent that ceases to be an investment entity or that becomes an investment entity shall account for the change in its status prospectively from the date on which the change in status occurred (see items B100 and B101).

Investment entities: exception to consolidation
31. Except as described in item 32, an investment entity shall not consolidate its subsidiaries or apply Technical Pronouncement CPC 15 when it obtains control of another entity. Instead, an investment entity shall measure that investment in a subsidiary at fair value through profit or loss, in accordance with Technical Pronouncement CPC 48.

Notwithstanding the requirement in item 31, if an investment entity has a subsidiary that is not itself an investment entity and whose main purpose and activities are providing services that relate to the investment entity’s investment activities (see items B85C to B85E), that entity shall consolidate that subsidiary in accordance with items 19 to 26 of this Technical Pronouncement and apply the requirements of Technical Pronouncement CPC 15 when acquiring any such subsidiary.
A parent of an investment entity shall consolidate all entities that it controls, including those controlled through a subsidiary that is defined as an investment entity, except when the parent itself is an investment entity.

APPENDIX A – DEFINITION OF TERMS
This appendix is an integral part of this Pronouncement.
The following terms are used in this Pronouncement with the following meanings:

Consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

Control of an investee: An investor controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Investment entity is an entity that:
(a) obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services; (b) commits its funding basis to its investor(s) for the purpose of carrying on business solely for the purpose of returning capital, investment income or both to the investor(s); and (c) measures and evaluates the performance of substantially all its investments on a fair value basis.

Decision-maker: An entity with decision-making rights that is a principal or an agent of other parties.

Group is the parent and all its subsidiaries.

Non-controlling interest is the interest in net assets of a subsidiary not attributable, directly or indirectly, to a parent.

Parent is an entity that controls one or more subsidiaries.

Subsidiary is an entity that is controlled by another entity.

Power are existing rights that give the current ability to direct the relevant activities.

Relevant activities: For the purposes of this Pronouncement, relevant activities are activities of the investee that significantly affect the returns of the investee.

Protective rights are rights designed to protect the interest of the party holding those rights, without giving that party power over the entity to which those rights relate.

Removal rights are rights to remove the decision-maker from its decision-making authority.

The following terms are defined in Technical Pronouncements CPC 05 – Disclosure of Related Party Transactions, CPC 18 – Investments in Associates, Jointly Controlled Entities and Controlled Entities, CPC 19 – Joint Arrangements and CPC 45 – Disclosure of Interests in Other Entities and are used in this Pronouncement with the meanings specified in those pronouncements:

associate
interest in another entity
jointly controlled entity (joint venture)
key management personnel
related party
significant influence.

B1. The examples in this appendix depict hypothetical situations. Although some aspects of the examples may be present in real situations, all facts and circumstances of a specific situation must be assessed when applying Technical Pronouncement CPC 36.

Assessment of control
B2. To determine whether it controls the investee, the investor must assess whether it has all of the following requirements:
(a) power over the investee;
(b) exposure to, or rights to, variable returns resulting from its involvement with the investee; and (c) the ability to use its power over the investee to affect the value of its returns.

B3. The following factors may assist in the determination of control:
(a) the purpose and design of the investee (see items B5 to B8); (b) what are the relevant activities and how decisions about those activities are made (see items B11 to B13); (c) whether the investor’s rights give it the current ability to direct the relevant activities (see items B14 to B54); (d) whether the investor is exposed to, or has rights to, variable returns resulting from its involvement with the investee (see items B55 to B57); and (e) whether the investor has the ability to use its power over the investee to affect the value of its returns (see items B58 to B72).

B4. When assessing control of the investee, the investor must consider the nature of its relationship with other parties (see items B73 to B75).

Purpose and design of investee
B5. When assessing control of the investee, the investor shall consider the purpose and design of the investee in order to identify the relevant activities, how decisions about the relevant activities are made, who has the current ability to direct those activities and who receives returns from those activities.

B6. When the purpose and design of the investee are considered, it may become clear that the investee is controlled through equity instruments that confer voting rights proportional to the holder’s ownership interest, such as ordinary shares of the investee. In that case, in the absence of any additional agreements that alter decision-making, the assessment of control focuses on which party, if any, is able to exercise voting rights sufficient to determine the operating and financing policies of the investee (see items B34 to B50). In the simplest case, the investor that holds more than half of the voting rights controls the investee, unless another party has the current ability to direct the relevant activities.

B7. To determine whether the investor controls the investee in more complex cases, it may be necessary to consider some or all of the factors in item B3.

B8. The investee may be structured so that voting rights are not the dominant factor in deciding who controls the investee, for example, when any voting rights relate only to administrative tasks and the relevant activities are directed by contractual arrangements. In those cases, the investor’s consideration of the purpose and design of the investee also includes consideration of the risks to which the investee is exposed according to its design and the risks that, according to its design, it passes on to the parties involved with it, and whether the investor is exposed to some or all of those risks. Consideration of the risks includes not only the risk of downside but also the potential for upside.

Power
B9. To have power over the investee, the investor must have existing rights that give it the current ability to direct the relevant activities. For the purpose of assessing power, only substantive rights and rights that are not protective shall be considered (see items B22 to B28).

B10. The determination of whether the investor has power depends on the relevant activities, how decisions about the relevant activities are made and the rights that the investor and other parties have in relation to the investee.

Relevant activities and direction of relevant activities B11. For many investees, a range of operating and financing activities significantly affect the investee’s returns. Examples of activities that, depending on the circumstances, could be relevant activities include, but are not limited to:
(a) buying and selling goods or services;
(b) managing financial assets throughout their useful lives (including in the event of default); (c) selecting, acquiring or disposing of assets; (d) researching and developing new products or processes; and (e) determining the capital structure and obtaining funding.

B12. Examples of decisions about relevant activities include, but are not limited to:
(a) setting operational and capital expenditure budgets of the investee; and (b) appointing and removing key management personnel or service providers of the investee and setting their remuneration or terms of service.

B13. In some situations, activities that occur before or after a particular set of circumstances or an event may be relevant. When two or more investors have the current ability to direct relevant activities that occur at different times, the investors determine which investor has the ability to direct the activities that affect the most significant returns, consistent with the treatment of concurrent decision-making rights (see item 13). Investors shall reconsider this assessment over time if relevant facts or circumstances change.

Application examples
Example 1
Two investors form an investee to develop and market a medical product. Investor A is responsible for developing and obtaining regulatory approval for the medical product – this responsibility includes having the unilateral ability to make all decisions relating to the development of the product and obtaining regulatory approval. Once the regulator has approved the product, Investor B will manufacture and market it – this investor has the unilateral ability to make all decisions about the manufacturing and marketing of the product. If all activities – development and obtaining regulatory approval, as well as manufacturing and marketing of the medical product – are relevant activities, each investor needs to determine whether it is able to direct the activities that affect the most significant returns of the investee. Accordingly, each investor needs to consider whether the activity that affects the most significant returns of the investee is the development and obtaining of regulatory approval or the manufacturing and marketing of the medical product and whether it is able to direct that activity. In determining which investor has power, the investors shall consider:
(a) the purpose and design of the investee;
(b) the factors that determine the profit margin, revenues and value of the investee, as well as the value of the medical product; (c) the effect on the returns of the investee resulting from the decision-making authority of each investor with respect to the factors specified in paragraph (b); and (d) the investors’ exposure to variability of returns.
In this specific example, the investors should also consider:
(e) the uncertainty of obtaining regulatory approval and the efforts required to obtain such approval (considering the investor’s track record of success in developing and obtaining regulatory approval for medical products); and (f) which investor controls the medical product once the development phase is successfully completed.

Example 2
An investment vehicle (investee) is created and financed with a debt instrument held by an investor (creditor investor) and equity instruments held by a number of other investors. The equity tranche is structured to absorb the first losses and to receive any residual return from the investee. One of the equity investors that holds 30% of the net assets is also the asset manager. The investee uses its resources to acquire a portfolio of financial assets, exposing it to the credit risk associated with the possible default of principal and interest payments of the assets. The transaction is marketed to the creditor investor as an investment with minimal exposure to the credit risk associated with the possible default of the portfolio assets, due to the nature of these assets and because the equity tranche is structured to absorb the first losses of the investee. The returns of the investee are significantly affected by the management of the investee’s portfolio of assets, which includes decisions about the selection, acquisition and disposal of assets in accordance with investment policy guidelines and management in the event of default of any portfolio assets. All these activities are managed by the asset manager until defaults reach the specified proportion of the portfolio value (that is, when the portfolio value is such that the investee’s equity tranche has been consumed). From that moment on, a third-party independent (trustee) begins to manage the assets in accordance with the instructions of the creditor investor. The management of the investee’s portfolio of assets is the relevant activity of the investee. The asset manager has the ability to direct the relevant activities until the assets that originate defaults (defaulted assets) reach the specified proportion of the portfolio value; the creditor investor has the ability to direct the relevant activities when the value of the defaulted assets exceeds that specified proportion of the portfolio value. The asset manager and the creditor investor need, each, to determine whether they are able to direct the activities that affect the most significant returns of the investee, considering, inter alia, the purpose and design of the investee, as well as the exposure of each party to the variability of returns.

Rights that give the investor power over the investee B14. Power stems from rights. To have power over the investee, the investor must have existing rights that give it the current ability to direct the relevant activities. The rights that can give power to the investor may differ between investees.

B15. Examples of rights that, individually or combined, can give power to the investor include, but are not limited to:
(a) rights in the form of voting rights (or potential voting rights) of the investee (see items B34 to B50); (b) rights to appoint, reassign or remove members of the key management personnel of the investee who have the ability to direct the relevant activities; (c) rights to appoint or remove another entity that directs the relevant activities; (d) rights to instruct the investee to carry out transactions, or to veto any changes to those transactions, for the benefit of the investor; and (e) other rights (such as decision-making rights specified in a management contract) that give the holder the ability to direct the relevant activities.

B16. Generally, when the investee has a range of operating and financing activities that significantly affect the investee’s returns and when important decisions about those activities are required continuously, it is the voting rights or similar rights that give power to the investor, either individually or in combination with other agreements.

B17. When voting rights cannot have a significant effect on the returns of the investee, for example, when voting rights relate only to administrative tasks and contractual arrangements determine the direction of the relevant activities, the investor shall assess those contractual arrangements in order to determine whether it has sufficient rights to give it power over the investee. To determine whether it has sufficient rights to give it power, the investor shall consider the purpose and design of the investee (see items B5 to B8) and the requirements of items B51 to B54 together with items B18 to B20.

