CVM Resolution 140 Ratifies Technical Pronouncement CPC 43(R1) on Initial Adoption of Pronouncements CPC 15 to 41 — CVM — BR

Ratifies Technical Pronouncement CPC 43(R1) of the Accounting Pronouncements Committee – CPC, which deals with the initial adoption of Technical Pronouncements CPC 15 to 41.

The PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL – CVM makes public that the Board, in a meeting held on May 4, 2022, based on §§ 3 and 5 of Article 177 of Law No. 6.404, of December 15, 1976, combined with items II and IV of § 1 of Article 22 of Law No. 6.385, of December 7, 1976, as well as Articles 5 and 14 of Decree No. 10.139, of November 28, 2019, APPROVED the following Resolution:

Article 1. The obligation for open companies to adopt Technical Pronouncement CPC 43(R1), which deals with the initial adoption of Technical Pronouncements CPC 15 to 41, issued by the Accounting Pronouncements Committee - CPC, as per Annex “A” to this Resolution, is hereby ratified.

Article 2. Deliberation 651, of December 16, 2010, is revoked, from the effective date of this Resolution.

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

Electronically signed by
MARCELO BARBOSA
President

ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL PRONOUNCEMENT CPC 43 (R1)
Initial Adoption of Technical Pronouncements CPC 15 to 41 Correlation to International Financial Reporting Standards – IFRS 1

Summary Item
INTRODUCTION IN1 – IN15
OBJECTIVE 1
SCOPE 2 – 6
PROCEDURES 7 – 12

Introduction
IN1. The process of convergence to international accounting standards by Brazilian companies, sought for many years, began to be legally determined, following the issuance of Law No. 11.638/07, for open companies, and extended to other Brazilian companies through the joint effort of the entities founding this Accounting Pronouncements Committee (ABRASCA, APIMEC, BM&FBOVESPA, CFC, FIPECAFI and IBRACON), with the support of institutions participating as invited members of this same CPC (CVM, SUSEP, BACEN, RFB and more recently FEBRABAN and CNI).

IN2. This convergence process covers two stages: the first, developed in 2008, with the issuance by this CPC of Pronouncements and Guidelines that culminated in the issuance of Technical Pronouncement CPC 13 – Initial Adoption of Law No. 11.638/07 and Provisional Measure No. 449/08 and Technical Pronouncement CPC 14 – Financial Instruments: Recognition, Measurement and Disclosure. All were applied already in 2008 by force of the law itself and the regulation of almost all Brazilian accounting regulatory bodies.

IN3. The second stage was fulfilled during 2009 and early 2010, with the issuance of Technical Pronouncements CPC 15 to 41 (with the exception of CPC 34 1 and CPC 42 2 ) and various Interpretations. These documents issued in 2009 are being suggested as mandatory adoption by regulatory bodies that have already manifested themselves regarding the aforementioned documents, for 2010, with retroactive effect for 2009 for comparative purposes. Consequently, the year 2009 continued to be governed by the documents of the first phase.

IN4. All documents issued by this CPC are fully convergent with international accounting standards issued by the IASB – International Accounting Standards Board, with the only difference being that some options given by that organization were not adopted here, sometimes maintaining only one. This is the case of the revaluation of fixed assets, prohibited by law in Brazil currently, or the use of two formats for the Statement of Comprehensive Income, here only one of them being admitted, etc. In any case, the documents are drafted in such a way that, in the understanding of this CPC, the financial statements prepared under their criteria can be taken as being fully in accordance with the standards of the IASB, with the only exceptions contained in IN5 below.

IN5. The only exception of an obligatory/legal nature concerns the individual financial statements of an entity that has an investment in a subsidiary evaluated by the equity method. The IASB does not recognize this type of statement, requiring that, in the case of the existence of a subsidiary, the entity prepare and disclose, instead of the individual statements, consolidated statements. The IASB admits statements of the investor with investment in a subsidiary, but only if the investment is evaluated at fair value or even at cost (see Technical Pronouncement CPC 35 – Separate Financial Statements), and gives the name to these statements of separate statements, making them different from individual statements. Our corporate legislation, however, requires the presentation of these individual statements and this CPC recognizes them and therefore includes them in its

1 The Technical Pronouncement CPC 34 – Exploration and Evaluation of Mineral Resources was not issued, even though it went to public hearing, because it is not of compulsory application by the IASB, since it is not complete with respect to all phases related to the prospecting, exploration, evaluation and extraction of ores.
2 The Technical Pronouncement CPC 42 – Accounting and Disclosure in Highly Inflationary Economies (IAS 29 of the IASB) was not issued due to its inapplicability in the current Brazilian situation and by previous Brazilian experience with the full correction of financial statements. This is mentioned in the Technical Pronouncements that refer to the situation of high inflation. Nevertheless, the application of the content of IAS 29, with the technique of full correction, is mandatory for situations of investments in countries with high inflation.