B18. In some circumstances, it may be difficult to determine whether the investor’s rights are sufficient to give it power over the investee. In those cases, to enable the assessment of power to be made, the investor shall consider evidence regarding its practical ability to direct the relevant activities on its own. The following items, among others, shall be considered, which, when considered together with the investor’s rights and the indicators in items B19 and B20, may provide evidence that the investor’s rights are sufficient to give it power over the investee:
(a) the investor can, without having the contractual right to do so, appoint or approve the key management personnel of the investee who has the ability to direct the relevant activities; (b) the investor can, without having the contractual right to do so, instruct the investee to carry out significant transactions for the benefit of the investor or can veto any changes to those transactions; (c) the investor can dominate the process for appointments to the election of members of the governing body of the investee or the obtaining of proxies from other holders of voting rights; (d) the key management personnel of the investee consists of related parties of the investor (for example, the chief executive officer of the investee and the chief executive officer of the investor are the same person); and (e) the majority of the members of the governing body of the investee consist of related parties of the investor.

B19. Sometimes there are indications that the investor has a special relationship with the investee, suggesting that the investor has more than a passive interest in the investee. The existence of any individual indicator, or specific combination of indicators, does not necessarily mean that the power criterion has been met. However, having more than a passive interest in the investee may indicate that the investor has other related rights sufficient to give it power or provide evidence of existing power over the investee. For example, the following items suggest that the investor has more than a passive interest in the investee and, in combination with other rights, may indicate power:
(a) the key management personnel of the investee who has the ability to direct the relevant activities are current or former employees of the investor; (b) the operations of the investee depend on the investor, such as in the following situations:
(i) the investee depends on the investor to finance a significant portion of its operations; (ii) the investor guarantees a significant portion of the investee’s obligations; (iii) the investee depends on the investor for critical services, technology, supplies or raw materials; (iv) the investor controls assets such as licenses or trademarks that are critical to the operations of the investee; (v) the investee depends on the investor for key management personnel, for example, when the investor’s personnel possess specialized knowledge of the investee’s operations; (c) a significant portion of the investee’s activities involves the investor or is conducted on its behalf; and (d) the investor’s exposure to returns resulting from its involvement with the investee or its rights to those returns are disproportionately larger than its voting rights or other similar rights. For example, there may be a situation in which the investor has a right or is exposed to more than half of the returns of the investee, although it holds less than half of the voting rights of the investee.

B20. The greater the investor’s exposure or rights to variability of returns resulting from its involvement with the investee, the greater the incentive for the investor to obtain rights sufficient to give it power. Therefore, having a large exposure to variability of returns is an indicator that the investor may have power. However, the extent of the investor’s exposure does not, by itself, determine whether the investor has power over the investee.

B21. When the factors in item B18 and the indicators in items B19 and B20 are considered together with the investor’s rights, greater weight is given to the evidence of power described in item B18.

Substantive rights
B22. The investor, when assessing whether it has power, shall consider only substantive rights relating to the investee (held by the investor and by other parties). For a right to be substantive, the holder must have the practical ability to exercise that right.

B23. Determining whether rights are substantive requires judgment, taking into account all facts and circumstances. The factors to be considered when making this determination include, but are not limited to:
(a) whether there are any barriers (economic or otherwise) that prevent the holder (or holders) from exercising the rights. Examples of barriers include, but are not limited to:
(i) sanctions and monetary incentives that prevent (or dissuade) the holder from exercising its rights; (ii) exercise or conversion price that creates a barrier that prevents (or dissuades) the holder from exercising its rights; (iii) terms and conditions that make it unlikely that the rights will be exercised, such as conditions that strictly limit the timing of their exercise; (iv) absence of an explicit and reasonable mechanism in the constitutive documents of the investee or in the applicable laws or regulations that allow the holder to exercise its rights; (v) inability of the rights holder to obtain the information necessary to exercise its rights; (vi) operational barriers or incentives that prevent (or dissuade) the holder from exercising its rights (for example, absence of other managers willing or able to provide specialized services or to provide the services and assume other holdings held by the incumbent manager); and (vii) legal or regulatory requirements that prevent the holder from exercising its rights (for example, when the foreign investor is prohibited from exercising its rights); (b) when the exercise of rights requires the agreement of more than one party, or when the rights are held by more than one party, whether there is a mechanism that gives those parties the practical ability to exercise their rights collectively, if they choose to do so. The absence of this mechanism is an indicator that the rights may not be substantive. The greater the number of parties that must agree to the exercise of rights, the less likely it is that those rights are substantive. However, a board of directors whose members are independent of the decision-maker can act as a mechanism for numerous investors to act collectively in the exercise of their rights. Therefore, it is more likely that removal rights that can be exercised by an independent board of directors are substantive than if the same rights could be exercised individually by a large number of investors; (c) whether the party or parties holding the rights benefit from their exercise. For example, the holder of potential voting rights in the investee (see items B47 to B50) shall consider the price of

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 exercise or conversion of the instrument. It is more likely that the terms and conditions of potential voting rights are substantive when the instrument is in-the-money or when the investor will benefit, for other reasons (for example, by capturing synergies between the investor and the investee), from the exercise or conversion of the instrument. B24. To be substantive, rights also need to be exercisable when decisions about the direction of the relevant activities need to be made. Normally, to be substantive, rights need to be currently exercisable. However, some rights can be substantive even if they are not currently exercisable. Application examples Example 3 The investee holds ordinary shareholders' meetings at which decisions are made regarding the direction of the relevant activities. The next scheduled shareholders' meeting will be held in eight months. However, shareholders who, individually or collectively, hold at least 5% of the voting rights can call an extraordinary general meeting to change existing policies on relevant activities, but the requirement to deliver notice to other shareholders implies that this extraordinary general meeting cannot be held before 30 days have elapsed. Policies on relevant activities can only be changed in extraordinary general meetings of shareholders or in scheduled shareholders' meetings. This includes the approval of substantial asset sales, as well as the realization or disposal of significant investments. The above situation applies to Examples 3A to 3D described below. Each example is considered in isolation. Example 3A The investor holds the majority of the voting rights in the investee. The investor's voting rights are substantive, as it is able to make decisions about the direction of the relevant activities when such decisions need to be made. The fact that it takes 30 days for the investor to exercise its voting rights does not prevent the investor from having the current ability to direct the relevant activities from the moment it acquires the shareholding. Example 3B The investor is party to a forward contract for the acquisition of the majority of the investee's shares. The settlement of the forward contract will take place in 25 days. Existing shareholders are not able to modify existing policies regarding relevant activities, since an extraordinary general meeting cannot be held before 30 days have elapsed, at which time the forward contract will already have been settled. Thus, the investor has rights that are essentially equivalent to those of the majority shareholder in Example 3A (i.e., the investor holding the forward contract can make

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 decisions about the direction of the relevant activities when they need to be made). The investor's forward contract is a substantive right that gives it the current ability to direct the relevant activities even before the forward contract is settled. Example 3C The investor holds a substantive option to acquire the majority of the investee's shares, which can be exercised in 25 days and is substantially in-the-money. The conclusion is the same as in Example 3B. Example 3D The investor is party to a forward contract for the acquisition of the majority of the investee's shares, with no other related rights regarding the investee. The settlement of the forward contract will take place in six months. In contrast to the previous examples, the investor does not have the current ability to direct the relevant activities. Existing shareholders have the current ability to direct the relevant activities, as they can modify existing policies regarding relevant activities before the forward contract is settled. B25. Substantive rights exercisable by other parties may prevent the investor from controlling the investee to which those rights refer. These substantive rights do not require that the holders have the ability to originate the decisions. Provided they are not merely protective (see items B26 to B28), substantive rights held by other parties may prevent the investor from controlling the investee, even if those rights give the holders only the current ability to approve or block decisions that refer to the relevant activities. Protective rights B26. When assessing whether rights give it power over the investee, the investor must assess whether its rights and the rights held by third parties are protective rights. Protective rights refer to fundamental changes in the investee's activities or apply to exceptional circumstances. However, not all rights that apply to exceptional circumstances or are contingent on certain events are protective rights (see items B13 and B53). B27. Since protective rights are intended to protect the interests of their holder without giving that party power over the investee to which those rights refer, an investor that holds only protective rights cannot have power or prevent another party from having power over the investee (see item 14). B28. Examples of protective rights include, among others:
(a) right of a lender to impose limits on the borrower regarding the conduct of activities that may significantly modify the credit risk of the borrower to the detriment of the lender;

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 (b) right of a non-controlling interest holder in the investee to approve capitalizable investments exceeding those required in the normal course of business or to approve the issuance of equity or debt instruments; (c) right of a lender to legally appropriate assets of the borrower if the borrower fails to satisfy specified loan amortization conditions. Franchises B29. The franchise agreement in which the investee is the franchisee generally gives the franchisor rights that are intended to protect the franchise brand. Franchise agreements usually give franchisors some decision-making rights regarding the franchisee's operations. B30. Generally, the franchisor's rights do not restrict the ability of other parties other than the franchisor to make decisions that have a significant effect on the franchisee's returns. Nor do the franchisor's rights in franchise agreements necessarily give the franchisor the current ability to direct the activities that significantly affect the franchisee's returns. B31. It is necessary to distinguish between having the current ability to make decisions that significantly affect the franchisee's returns and having the ability to make decisions that protect the franchise brand. The franchisor does not have power over the franchisee if other parties have existing rights that give them the current ability to direct the relevant activities of the franchisee. B32. Upon entering into the franchise agreement, the franchisee made the unilateral decision to operate its business according to the terms of the franchise agreement, but on its own behalf. B33. Control over fundamental decisions, such as the legal nature of the franchisee and its financing structure, may be determined by parties other than the franchisor and may significantly affect the franchisee's returns. The lower the level of financial support provided by the franchisor and the lower the franchisor's exposure to the variability of the franchisee's returns, the greater the likelihood that the franchisor has only protective rights. Voting rights B34. Frequently, the investor has the current ability, through voting rights or similar, to direct the relevant activities. The investor must consider the requirements of items B35 to B50 if the relevant activities of the investee are directed through voting rights. Power with the majority of voting rights B35. The investor that holds more than half of the voting rights of the investee has power in the following situations, unless item B36 or item B37 applies:
(a) the relevant activities are directed by the vote of the holder of the majority of the voting rights; or

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 (b) the majority of the members of the governing body that directs the relevant activities are appointed by the vote of the holder of the majority of the voting rights. Majority of voting rights, but no power B36. For an investor that holds more than half of the voting rights of the investee to have power over it, its voting rights must be substantive, in accordance with items B22 to B25, and must give the investor the current ability to direct the relevant activities, which is often done through determining operational and financing policies. If another entity has existing rights that give it the right to direct the relevant activities and that entity is not an agent of the investor, the investor does not have power over the investee. B37. The investor does not have power over the investee, even if it holds the majority of the voting rights in the investee, when those voting rights are not substantive. For example, an investor that holds more than half of the voting rights in the investee cannot have power if the relevant activities are subject to the direction of a government, court, administrator, trustee, liquidator, or regulator. Power without the majority of voting rights B38. The investor may have power even if it holds less than the majority of the voting rights of the investee. The investor may have power with less than the majority of the voting rights of the investee, for example, through:
(a) contractual agreement between the investor and other voting rights holders (see item B39); (b) rights arising from other contractual agreements (see item B40); (c) the investor's voting rights (see items B41 to B45); (d) potential voting rights (see items B47 to B50); or (e) the combination of (a) to (d).
Contractual agreement with other voting rights holders B39. A contractual agreement between an investor and other voting rights holders may give the investor the right to exercise voting rights sufficient to give it power, even if the investor does not have voting rights sufficient to give it power without the contractual agreement. However, the contractual agreement may ensure that the investor can instruct a sufficient number of other voting rights holders on how to vote to allow the investor to make decisions on the relevant activities. Rights arising from other contractual agreements B40. Other decision-making rights, in combination with voting rights, may give the investor the current ability to direct the relevant activities. For example, rights specified in a contractual agreement in combination with voting rights may be sufficient to give the investor

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 the current ability to direct the investee's manufacturing processes or to direct other operational or financing activities of the investee that significantly affect the investee's returns. However, in the absence of any other rights, the investee's economic dependence on the investor (such as supplier relationships with its main customer) does not lead to the conclusion that the investor has power over the investee. Investor's voting rights B41. The investor without the majority of voting rights may have rights that are sufficient to give it power when it has the practical ability to direct the relevant activities unilaterally. B42. When assessing whether its voting rights are sufficient to give it power, the investor considers all facts and circumstances, including:
(a) the extent of the investor's voting rights compared to the extent and dispersion of the voting rights of other holders, noting that:
(i) the more voting rights the investor holds, the greater the likelihood that the investor has existing rights that give it the current ability to direct the relevant activities; (ii) the more voting rights the investor holds relative to other voting rights holders, the greater the likelihood that the investor has existing rights that give it the current ability to direct the relevant activities; (iii) the greater the number of parties that would need to act together to surpass the investor in the number of votes, the greater the likelihood that the investor has existing rights that give it the current ability to direct the relevant activities; (b) potential voting rights held by the investor, other voting rights holders, or other parties (see items B47 to B50); (c) rights arising from other contractual agreements (see item B40); and (d) any additional facts and circumstances that indicate whether the investor has or does not have the current ability to direct the relevant activities at the time decisions need to be made, including voting patterns in previous shareholders' meetings. B43. When the direction of relevant activities is determined by majority vote and the investor holds significantly more voting rights than any other voting rights holder or organized group of voting rights holders, and the other shareholdings are widely dispersed, it may become clear, after considering only the factors related in item B42(a) to (c), that the investor has power over the investee.

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 Application examples Example 4 The investor acquires 48% of the voting rights of the investee. The remaining voting rights are held by thousands of shareholders, none of whom individually holds more than 1% of the voting rights. None of the shareholders has any agreement to consult any of the other shareholders or to make collective decisions. When assessing the proportion of voting rights to be acquired, based on the relative size of the other shareholdings, the investor determined that the 48% stake would be sufficient to give it control. In this case, based on the absolute size of its stake and the relative size of the other shareholdings, the investor concludes that it has a sufficiently dominant voting stake to satisfy the power criterion without the need to consider any other evidence of power. Example 5 Investor A holds 40% of the voting rights of the investee, and twelve other investors each hold 5% of the voting rights of the investee. The shareholders' agreement grants Investor A the right to appoint, remove, and fix the remuneration of the administrators responsible for directing the relevant activities. To modify the contract, a two-thirds majority vote of the shareholders is required. In this case, Investor A concludes that the absolute size of its stake and the relative size of the other shareholdings by themselves are not conclusive in determining whether it has sufficient rights to give it power. However, Investor A determines that its contractual right to appoint, remove, and fix the remuneration of the administrators is sufficient to conclude that it has power over the investee. The fact that Investor A may not have exercised this right or the probability that Investor A will exercise its right to select, appoint, or remove the administrators should not be considered when assessing whether Investor A has power. B44. In other situations, it may become clear, after considering only the factors related in item B42(a) to (c), that the investor does not have power. Application example Example 6 Investor A holds 45% of the voting rights of the investee. Two other investors each hold 26% of the voting rights of the investee. The remaining voting rights are held by three other shareholders, each of whom holds 1%. There are no other agreements affecting decision-making. In this case, the size of A's voting stake and its size relative to the other shareholdings are sufficient to conclude that Investor A does not have power. Only two other investors would need to cooperate to prevent Investor A from directing the relevant activities of the investee.

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 B45. However, the factors related only in item B42(a) to (c) may not be conclusive. If, having considered other factors, the investor is not sure that it has power, it must consider additional facts and circumstances, such as whether other shareholders have a passive nature, as demonstrated by voting patterns in previous shareholders' meetings. This includes assessing the factors pointed out in item B18 and the indicators in items B19 and B20. The fewer voting rights the investor holds and the smaller the number of parties that need to act together to surpass the investor in the number of votes, the greater weight should be given to additional facts and circumstances to assess whether the investor's rights are sufficient to give it power. When the facts and circumstances of items B18 to B20 are considered together with the investor's rights, greater weight should be given to the evidence of power in item B18 than to the indicators of power in items B19 and B20. Application examples Example 7 An investor holds 45% of the voting rights of the investee. Eleven other investors each hold 5% of the voting rights of the investee. None of the shareholders has contractual agreements to consult any of the others or to make collective decisions. In this case, the absolute size of the investor's stake and the relative size of the other shareholdings by themselves are not conclusive in determining whether the investor has sufficient rights to give it power over the investee. Additional facts and circumstances that may provide evidence that the investor has or does not have power should be considered. Example 8 An investor holds 35% of the voting rights of the investee. Three other investors each hold 5% of the voting rights of the investee. The remaining voting rights are held by numerous other shareholders, none of whom individually holds more than 1% of the voting rights. None of the shareholders has agreements to consult any of the others or to make collective decisions. Decisions on the relevant activities of the investee require the approval of the majority of votes cast in relevant shareholders' meetings – 75% of the voting rights of the investee were exercised in recent relevant shareholders' meetings. In this case, the active participation of other shareholders in recent shareholders' meetings indicates that the investor would not have the practical ability to direct the relevant activities unilaterally, regardless of whether the investor directed the relevant activities because a sufficient number of other shareholders voted in the same way as it did. B46. If it is not clear, having considered the factors related in item B42(a) to (d), that the investor has power, the investor does not control the investee.

POTENTIAL VOTING RIGHTS

B47. When assessing control, the investor shall consider its potential voting rights as well as the potential voting rights held by other parties to determine whether it has power. Potential voting rights are rights to obtain voting rights of the investee, such as those arising from convertible instruments or options, including forward contracts. These potential voting rights are considered only if the rights are substantive (see paragraphs B22–B25).

B48. When considering potential voting rights, the investor shall consider the purpose and design of the instrument, as well as the purpose and design of any other involvement that the investor has with the investee. This includes evaluating the various terms and conditions of the instrument, as well as the expectations, motives, and reasons evident to the investor for agreeing to those terms and conditions.

B49. If the investor also has voting rights or other decision-making rights relating to the activities of the investee, the investor shall assess whether those rights, in combination with the potential voting rights, give it power.

B50. Substantive potential voting rights, whether held individually or in combination with other rights, may give the investor the current ability to direct the relevant activities. For example, this is likely to be the case when the investor holds 40% of the voting rights of the investee and, in accordance with paragraph B23, holds substantive rights arising from options to acquire an additional 20% of the voting rights.

Examples of Application

Example 9

Investor A holds 70% of the voting rights of the investee. Investor B holds 30% of the voting rights of the investee, as well as an option to acquire half of the voting rights of Investor A. The option is exercisable for the next two years at a fixed price that is substantially out-of-the-money (and is expected to remain so for that two-year period). Investor A has been exercising its voting rights and is actively directing the relevant activities of the investee. In this case, Investor A is likely to meet the criterion of power because it appears to have the current ability to direct the relevant activities. Although Investor B has currently exercisable options to purchase additional voting rights (which, if exercised, would give it a majority of the voting rights in the investee), the terms and conditions associated with those options are such that the options are not considered substantive.

Example 10

Investor A and two other investors each hold one-third of the voting rights of the investee. The investee’s business activity is closely related to Investor A. In addition to its equity instruments, Investor A also holds debt instruments, convertible into ordinary shares of the investee at any time at a fixed price that is out-of-the-money (but not substantially out-of-the-money). If the debt were converted, Investor A would hold 60% of the voting rights of the investee. Investor A would benefit from the capture of synergies if the debt instruments were converted into ordinary shares. Investor A has power over the investee because it holds voting rights of the investee together with substantive potential voting rights that give it the current ability to direct the relevant activities.

Power when voting rights or similar rights do not have a significant effect on the returns of the investee

B51. When assessing the purpose and design of the investee (see paragraphs B5–B8), the investor shall consider the involvement and decisions made at the time the investee was set up as part of its design and shall assess whether the terms of the transaction and the characteristics of the involvement provide the investor with rights that are sufficient to give it power. Being involved in the design of the investee by itself is not sufficient to give the investor control. However, involvement in the design may indicate that the investor had the opportunity to obtain rights that are sufficient to give it power over the investee.

B52. In addition, the investor shall consider contractual arrangements, such as purchase rights, sale rights, and liquidation rights established at the time the investee was set up. When those contractual arrangements involve activities that are closely related to the investee, those activities are then, in essence, an integral part of the overall activities of the investee, even though they may occur outside the legal boundaries of the investee. Therefore, expressed or implied decision-making rights embedded in contractual arrangements that are closely related to the investee need to be considered as relevant activities when determining power over the investee.

B53. For some investees, relevant activities occur only when specific circumstances or events arise or occur. The investee may be structured so that the direction of its activities and its returns are predetermined, unless and until those specific circumstances or events arise or occur. In that case, only decisions about the activities of the investee when those circumstances or events occur can significantly affect its returns and, thus, be relevant activities. The circumstances or events need not have occurred for the investor with the ability to make those decisions to have power. The fact that the right to make decisions depends on the emergence of circumstances or the occurrence of an event does not, by itself, mean that those rights are protective rights.