SECURITY AND EXCHANGE COMMISSION OF BRAZIL (CVM) 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 documents. The same must be applied to investments in jointly controlled ventures. Another exception, this one of a temporary nature for the entity that opted for such a procedure, is the maintenance of a balance in the deferred asset account, a procedure permitted by CPC 13 – Initial Adoption of Law No. 11.638/07 and Provisional Measure No. 449/08, and which has a transitional nature until the total amortization of these balances.

IN6. The fact that these exceptions exist exclusively for individual financial statements means that consolidated financial statements are capable of producing statements fully in accordance with the standards of the IASB.

IN7. On the other hand, as contained in IN1 of Technical Pronouncement CPC 37 – Initial Adoption of International Accounting Standards, many Brazilian companies are obliged to adopt, by requirement of various Brazilian accounting regulatory bodies, from 2010, the International Accounting Standards emanating from the IASB – International Accounting Standards Board (International Financial Reporting Standards – IFRSs), in their consolidated financial statements.

IN8. However, some of these standards have the consequence of retrospective adjustments. Therefore, the IASB issued its IFRS 1 First-time Adoption of International Financial Reporting Standards, whose most recent version (Bound Volume 2010, which includes amendments made to the IFRSs until December 31, 2009), aims to regulate the situation when the entity applies the Standards in full for the first time. Therefore, in order to meet the requirements of regulatory bodies that companies subject to them present consolidated statements in accordance with the IFRSs, it is necessary that they also apply the provisions of this IFRS 1 document.

IN9. Therefore, the CPC issued Technical Pronouncement CPC 37, applicable to the consolidated statements of entities obliged by their regulatory bodies to issue consolidated financial statements in accordance with international accounting standards from 2010. For the issuance of this Technical Pronouncement, IFRS 1 was taken as a basis, so that the consolidated statements can be declared by the company's administration as being in accordance with the International Accounting Standards as issued by the IASB (simply referred to as IFRSs).

IN10. The need for the issuance of these documents on the initial adoption of IFRSs is due to the fact that many international standards change accounting practices from a certain date, which would imply, in many cases, going back to dates long past. Therefore, IFRS 1 seeks to simplify certain initial adoptions, determining which procedures have obligatory effects only prospectively from the initial adoption and which have retrospective effects and until when. Technical Pronouncement CPC 37 followed the same orientation and further simplified certain procedures when options were given by the IASB. Thus, the adoption of Technical Pronouncement CPC 37 aimed to ensure that Brazilian consolidated statements could be considered as being in accordance with the IFRSs as issued by the IASB.

IN11. On the other hand, in order for the consolidated statements for the purpose of complying with Brazilian corporate legislation, as well as the separate and individual statements (these with the exceptions cited in IN5 above), to be declared as being in accordance with international accounting standards, it is necessary that the same requirements contained in IFRS 1 be adopted in the separate and individual statements.

IN12. It is totally undesirable, for reasons of cost and information to external users, to have two sets of statements with distinct accounting criteria and with different net income and net equity. Thus, what this Technical Pronouncement does is seek exactly this harmonization. This makes it necessary to make the necessary adjustments in the individual financial statements of Brazilian companies so that they produce, when consolidated, the same values of assets, liabilities, equity and income as the consolidation prepared in accordance with the IFRSs and Technical Pronouncement CPC 37 (with the exceptions previously mentioned of deferred asset and investment in subsidiary and jointly controlled subsidiary in the individual balance sheet). For this, it is sufficient to transfer to the individual financial statements the adjustments made for the adoption of the IFRSs in the consolidated financial statements in accordance with Technical Pronouncement CPC 37 – Initial Adoption of International Accounting Standards. Hence the issuance of this Technical Pronouncement directed at individual and separate statements. These adjustments also include those resulting from the early adoption of IFRSs in consolidated statements.

IN13. The CPC makes public its commitment to issue new documents (Technical Pronouncements, Interpretations and Guidelines) as soon as they are issued by the IASB, in order to maintain Brazilian accounting practices fully in accordance with international standards for the purpose of preparing and presenting the individual financial statements of Brazilian companies (with the exception commented until it is legally possible to achieve full convergence or until there is a change by the IASB).

IN14. The CPC also reminds that, in the case of small and medium-sized companies that adopt Technical Pronouncement SME – Accounting for Small and Medium-sized Enterprises, the procedures for its initial adoption are contained in that same special Pronouncement. It also reminds that companies following Technical Pronouncement SME cannot claim to be in accordance with IFRSs, being necessary to claim to be in accordance with Technical Pronouncement SME and, if all requirements are met, in accordance with IFRS for Small and Medium-sized Enterprises.

IN15. Finally, this Committee recalls the content of Basic Conceptual Pronouncement Structure for the Preparation and Presentation of Financial Statements and Technical Pronouncement CPC 26 – Presentation of Financial Statements. They correspond to the content of the IASB documents Framework for the Preparation and Presentation of Financial Statements and IAS 1 – Presentation of Financial Statements, in which the continuous obedience to the prevalence of substance over form is expressly and repeatedly required. And this to the point that, if the adoption of any Pronouncement, Interpretation or Guideline causes deformation of the financial statements to such an extent that the actual reality is not properly presented, the entity must not apply this document, in whole or in part, replacing it with the procedure judged most appropriate to the situation so that the financial statements achieve their objective. The procedures, including justification and disclosure, relating to this situation which is expected to be extremely rare, must be properly disclosed as cited in item 19 of Technical Pronouncement CPC 26.