Examples of Application

Example 11

The only business activity of the investee, as specified in its governing documents, is the purchase of receivables and their day-to-day administration for its investors. Day-to-day administration includes collecting and passing on principal and interest payments as they become due. Upon default of a receivable, the investee automatically offers it to the investor, as separately agreed in a contract between the investor and the investee. The only relevant activity is the management of receivables in the event of default, because this is the only activity that can significantly affect the returns of the investee. The management of receivables before default is not a relevant activity because it does not require making substantive decisions that can significantly affect the returns of the investee—the activities before default are predetermined and consist only of receiving cash flows as they become due and passing them on to investors. Therefore, only the investor’s right to manage the assets in the event of default should be considered when assessing the general activities of the investee that significantly affect the returns of the investee. In this example, the design of the investee ensures that the investor has decision-making authority over the activities that significantly affect returns on the only occasion when that decision-making authority is needed. The terms of the sale contract are an integral part of the transaction as a whole and of the design of the investee. Therefore, the terms of the sale contract, together with the governing documents of the investee, lead to the conclusion that the investor has power over the investee, even though the investor assumes ownership of the receivables only in the event of default and manages the defaulted receivables outside the legal boundaries of the investee.

Example 12

The only assets of the investee are receivables. When the purpose and design of the investee are considered, it is determined that the only relevant activity is the management of receivables in the event of default. The party that has the ability to manage the defaulted receivables has power over the investee, regardless of whether any of the debtors have defaulted.

B54. The investor may have an explicit or implicit commitment to ensure that the investee continues to operate as planned. That commitment may increase the investor’s exposure to variability of returns and, thus, increase the incentive for the investor to obtain rights that are sufficient to give it power. Therefore, a commitment to ensure that the investee operates as planned may be an indicator that the investor has power, but, by itself, it does not give the investor power nor does it prevent another party from having power.

Exposure to, or rights to, variable returns of the investee

B55. When assessing whether it controls the investee, the investor shall determine whether it is exposed, or has rights, to variable returns resulting from its involvement with the investee.

B56. Variable returns are returns that are not fixed and have the potential to vary as a result of the performance of the investee. Variable returns can be only positive, only negative, or both positive and negative (see paragraph 15). The investor shall assess whether the returns of the investee are variable, and how variable those returns are, based on the substance of the arrangement and regardless of the legal form of the returns. For example, the investor may hold debt securities with fixed interest payments. Fixed interest payments are variable returns for the purposes of this Pronunciamento because they are subject to default risk and expose the investor to the credit risk of the issuer of the debt security. The magnitude of the variability (ie, how variable those returns are) depends on the credit risk of the debt security. Similarly, fixed performance-based fees for managing the investee’s assets are variable returns because they expose the investor to the performance risk of the investee. The magnitude of the variability depends on the investee’s ability to generate sufficient revenue to pay the fee.

B57. Examples of returns include:
(a) dividends, other distributions of economic benefits from the investee (eg, interest on debt securities issued by the investee), and changes in the value of the investor’s investment in that investee; (b) fees for managing the investee’s assets or liabilities, fees and exposure to losses from providing credit or liquidity support, residual interests in the assets and liabilities of the investee upon its liquidation, tax benefits, and access to future liquidity that the investor has as a result of its involvement with the investee; (c) returns that are not available to other holders of interests. For example, the investor may use its assets in combination with the investee’s assets, such as by combining operational functions to obtain economies of scale, cost savings, supply of scarce products, or access to proprietary or limited know-how, or by limiting some operations or assets in order to increase the value of the investor’s other assets.

Relationship between power and returns
Delegated power

B58. When assessing whether it controls the investee, the investor with decision-making rights (the decision maker) shall determine whether it is a principal or an agent. The investor shall also determine whether another entity with decision-making rights is acting as an agent on its behalf. An agent is a party that is primarily engaged to act on behalf of and to benefit one or more other parties (a principal) and, therefore, does not control the investee when it exercises its decision-making rights (see paragraphs 17 and 18). Thus, sometimes the power of the principal may be held and exercisable by an agent, but on behalf of the principal. A decision maker is not an agent simply because other parties may benefit from the decisions that it makes.

B59. The investor may delegate its decision-making authority to an agent with respect to some specific issues or all relevant activities. When assessing whether it controls the investee, the investor shall treat decision-making rights delegated to its agent as if they were held directly by the investor. In situations in which there is more than one principal, each of the principals shall assess whether it has power over the investee considering the requirements of paragraphs B5–B54. Paragraphs B60–B72 provide guidance on how to determine whether the decision maker is an agent or a principal.

B60. When determining whether it is an agent, the decision maker shall consider the overall relationship between itself, the investee being managed, and the other parties involved with the investee and, in particular, all of the following factors:
(a) the scope of its decision-making rights over the investee (paragraphs B62 and B63); (b) the rights held by other parties (paragraphs B64–B67); (c) the remuneration to which it is entitled in accordance with the remuneration agreement (paragraphs B68–B70); and (d) the exposure of the decision maker to variability of returns from other interests it holds in the investee (paragraphs B71 and B72).

Different weightings shall be applied to each of the factors based on the specific facts and circumstances.

B61. Determining whether the decision maker is an agent requires an evaluation of all the factors related in paragraph B60, unless a single party holds substantive rights to remove the decision maker (removal rights) and can remove the decision maker without cause (see paragraph B65).

Scope of decision-making rights

B62. The scope of the decision maker’s decision-making rights shall be assessed by considering:
(a) the activities that are permitted in accordance with the decision-making agreement and as prescribed by law; and (b) the discretion that the decision maker has when making decisions about those activities.

B63. The decision maker shall consider the purpose and design of the investee, the risks to which the investee would be exposed in accordance with its design, the risks that, in accordance with its design, it transfers to the parties involved, and the level of involvement of the decision maker in the design of the investee. For example, if the decision maker is significantly involved in the design of the investee (including in determining the scope of its decision-making rights), that involvement may indicate that the decision maker had the opportunity and incentive to obtain rights that result in it having the ability to direct the relevant activities.

Rights held by other parties

B64. Substantive rights held by other parties may affect the decision maker’s ability to direct the relevant activities of the investee. Substantive removal rights or other rights may indicate that the decision maker is an agent.

B65. When a single party holds substantive removal rights and can remove the decision maker without cause, that, by itself, is sufficient to conclude that the decision maker is an agent. If more than one party holds those rights (and no single party can remove the decision maker without the agreement of the other parties), those rights are not, by themselves, conclusive in determining whether the decision maker acts primarily on behalf of and to benefit third parties. In addition, the greater the number of parties that need to act together to exercise the right to remove the decision maker and the greater the magnitude and variability associated with the decision maker’s other economic interests (ie, remuneration and other interests), the less weight should be given to that factor.

B66. Substantive rights held by other parties that restrict the decision maker’s discretion shall be considered similarly to removal rights when assessing whether the decision maker is an agent. For example, a decision maker that must obtain approval from a small number of other parties for its actions is generally an agent. (See paragraphs B22–B25 for additional guidance on rights and whether they are substantive.)

B67. The rights held by other parties shall include an evaluation of any rights exercisable by the board of directors (or other governing body) of the investee and their effect on decision-making authority (see paragraph B23(b)).

Remuneration

B68. The greater the magnitude and variability associated with the decision maker’s remuneration relative to the expected returns of the activities of the investee, the more likely it is that the decision maker is the principal.

B69. When determining whether it is a principal or an agent, the decision maker shall also consider whether the following conditions are present:
(a) the decision maker’s remuneration is commensurate with the services provided; (b) the remuneration agreement includes only terms, conditions, or amounts that are typically present in agreements for services and levels of skills similar to those negotiated on usual market terms.

B70. The decision maker cannot be an agent unless the conditions indicated in paragraph B69(a) and (b) are present. However, meeting those conditions, by itself, is not sufficient to conclude that the decision maker is an agent.

Exposure to variability of returns from other interests

B71. The decision maker that holds other interests in the investee (eg, investments in the investee or providing guarantees with respect to the performance of the investee) shall consider its exposure to variability of returns from those interests when assessing whether it is an agent. Holding other interests in the investee indicates that the decision maker may be the principal.

B72. When assessing its exposure to variability of returns from other interests in the investee, the decision maker shall consider the following:
(a) the greater the magnitude and variability associated with its economic interests, considering its remuneration and other interests together, the more likely it is that the decision maker is the principal; (b) whether its exposure to variability of returns is different from that of the other investors and, if so, whether that could influence its actions. For example, this may be the case when the decision maker holds subordinated interests in the investee or provides other forms of credit enhancement to it.

The decision maker shall assess its exposure relative to the total variability of returns of the investee. This assessment shall be made primarily based on the expected returns of the activities of the investee, but it shall not ignore the maximum exposure of the decision maker to variability of returns of the investee resulting from other interests held by the decision maker.

Examples of Application

Example 13

The decision maker (fund manager) creates, markets, and manages a regulated fund traded publicly, in accordance with well-defined parameters set out in the investment mandate, as required by its local laws and regulations. The fund was marketed to investors as an investment in a diversified portfolio of equity instruments of publicly traded entities. Within the defined parameters, the fund manager has discretion over which assets to invest in. The fund manager made a proportional investment of 10% in the fund and receives a market-based fee for its services equal to 1% of the net asset value of the fund. The fees are commensurate with the services provided. The fund manager has no obligation to fund losses beyond its 10% investment. The fund has no obligation to establish and has not established an independent board of directors. The investors do not hold any substantive rights that affect the decision-making authority of the fund manager, but they can redeem their interests within specific limits set by the fund. Although operating within the parameters set out in the investment mandate and in accordance with regulatory requirements, the fund manager has decision-making rights that give it the current ability to direct the relevant activities of the fund—the investors do not hold substantive rights

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substantive rights that could affect the decision-making authority of the fund manager. The fund manager receives a market-based fee for its services, which is commensurate with the services rendered, and has also made a proportional investment in the fund. The remuneration and investment of the fund manager expose it to variability of returns arising from the activities of the fund, without creating exposure of such significance as to indicate that the fund manager is the principal.

In this example, the consideration of the fund manager's exposure to the variability of returns of the fund together with its decision-making authority within restricted parameters indicates that the fund manager is the agent. Thus, the fund manager concludes that it does not control the fund.

Example 14

The decision-maker creates, markets, and manages a fund that offers investment opportunities to a number of investors. The decision-maker (fund manager) must make decisions in the best interest of all investors and in accordance with the fund's regulatory contracts. Nevertheless, the fund manager has broad discretionary power for decision-making. The fund manager receives a market-based fee for its services equal to 1% of the assets managed and 20% of all the fund's profit if the specified profit level is reached. The fees are commensurate with the services rendered.

Although it needs to make decisions in the best interest of all investors, the fund manager has broad decision-making authority to direct the relevant activities of the fund. The fund manager receives fixed fees related to performance commensurate with the services rendered. In addition, the remuneration aligns the interests of the fund manager with those of the other investors to increase the value of the fund, without creating exposure to variability of returns arising from the activities of the fund that is of such significance that the remuneration, when considered in isolation, indicates that the fund manager is a principal.

The situation and analysis above apply to Examples 14A to 14C described below. Each example is considered in isolation.

Example 14A

The fund manager also has a 2% investment in the fund that aligns its interests with those of the other investors. The fund manager has no obligation to finance losses beyond its 2% investment. Investors may remove the fund manager by simple majority vote, but only for breach of contract.

The fund manager's 2% investment increases its exposure to variability of returns arising from the activities of the fund, without creating exposure of such significance as to indicate that the fund manager is the principal. The rights of the other investors to remove the fund manager are considered to be protective rights, as they can only be exercised in the event of a breach of contract. In this example, although the fund manager has broad decision-making authority and is exposed to variability of returns from its participation and remuneration, its exposure indicates that it is the agent. Thus, the fund manager concludes that it does not control the fund.

Example 14B

The fund manager has the most substantial proportional investment in the fund, but has no obligation to finance losses beyond this investment. Investors may remove the fund manager by simple majority vote, but only for breach of contract.

In this example, the rights of the other investors to remove the fund manager are considered to be protective rights, as they can only be exercised in the event of a breach of contract. Although the fund manager receives fixed and performance-related fees commensurate with the services rendered, the combination of its investment with its remuneration may create exposure to variability of returns arising from the activities of the fund that is of such significance as to indicate that the fund manager is the principal. The larger the size and variability associated with the fund manager's economic interests (considering its remuneration and other interests together), the greater the emphasis the fund manager places on these economic interests in the analysis and the greater the probability that the fund manager will be the principal.

For example, having considered its remuneration and other factors, the fund manager may consider the 20% investment to be sufficient to conclude that it controls the fund. However, under different circumstances (i.e., if the remuneration or other factors were different), control may arise when the investment level is different.

Example 14C

The fund manager has a proportional investment of 20% in the fund, but has no obligation to finance losses beyond its 20% investment. The fund has a board of directors, all of whose members are independent of the fund manager and are appointed by the other investors. The board appoints the fund manager annually. If the board decides not to renew the fund manager's contract, the services provided by the latter may be performed by other managers in the sector.

Although the fund manager receives fixed and performance-related fees commensurate with the services rendered, the combination of its 20% investment with its remuneration creates exposure to variability of returns arising from the activities of the fund that is of such significance as to indicate that the fund manager is the principal. However, investors have substantive rights to remove the fund manager – the board of directors has a mechanism to ensure that investors can remove the fund manager if they decide to do so.

In this example, the fund manager places greater emphasis on the substantive removal rights in the analysis. Thus, although the fund manager has broad decision-making authority and is exposed to the variability of returns of the fund as a result of its remuneration and investment, the substantive rights held by the other investors indicate that the fund manager is the agent. Thus, the fund manager concludes that it does not control the fund.

Example 15

An investee is created to acquire a portfolio of fixed-rate receivables (asset-backed securities), an operation to be financed by fixed-income debt instruments and equity instruments. The equity instruments are structured to offer first-loss protection against loss risk to debt investors and to receive any residual returns from the investee. The transaction was marketed to potential debt investors as an investment in a portfolio of asset-backed securities with exposure to the credit risk associated with the possible default of the issuers of these securities in the portfolio and to the interest rate risk associated with portfolio management. At the time of formation, the equity instruments represent 10% of the value of the assets acquired. The decision-maker (asset manager) actively manages the asset portfolio by making investment decisions within the parameters set forth in the investee's prospectus. For these services, the asset manager receives a market-based fixed fee (i.e., 1% of assets managed) and performance-related fees (i.e., 10% of profits) if the investee's profits exceed the specified level. The fees are commensurate with the services rendered. The asset manager holds 35% of the investee's equity. The remaining 65% of the equity and all debt instruments are held by a large number of unrelated third-party investors who are widely dispersed. The asset manager may be removed without cause by decision of the simple majority of the other investors.

The asset manager receives fixed and performance-related fees commensurate with the services rendered. The remuneration aligns the interests of the fund manager with those of the other investors to increase the value of the fund. The asset manager is exposed to the variability of returns arising from the activities of the fund because it holds 35% of the equity and due to its remuneration.

Although operating within the parameters defined in the investee's prospectus, the asset manager has the current ability to make investment decisions that significantly affect the returns of the investee – the removal rights held by the other investors carry little weight in the analysis, as these rights are held by a large number of widely dispersed investors. In this example, the asset manager places greater emphasis on its exposure to the variability of fund returns arising from its equity participation, which is subordinated to the debt instruments. Holding 35% of the equity creates subordinated exposure to losses and rights to returns from the investee, which are of such significance as to indicate that the asset manager is the principal. Thus, the asset manager concludes that it controls the investee.

Example 16

The decision-maker (sponsor) sponsors a multi-seller vehicle, which issues short-term debt instruments to unrelated third-party investors. The transaction was marketed to potential investors as an investment in a portfolio of medium-term assets with high credit rating, with minimal exposure to credit risk associated with the possible default of the issuers of the assets in the portfolio. Several sellers sell portfolios of high-quality medium-term assets to the vehicle. Each seller manages the portfolio of assets it sells to the vehicle and manages delinquent receivables for a market-based service fee. Each seller also offers first-loss protection against credit losses arising from its portfolio of assets through overcollateralization of the assets transferred to the vehicle. The sponsor establishes the terms of the vehicle and manages its operations for a market-based fee. The fee is commensurate with the services rendered.

The sponsor approves the sellers authorized to sell to the vehicle, approves the assets to be purchased by the vehicle, and makes financing decisions for the vehicle. The sponsor must act in the best interest of all investors.

The sponsor is entitled to any residual return of the vehicle, providing further credit enhancement and liquidity facilities to the vehicle. The credit enhancement provided by the sponsor absorbs losses of up to 5% of all assets of the vehicle, after losses are absorbed by the sellers. The liquidity facilities are not advanced against delinquent assets. Investors do not hold substantive rights that could affect the decision-making authority of the sponsor.

Although it receives a market-based fee for its services, commensurate with the services rendered, the sponsor is exposed to variability of returns from the vehicle's activities due to its rights to any residual returns of the vehicle and to the provision of credit enhancement and liquidity facilities (i.e., the vehicle is exposed to liquidity risk by using short-term debt instruments to finance medium-term assets). Although each of the sellers has decision-making rights that affect the value of the vehicle's assets, the sponsor has broad decision-making authority that gives it the current ability to direct the activities that most significantly affect the returns of the vehicle (i.e., the sponsor established the terms of the vehicle, has the right to make decisions on the assets (approving the assets acquired and the sellers of these assets) and the financing of the vehicle (for which new investments must be found regularly)). The right to residual returns of the vehicle and the provision of credit enhancement and liquidity facilities expose the sponsor to a variability of returns arising from the activities of the vehicle different from that of the other investors. Consequently, this exposure indicates that the sponsor is the principal and, thus, the sponsor concludes that it controls the vehicle. The sponsor's obligation to act in the best interest of all investors does not prevent the sponsor from being the principal.

Relationship with other parties

B73. In assessing control, the investor must consider the nature of its relationship with other parties and whether these other parties are acting on behalf of the investor (i.e., are "de facto agents"). Determining whether other parties are acting as de facto agents requires judgment, considering not only the nature of the relationship, but also how these parties interact with each other and with the investor.

B74. This relationship does not need to involve a contractual agreement. A party is a de facto agent when the investor or those who direct the activities of the investor have the ability to instruct that party to act on behalf of the investor. Under these circumstances, the investor must consider the decision-making rights of its de facto agent and its indirect exposure to, or rights over, variable returns through the de facto agent, together with its own, when assessing control of the investee.

B75. The following are examples of other parties that, by the nature of their relationship, may act as de facto agents of the investor:
(a) related parties of the investor;
(b) a party that received its interest in the investee as a contribution or loan from the investor; (c) a party that agreed not to sell, transfer, or encumber its interests in the investee without the prior approval of the investor (except in situations where the investor and the other party have the right of prior approval and the rights are based on terms mutually agreed upon by independent and interested parties); (d) a party that cannot finance its operations without the subordinated financial support of the investor; (e) an investee whose majority of members of its governing body or key management personnel is the same as that of the investor; (f) a party that has a close business relationship with the investor, such as, for example, the relationship between a professional service provider and one of its significant clients.

Control of specified assets

B76. The investor must consider whether it treats a portion of the investee as a separate considered entity and, if so, whether it controls the separate considered entity.

B77. The investor must treat a portion of the investee as a separate considered entity if and only if the following condition is met:
Specified assets of the investee (and corresponding credit enhancements, if any) are the sole source of payment for specified liabilities of the investee or for other specified interests in the investee. Other parties other than those holding the specified liabilities do not have rights or obligations related to the specified assets, or rights to residual cash flows from these assets. In essence, none of the returns arising from the specified assets can be used by the remaining investee, and none of the liabilities of the separate considered entity are payable from the assets of the remaining investee. Thus, in essence, all assets, liabilities, and equity of this separate considered entity are isolated from the investee as a whole. This separate considered entity is often referred to as a "silo".

B78. When the condition of paragraph B77 is met, the investor must identify the activities that significantly affect the returns of the separate considered entity and how these activities are directed in order to assess whether it has power over this portion of the investee. In assessing control of the separate considered entity, the investor must also consider whether it has exposure to, or rights over, variable returns arising from its involvement with this separate considered entity and the ability to use its power over this portion of the investee to affect the value of its returns.

B79. If it controls the separate considered entity, the investor must consolidate this portion of the investee. In this case, other parties must exclude this portion of the investee when assessing control of the investee and when consolidating it.

Ongoing assessment

B80. The investor must reassess whether it controls the investee if facts and circumstances indicate that there are changes in one or more of the three elements of control specified in paragraph 7.