Objective

The objective of this Pronouncement is to provide the necessary guidelines so that the financial statements of an entity that are in accordance with the Technical Pronouncements, Interpretations and Guidelines of the CPC, and the interim accounting disclosures for the partial periods covered by these financial statements, can be declared, with the exceptions contained in items 4 and 5, as being in accordance with the international accounting standards issued by the IASB –

Scope
2. The entity must apply this Pronouncement to the first consolidated, individual and separate financial statements prepared from the dates determined by the Brazilian accounting regulatory bodies.

Subsequent statements must continue the practices of these initial statements until a Technical Pronouncement, Interpretation or Guideline from this CPC causes modifications.
The individual financial statements of entities with investment in a subsidiary or jointly controlled venture evaluated by the equity method according to the requirement of current Brazilian legislation are not considered, with this evaluation method, as being in accordance with international accounting standards.
The maintenance by the entity of a balance in deferred assets, in accordance with Technical Pronouncement CPC 13, is permitted by current Brazilian accounting legislation, however, it is not in accordance with international accounting standards, causing differences between the results and equity according to the CPCs and the IFRSs. This CPC understands that the permission to maintain the balance of deferred assets existing upon the adoption of the modifications of Law No. 11.638/07 and Provisional Measure No. 449/08, provided for in Technical Pronouncement CPC 13, applies only to individual financial statements, since this permission was not accepted by Technical Pronouncement CPC 36 – Consolidated Statements and, due to the objective of this CPC that Brazilian consolidated statements can be considered as being in accordance with the IFRSs as issued by the IASB. Thus, the effect of maintaining these balances (of deferred assets) must be fully eliminated in the consolidated statements to achieve full convergence with international standards in these consolidated statements. This exceptional treatment must not be used by analogy in other situations.

5A. The maintenance by the entity of a balance in capital reserve resulting from premium on the issuance of debentures and donation or subsidy for investments, upon the adoption of Law No. 11.638/07 and Provisional Measure No. 449/08 (converted into Law No. 11.941/09), in accordance with Technical Pronouncement CPC 13, is also permitted by current Brazilian accounting legislation. The simple maintenance of these account balances in the entity's equity does not necessarily generate differences in accounting practice between the CPCs and the IFRSs. However, this procedure, in certain cases, may cause differences between the period's results and the equities according to the CPCs and the IFRSs. In these cases as well, the understanding of this CPC is that the appropriate adjustments must be made in the individual and consolidated statements according to the CPCs so that any differences with respect to the consolidated statements in IFRSs are eliminated.

The exceptions cited in items 4 and 5 of this Pronouncement and in item 34A of Technical Pronouncement CPC 37 – Initial Adoption of International Accounting Standards are the only divergences admitted between the statements prepared up to this moment in obedience to the documents issued by this CPC and the international accounting standards.

Procedures
7. The entity must, first, apply Technical Pronouncement CPC 37 – Initial Adoption of International Accounting Standards to its consolidated statements when adopting such international standards for the first time. It is suggested that even entities not required to adopt international accounting standards proceed thus, given the objective mentioned in item 1 of this Pronouncement.

Next, the entity must transfer, to its individual statements, all adjustments that are necessary, or by which it opts, in the application of Technical Pronouncement CPC 37, in order to obtain the same equity in both balance sheets, consolidated and individual, observing item 6 of this Pronouncement. For this, it may be necessary to make accounting adjustments in its investments in subsidiaries and jointly controlled ventures, so that the application of the equity method on them promotes this equality of equities. Additionally, differences that may exist between these statements and the consolidated statements, due to the early adoption of IFRSs in the consolidated statements, must be eliminated, through adjustments in the individual statements.

If any procedure is impracticable to apply and causes a difference between the two equities referred to in item 8, this fact must be disclosed, with its disclosure and the reasons for the impediment of the equality being sought.
Subsequent individual financial statements must comply with all requirements necessary for the consolidated statements from them to be declared as being in accordance with international accounting standards.
As a consequence of the content of the previous item, with the exception of item 6, a consolidated financial statement with different income and equity, or other elements or accounts not modifiable by the consolidation process with values different from those contained in the individual statements of the parent company, is not admitted. Thus, the same recognition and measurement criteria must be used in both sets of financial statements, and on the same transition date when the IFRSs are adopted, and the necessary adjustments must be made in the individual statements.
The separate financial statements eventually presented by the entity's option must also be prepared from the individual statements, admitting as adjustments only those determined by the modification of the evaluation method of investments in subsidiaries, associates and jointly controlled ventures.

Lineage: No known changes