B81. If there is a change in the manner in which control over the investee can be exercised, this change must be reflected in the manner in which the investor assesses its power over the investee. For example, changes in decision-making rights may mean that relevant activities are no longer directed through voting rights, but rather other agreements, such as, for example, contracts, give the other party or parties the current ability to direct the relevant activities.

B82. An event may cause the investor to acquire or lose power over the investee without the investor being involved in that event. For example, the investor may acquire power over the investee as a result of the expiration of decision-making rights held by another party or parties that previously prevented the investor from controlling the investee.

B83. The investor must also consider changes that affect its exposure to, or rights over, variable returns arising from its involvement with the investee. For example, an investor that has power over the investee may lose that control if it ceases to have the right to receive returns or to be exposed to obligations, as the investor would cease to meet paragraph 7(b) (for example, if the contract for the receipt of performance-related fees is terminated).

B84. The investor must consider whether its assessment that it acts as an agent or principal has changed. Changes in the overall relationship between the investor and other parties may mean that the investor no longer acts as an agent, although it previously acted as such, and vice versa. For example, if there are changes in the rights of the investor or other parties, the investor must reconsider its status as principal or agent.

B85. The investor's initial assessment of control or of its status as principal or agent does not change simply due to a change in market conditions (for example, a change in the returns of the investee driven by market conditions), unless the change in market conditions modifies one or more of the three elements of control specified in paragraph 7 or modifies the overall relationship between the principal and the agent.

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Determination of whether an entity is an investment entity

B85A. The entity shall consider all facts and circumstances when assessing whether it is an investment entity, including its objective and structure. An entity that has all three elements of the definition of an investment entity set out in paragraph 27 is defined as an investment entity. Paragraphs B85B to B85M describe the elements of the definition in greater detail.

Commercial purpose

B85B. The definition of an investment entity requires that the purpose or objective of the entity is to invest solely for capital appreciation, investment income (such as dividends, interest or rental income) or both. Documents that indicate what the entity’s investment objectives are, such as, for example, the entity’s offering prospectus, publications distributed by the entity and other corporate or societal documents, normally provide evidence of the commercial purpose of the investment entity. Additional evidence may include the way in which the entity presents itself to other parties (such as, for example, potential investors or potential investees); for example, the entity may present its business as being that of providing medium-term investments for capital appreciation. On the other hand, an entity that presents itself as an investor, whose objective is to develop, produce or market products with its investees, jointly, has a commercial purpose that is inconsistent with the commercial purpose of an investment entity, since the entity earns returns from the activity of development, production or marketing, as well as from its investments (see paragraph B85I).

B85C. The investment entity may provide investment-related services (for example, investment consulting services and investment management, investment support and administrative services), either directly or through a subsidiary, to third parties, as well as to its investors, even if these activities are substantial to the entity, provided that the entity continues to satisfy the definition of an investment entity.

B85D. The investment entity may also participate in the following investment-related activities, either directly or through a subsidiary, if these activities are carried out to maximize the return on investment (capital appreciation or investment income) of its investees and do not represent a separate substantial business activity or a separate substantial source of revenue for the investment entity:
(a) provide management and strategic consulting services to an investee; and (b) provide financial support to an investee, such as a loan, capital commitment or guarantee.

B85E. If the investment entity has a subsidiary that is not, by itself, an investment entity and whose main purpose and activities are the provision of services or activities related to investments that relate to the investment activities of the investment entity, such as those described in paragraphs B85C and B85D, to the entity or to other parties, this entity shall consolidate this subsidiary in accordance with paragraph 32. If the subsidiary that provides services or activities related to the investment is itself an investment entity, the controlling investment entity shall measure this subsidiary at its fair value through profit or loss in accordance with paragraph 31.

Exit strategies

B85F. The entity’s investment plans also provide evidence of its commercial purpose. A characteristic that distinguishes an investment entity from other entities is that the investment entity does not plan to hold its investments indefinitely: it holds them for a limited period. Since equity investments and investments in non-financial assets have the potential to be held indefinitely, the investment entity will have an exit strategy documenting how the entity plans to realize the capital appreciation of substantially all of its equity investments and investments in non-financial assets. The investment entity will also have an exit strategy for any debt instruments that have the potential to be held indefinitely, for example, perpetual debt instruments. The entity does not need to document specific exit strategies for each individual investment, but must identify different potential strategies for different types or portfolios of investments, including a concrete timeframe for exiting the investments. Exit mechanisms that are implemented only in cases of default, such as, for example, bankruptcy or breach of contract, are not considered exit strategies for the purposes of this assessment.

B85G. Exit strategies may vary by type of investment. For investments in private equity securities, examples of exit strategies include initial public offering, private placement, commercial sale of business, distributions (to investors) of equity interests in investees and sales of assets (including the sale of the investee’s assets followed by its liquidation). For equity investments that are traded on a public market, examples of exit strategies include the sale of the investment in a private placement or on the public market. For real estate investments, an example of an exit strategy includes the sale of the property through specialized real estate brokers or on the open market.

B85H. An investment entity may have an investment in another investment entity that is formed in connection with the entity for legal, regulatory, tax or similar business reasons. In this case, the investor investment entity does not need to have an exit strategy for this investment, provided that the investee investment entity has appropriate exit strategies for its investments.

Investment returns

B85I. An entity is not investing solely for capital appreciation, investment income or both if this entity or another member of the group that contains the entity (i.e., the group that is controlled by the entity’s ultimate parent) obtains, or has the objective of obtaining, other benefits from the entity’s investments that are not available to other parties and that are not related to the investee. These benefits include:
(a) acquisition, use, exchange or exploitation of the investee’s processes, assets or technology. This would include that the entity or another member of the group has disproportionate or exclusive rights to acquire assets, technology, products or services from any investee; for example, by holding an option to buy an asset from an investee if the development of that asset is considered successful; (b) joint ventures (as defined in Technical Pronouncement CPC 19) or other business between the entity or another member of the group and an investee for the development, production, marketing or supply of products or services; (c) financial guarantees or assets provided by the investee to serve as collateral for loan agreements of the entity or another member of the group (however, the investment entity would still be able to use an investment in an investee as collateral for any of its loans); (d) option held by a related party of the entity to buy, from this entity or another member of the group, an equity interest in the entity’s investee; (e) except as described in paragraph B85J, transactions between the entity or another member of the group and the investee that:
(i) are on terms that are not available to entities that are not related parties of the entity, another member of the group or the investee; (ii) are not at fair value; or (iii) represent a substantial portion of the business activity of the investee or the entity, including business activities of other entities in the group.

B85J. The investment entity may have a strategy to invest in more than one investee in the same sector, market or geographic area in order to benefit from synergies that increase the capital appreciation and investment income of these investees. Notwithstanding paragraph B85I(e), the entity is not prevented from being classified as an investment entity simply because these investees trade with each other.

Fair value measurement

B85K. An essential element of the definition of an investment entity is that it measures and evaluates the performance of substantially all of its investments based on fair value, because the use of fair value results in more relevant information than, for example, the consolidation of its subsidiaries or the use of the equity method for its interests in associates or jointly controlled ventures. In order to demonstrate that it meets this element of the definition, the investment entity must:
(a) provide fair value information to investors and measure substantially all of its investments at fair value in its financial statements whenever fair value is required or permitted in accordance with the Technical Pronouncements, Interpretations or Guidance issued by the CPC; and (b) present fair value information internally to the entity’s key management personnel (as defined in Technical Pronouncement CPC 05), who use fair value as the primary measurement attribute to evaluate the performance of substantially all of its investments and to make investment decisions.

B85L. In order to satisfy the requirement of paragraph B85K(a), the investment entity must:
(a) elect to account for any investment property using the fair value method referred to in Technical Pronouncement CPC 28 – Investment Property; (b) elect the exemption from applying the equity method of Technical Pronouncement CPC 18 for its investments in associates and in jointly controlled ventures; and (c) measure its financial assets at fair value using the requirements of Technical Pronouncement CPC 38.

B85M. The investment entity may have some non-investment assets, such as, for example, a building where its headquarters is located and the respective equipment, and may also have financial liabilities. The fair value measurement element of the definition of an investment entity in paragraph 27(c) applies to the investment entity’s investments. Consequently, the investment entity does not need to measure its non-investment assets or its liabilities at fair value.

Typical characteristics of an investment entity

B85N. In determining whether it meets the definition of an investment entity, the entity shall consider whether it contains the typical characteristics of an investment entity (see paragraph 28). The absence of one or more of these typical characteristics does not necessarily prevent the entity from being classified as an investment entity, but indicates that additional judgment is required in determining whether the entity is an investment entity.

More than one investment

B85O. The investment entity normally holds several investments to diversify its risk and maximize its returns. The entity may hold a portfolio of investments directly or indirectly, for example, by holding a single investment in another investment entity that holds, itself, several investments.

B85P. There may be occasions when the entity holds a single investment. However, holding a single investment does not necessarily prevent the entity from meeting the definition of an investment entity. For example, the investment entity may hold only a single investment when this entity:
(a) is in its start-up period and has not yet identified suitable investments and, therefore, has not yet executed its investment plan to acquire several investments; (b) has not yet made other investments to replace those it has disposed of; (c) is constituted to raise funds from investors to be invested in a single investment, when this investment cannot be obtained by individual investors (for example, when the required minimum investment is too high for an individual investor); or (d) is in the process of liquidation.

More than one investor

B85Q. Normally, the investment entity has several investors who pool their resources to obtain access to investment management services and investment opportunities to which they might not have access individually. Having several investors makes it less likely that the entity or other members of the group that holds control of the entity will obtain other benefits beyond capital appreciation or investment income (see paragraph B85I).

B85R. Alternatively, the investment entity may be formed by or for a single investor that represents or supports the interests of a broader group of investors (for example, pension fund, government investment fund or family fund).

B85S. There may also be occasions when the entity temporarily has a single investor. For example, an investment entity may have only a single investor when the entity:
(a) is within its initial offering period, which has not expired, and the entity is actively identifying suitable investors; (b) has not yet identified suitable investors to replace equity interests that have been redeemed; or (c) is in the process of liquidation.

Non-related investors

B85T. Typically, the investment entity has several investors who are not related parties (as defined in Technical Pronouncement CPC 05) of the entity or other members of the group that holds control of the entity. Having non-related investors makes it less likely that the entity or other members of the group that holds control of the entity will obtain other benefits beyond capital appreciation or investment income (see paragraph B85I).

B85U. However, the entity may still qualify as an investment entity even if its investors are related to the entity. For example, the investment entity may constitute a separate “parallel” fund, for a group of its employees (such as, for example, key management personnel) or other investors who are related parties, which reflects the investments of the entity’s main investment fund. This “parallel” fund may qualify as an investment entity even if all of its investors are related parties.

Equity interests

B85V. The investment entity is normally, but is not required to be, a separate legal entity. Equity interests in an investment entity normally take the form of equity shares or similar (for example, participation units), to which proportional shares of the net assets of the investment entity are attributed. However, having different classes of investors, some of whom have rights only to a specific investment or group of investments or that have different proportional shares of the net assets, does not prevent the entity from meeting the definition of an investment entity.

B85W. Furthermore, the entity that has significant equity interests in the form of debt that, according to other Technical Pronouncements issued by the CPC applicable, does not meet the definition of equity, may still qualify as an investment entity, provided that the debt holders are exposed to variable returns from changes in the fair value of the entity’s net assets.

Accounting requirements

Consolidation procedures

B86. Consolidated financial statements shall:
(a) combine similar items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries; (b) offset (eliminate) the carrying amount of the parent’s investment in each subsidiary and the parent’s share of the equity of each subsidiary (Technical Pronouncement CPC 15 explains how to account for any corresponding goodwill); (c) eliminate in full intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities in the group (losses resulting from intra-group transactions that are recognized in assets, such as inventories and fixed assets, are eliminated in full). Intra-group losses may indicate a reduction in the recoverable amount of assets, which requires their recognition in the consolidated financial statements. Technical Pronouncement CPC 32 – Income Taxes applies to temporary differences, which arise from the elimination of profits and losses resulting from intra-group transactions.

Uniform accounting policies

B87. If a member of the group uses accounting policies different from those adopted in the consolidated financial statements for similar transactions and events in similar circumstances, appropriate adjustments shall be made to the accounting statements of this member of the group in the preparation of the consolidated financial statements to ensure compliance with the group’s accounting policies.

Measurement

B88. The entity shall include the income and expenses of the subsidiary in the consolidated financial statements from the date it acquires control until the date it ceases to control the subsidiary. The income and expenses of the subsidiary are based on the values of the assets and liabilities recognized in the consolidated financial statements at the acquisition date. For example, the depreciation expense recognized in the consolidated statement of comprehensive income after the acquisition date is based on the fair values of the respective depreciable assets recognized in the consolidated financial statements at the acquisition date.

Potential voting rights

B89. When there are potential voting rights or other derivatives containing potential voting rights, the proportion of profit and loss and changes in equity allocated to the parent and to non-controlling interests when preparing the consolidated financial statements shall be determined exclusively based on existing equity interests, not reflecting the possible exercise or conversion of potential voting rights and other derivatives, unless paragraph B90 is applicable.

B90. In some circumstances, the entity has, in essence, existing equity interest as a result of a transaction that currently grants it access to the returns associated with the equity interest. In these circumstances, the proportion allocated to the parent and to non-controlling interests when preparing consolidated financial statements shall be determined taking into account the eventual exercise of these potential voting rights and other derivatives that currently grant the entity access to the returns.

B91. Technical Pronouncement CPC 38 does not apply to interests in subsidiaries that are consolidated. When instruments containing potential voting rights, in essence, currently grant access to the returns associated with the equity interest in a subsidiary, these instruments are not subject to the requirements of Technical Pronouncement CPC 38. In all other cases, instruments containing potential voting rights in a subsidiary are accounted for in accordance with Technical Pronouncement CPC 38.

Date of financial statements

B92. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements must have the same reporting date. When the end of the period of the parent’s financial statements is different from that of the subsidiary, the subsidiary must prepare, for consolidation purposes, additional accounting information of the same date as the financial statements

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 accounting information of the parent to allow it to consolidate the accounting information of the subsidiary, unless it is impracticable to do so. B93. If it is impracticable to do so, the parent shall consolidate the accounting information of the subsidiary using the most recent accounting statements of the subsidiary, adjusted to reflect the effects of significant transactions or events that occurred between the date of those accounting statements and the date of the consolidated statements. In any case, the difference between the date of the subsidiary's accounting statements and that of the consolidated statements shall not exceed two months, and the duration of the periods of the accounting statements and any difference between the dates of the accounting statements shall be the same from period to period. Non-controlling interests B94. The entity shall attribute profits and losses and each component of other comprehensive income to the owners of the parent and to the non-controlling interests. The entity shall also attribute total comprehensive income to the owners of the parent and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. B95. If the subsidiary has preferred shares in circulation with cumulative dividend rights, which are classified as equity, and are held by non-controlling shareholders, the entity shall calculate its share of profits and losses after making an adjustment to reflect dividends on those shares, whether or not those dividends have been declared. Change in proportion held by non-controlling interests B96. When the proportion of equity held by non-controlling interests undergoes modifications, the entity shall adjust the carrying amounts of the controlling and non-controlling interests to reflect the changes in their relative interests in the subsidiary. The entity shall recognize directly in equity any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received and shall attribute that difference to the owners of the parent. Loss of control B97. A parent may lose control of a subsidiary in two or more agreements (transactions). However, sometimes the circumstances indicate that multiple agreements should be accounted for as a single transaction. In determining whether the agreements should be accounted for as a single transaction, the parent shall consider the totality of the terms and conditions of the agreements and their economic effects. One or more of the items specified below indicate that the parent shall account for multiple agreements as a single transaction:
(a) they are entered into at the same time and have mutual effects; (b) they form a single transaction intended to obtain an overall commercial effect;

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 (c) the occurrence of one agreement depends on the occurrence of at least one other agreement; and (d) an agreement considered individually is not economically justified, but is economically justified when considered together with other agreements. An example is when the disposal of shares has a price fixed below market value and is compensated by a subsequent disposal with a price fixed above market value. B98. If it loses control of the subsidiary, the parent shall, for the purposes of consolidated statements:
(a) derecognize:
(i) the assets (including any goodwill) and liabilities of the subsidiary at their carrying amount on the date when control is lost; and (ii) the carrying amount of any non-controlling interests in the former subsidiary on the date when control is lost (including any components of other comprehensive income attributed to them); (b) recognize:
(i) the fair value of the consideration received, if any, from the transaction, event, or circumstances that resulted in the loss of control; (ii) this distribution, if the transaction, event, or circumstances that resulted in the loss of control involve the distribution of shares of the subsidiary to the owners in their capacity as owners; and (iii) any retained investment in the former subsidiary, at its fair value on the date when control is lost; (c) reclassify to profit or loss or transfer directly to retained earnings, if required by other Technical Pronouncements, Interpretations, or Guidelines of the CPC, the amounts recognized in other comprehensive income in relation to the subsidiary, as described in item B99; (d) recognize any resulting difference as a loss or gain in profit or loss, attributable to the parent. B99. If it loses control of the subsidiary, the parent shall account for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis that would be required if the parent had disposed directly of the respective assets or liabilities. Therefore, if the gain or loss previously recognized in other comprehensive income were to be reclassified to profit or loss upon the disposal of the respective assets or liabilities, the parent shall reclassify the gain or loss from equity to profit or loss (as a reclassification adjustment) when it loses control of the subsidiary. If the revaluation reserve previously recognized in other comprehensive income is transferred directly to retained earnings upon the disposal of the asset, the parent shall transfer the revaluation reserve directly to retained earnings when it loses control of the subsidiary.

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 B99A. If the parent loses control of a subsidiary that does not contain a business, as defined in Technical Pronouncement CPC 15, as a result of a transaction involving an associate or joint venture that is accounted for using the equity method, the parent shall account for the gain or loss in accordance with items B98 and B99. The gain or loss resulting from the transaction (including amounts previously recognized in other comprehensive income that would be reclassified to profit in accordance with item B99) shall be recognized in the parent's profit only to the extent of the interests of unrelated investors in that associate or joint venture. The remaining part of the gain shall be eliminated against the carrying amount of the investment in that associate or joint venture. Furthermore, if the parent maintains an investment in the former subsidiary and that former subsidiary is now an associate or joint venture that is accounted for using the equity method, the parent shall recognize part of the gain or loss resulting from the remeasurement of the fair value of the investment maintained in the former subsidiary in profit only to the extent of the interests of unrelated investors in the new associate or joint venture. The remaining part of this gain or loss shall be eliminated against the carrying amount of the investment maintained in the former subsidiary. If the parent maintains an investment in the former subsidiary, which is now accounted for in accordance with Technical Pronouncement CPC 38, the part of the gain or loss resulting from the remeasurement to fair value of the investment maintained in the former subsidiary shall be recognized in full in the parent's profit. Application examples Example 17 A parent has a 100% interest in a subsidiary that does not contain a business. The parent sells 70% of its interest in the subsidiary to an associate in which it has a 20% interest. As a consequence of this transaction, the parent loses control of the subsidiary. The carrying amount of the net assets of the subsidiary is $100 and the carrying amount of the interest sold is $70 ($70 = $100 × 70%). The fair value of the consideration received is $210, which is also the fair value of the interest sold. The investment maintained in the former subsidiary becomes an interest in an associate accounted for using the equity method, and its fair value is $90. The gain determined, in accordance with items B98 and B99, before the elimination required by item B99A, is $200 ($200 = $210 + $90 - $100). This gain is composed of two parts:
(a) the gain ($140) resulting from the sale of the 70% interest in the subsidiary to the associate. This gain is the difference between the fair value of the consideration received ($210) and the carrying amount of the interest sold ($70). In accordance with item B99A, the parent shall recognize, in profit, the value of the gain attributable to the existing interests of unrelated investors in the associate. That is, 80% of the gain, which is $112 ($112 = $140 × 80%). The remaining 20% of the gain ($28 = $140 × 20%) are eliminated against the carrying amount of the existing investment in the associate;

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000
APPENDIX C – EFFECTIVE DATE AND TRANSITION
This appendix is an integral part of this Pronouncement and has the same authority as the other parts of the Pronouncement.
Effective date
C1. The entity shall apply this Technical Pronouncement and Technical Pronouncements CPC 19 (R2), CPC 45, CPC 35 (R2), and CPC 18 (R2) at the same time.
C1A. (Eliminated).
Transition
C2. The entity shall apply this Technical Pronouncement retrospectively, in accordance with Technical Pronouncement CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors, except as specified in items C2A to C6.
C2A. Notwithstanding the requirements of item 28 of Technical Pronouncement CPC 23, when this Technical Pronouncement is applied for the first time and, if applicable, subsequently when the changes regarding investment entities and in the application of the exception in the consolidation of investment entities to this pronouncement are applied for the first time, the entity shall only need to present the quantitative information required by item 28(f) of Technical Pronouncement CPC 23 for the annual period immediately preceding the initial application date of this Technical Pronouncement (“the immediately preceding period”). The entity may also present this information in relation to the current period or prior comparative periods, but is not obliged to do so. C2B. For the purposes of this Technical Pronouncement, the initial application date is the beginning of the annual reporting period to which this Technical Pronouncement is applied for the first time. C3. On the initial application date, the entity is not obliged to make adjustments to previous accounting to reflect its involvement with:
(a) entities that would be consolidated on that initial application date in accordance with Technical Pronouncement CPC 36 (version R2) and the Technical Interpretation attached to that Technical Pronouncement (equivalent to SIC12 of the IASB) and that are still consolidated, in accordance with this Technical Pronouncement; or (b) entities that would not be consolidated on that initial application date in accordance with Technical Pronouncement CPC 36 (version R2) and the Technical Interpretation attached to that Technical Pronouncement (equivalent to SIC12 of the IASB), and that are not consolidated in accordance with this Technical Pronouncement. C3A. On the initial application date, the entity shall assess whether it is an investment entity based on the facts and circumstances existing on that date. If, on the initial application date, the entity concludes that it is

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 an investment entity, it shall apply the requirements of items C3B to C3F instead of items C5 and C5A.
C3B. Except with respect to any subsidiary that is consolidated in accordance with item 32 (to which items C3 and C6 or items C4 to C4C apply, as relevant), the investment entity shall measure its investment in each subsidiary at fair value through profit or loss as if the requirements of this Technical Pronouncement had always been in force. The investment entity shall adjust retrospectively both the annual period immediately preceding the initial application date and the equity at the beginning of the period immediately preceding to reflect any difference between:
(a) the previous carrying amount of the subsidiary; and (b) the fair value of the investment entity's investment in the subsidiary.
The accumulated amount of any fair value adjustments previously recognized in other comprehensive income shall be transferred to retained earnings at the beginning of the annual period immediately preceding the initial application date.
C3C. Before the adoption date of Technical Pronouncement CPC 46, the investment entity shall use the fair value amounts that were previously presented to investors or management, if those values represent the amount by which the investment could have been exchanged between knowledgeable and willing parties in a transaction on usual market bases on the valuation date.
C3D. If measuring the investment in the subsidiary in accordance with items C3B and C3C is impracticable (as defined in Technical Pronouncement CPC 23), the investment entity shall apply the requirements of this Technical Pronouncement at the beginning of the earliest period for which the application of items C3B and C3C is practicable, which may be the current period. The investor shall adjust retrospectively the annual period immediately preceding the initial application date, unless the beginning of the earliest period for which the application of this item is practicable is the current period. If this is the case, the adjustment to equity shall be recognized at the beginning of the current period. C3E. If the investment entity has disposed of or lost control of an investment in a subsidiary before the application date of this Technical Pronouncement, the investment entity is not obliged to make adjustments to previous accounting regarding that subsidiary. C3F. If the entity applies the investment entity changes to a period subsequent to that in which it applies Technical Pronouncement CPC 36 for the first time, references to “initial application date” in items C3A to C3E shall be read as “beginning of the annual reporting period for which the changes in investment entities were applied for the first time”. C4. If, on the initial application date, the investor concludes that it will consolidate the investee that was not consolidated in accordance with Technical Pronouncement CPC 36 (version R2) and the Technical Interpretation attached to that Technical Pronouncement (equivalent to SIC12 of the IASB), that investor:

COMISSÃO DE VALORES MOBILIÁRIOS
Rua Sete de Setembro, 111/2-5º e 23-34º Andares, Centro, Rio de Janeiro/RJ – CEP: 20050-901 – Brasil - Tel.: (21) 3554-8686 Rua Cincinato Braga, 340/2º, 3º e 4º Andares, Bela Vista, São Paulo/ SP – CEP: 01333-010 – Brasil - Tel.: (11) 2146-2000 (a) if the investee is a business (as defined in Technical Pronouncement CPC 15), shall measure the assets, liabilities, and non-controlling interests in that previously unconsolidated investee as if that investee had been consolidated (and, thus, had applied acquisition accounting in accordance with Technical Pronouncement CPC 15) from the date on which the investor obtained control of that investee based on the requirements of this Technical Pronouncement. The investor shall adjust retrospectively the annual period immediately preceding the initial application date. When the date on which that control was obtained is prior to the beginning of the immediately preceding period, the investor shall recognize, as an adjustment to equity at the beginning of the immediately preceding period, any difference between:
(i) the value of assets, liabilities, and non-controlling interests recognized; and (ii) the previous carrying amount of the investor's involvement with the investee; (b) if the investee is not a business (as defined in Technical Pronouncement CPC 15), shall measure the assets, liabilities, and non-controlling interests in that previously unconsolidated investee as if that investee had been consolidated (applying the acquisition method, as described in Technical Pronouncement CPC 15, without recognizing any goodwill for the investee) from the date on which the investor obtained control of that investee based on the requirements of this Technical Pronouncement. The investor shall adjust retrospectively the annual period immediately preceding the initial application date. When the date on which that control was obtained is prior to the beginning of the immediately preceding period, the investor shall recognize, as an adjustment to equity at the beginning of the immediately preceding period, any difference between:
(i) the value of assets, liabilities, and non-controlling interests recognized; and (ii) the previous carrying amount of the investor's involvement with the investee; (c) (eliminated).
C4A. If measuring the assets, liabilities, and non-controlling interests of the investee in accordance with item C4(a) or (b) is impracticable (as defined in Technical Pronouncement CPC 23), the investor shall:
(a) if the investee is a business, apply the requirements of Technical Pronouncement CPC 15 on the deemed acquisition date. The deemed acquisition date shall be the beginning of the earliest period for which the application of item C4(a) is practicable, which may be the current period; (b) if the investee is not a business, apply the acquisition method, as described in Technical Pronouncement CPC 15, but without recognizing any goodwill for the investee on the deemed acquisition date. The deemed acquisition date shall be the beginning of the earliest period for which the application of item C4(b) is practicable, which may be the current period. The investor shall adjust retrospectively the annual period immediately preceding the initial application date, unless the beginning of the earliest period for which the application of this item is practicable is the current period. When the deemed acquisition date is prior to the beginning of the immediately preceding period, the investor shall recognize, as an adjustment to equity at the beginning of the immediately preceding period, any difference between:

SECURITIES AND EXCHANGE COMMISSION COMMISSION

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

(c) the value of assets, liabilities, and non-controlling interests recognized; and (d) the previous accounting values of the investor's involvement with the investee.
If the earliest period for which the application of this item is practicable is the current period, the adjustment to equity must be recognized at the beginning of the current period.
C4B. (Eliminated).
C4C. When an investor applies items C4 and C4A and the date on which that control was obtained according to this Technical Pronouncement is subsequent to the effective date of Technical Pronouncement CPC 36 (version R2), the investor must apply the requirements of this Technical Pronouncement for all periods in which the investee is retrospectively consolidated according to items C4 and C4A. C5. If, at the date of initial application, the investor concludes that it will not consolidate the investee that was consolidated according to the previous version of Technical Pronouncement CPC 36 (version R2) and the Technical Interpretation annexed to that Pronouncement (equivalent to SIC 12 of the IASB), the investor must measure its interest in the investee at the value at which that interest would have been measured if the requirements of this Technical Pronouncement had been in force when the investor became involved (but did not obtain control according to this Technical Pronouncement) with the investee or lost its control. The investor must retrospectively adjust the annual period immediately preceding the date of initial application. When the date on which the investor became involved (but did not obtain control according to this Technical Pronouncement) with the investee or when it lost control of it is prior to the beginning of the immediately preceding period, the investor must recognize, as an adjustment to equity at the beginning of the immediately preceding period, any difference between:
(a) the previous accounting value of assets, liabilities, and non-controlling interests; and (b) the recognized value of the investor's interest in the investee.
C5A. If measuring the interest in the investee according to item C5 is impracticable (as defined in Technical Pronouncement CPC 23), the investor must apply the requirements of this Technical Pronouncement at the beginning of the earliest period for which the application of item C5 is practicable, which may be the current period. The investor must retrospectively adjust the annual period immediately preceding the date of initial application, unless the beginning of the earliest period for which the application of this item is practicable is the current period. When the date on which the investor became involved (but did not obtain control according to this Technical Pronouncement) with the investee or when it lost control of it is prior to the beginning of the immediately preceding period, the investor must recognize, as an adjustment to equity at the beginning of the immediately preceding period, any difference between:
(a) the previous accounting value of assets, liabilities, and non-controlling interests; and (b) the recognized value of the investor's interest in the investee.

SECURITIES AND EXCHANGE COMMISSION COMMISSION

If the earliest period for which the application of this item is practicable is the current period, the adjustment to equity must be recognized at the beginning of the current period.
C6. Items 23, 25, B94, and B96 to B99 are subjects that already appeared in Technical Pronouncement CPC 36 (version R2) and were incorporated into this revised version of the Technical Pronouncement. Except when applying item C3, or when required to apply items C4 to C5A, the entity must apply the requirements of these items as follows:
(a) the entity must not restate any allocation of profits and losses for reporting periods prior to the occasion when it applied the change of item B94 for the first time; (b) the requirements of items 23 and B96 for the accounting of changes in corporate interests in the controlled entity after obtaining control do not apply to changes that occurred before the occasion when the entity applied these changes for the first time; (c) the entity must not restate the accounting value of investment in the former controlled entity if control was lost before it applied the changes of items 25 and B97 to B99 for the first time. Furthermore, an entity must not recalculate any gain or loss on the loss of control of the controlled entity that occurred before the changes of items 25 and B97 to B99 were applied for the first time. References to the “immediately preceding period” C6A. Notwithstanding the references to the annual period immediately preceding the date of initial application (immediately preceding period) in items C3B to C5A, the entity may also present adjusted comparative information for any prior periods presented, but is not obliged to do so. If the entity effectively presents adjusted comparative information for any prior periods, all references to the “immediately preceding period” in items C3B to C5A must be read as “oldest presented adjusted comparative period”. C6B. If the entity presents unadjusted comparative information for any prior periods, it must clearly identify the information that was not adjusted and must declare that they were prepared on a different basis and explain that basis. C7. (Eliminated). Revocation of another Pronouncement and Interpretation C8. This Pronouncement replaces Technical Pronouncement CPC 36 (R2) – Consolidated Statements and the corresponding Interpretation to the Pronouncement, on Special Purpose Entity, approved by the Accounting Pronouncements Committee on June 3, 2011. C9. (Eliminated).

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