CVM Resolution 91: Approval of Technical Pronouncement CPC 02(R2) on Foreign Exchange Effects and Financial Statement Translation

SECURITIES 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

Approves the Consolidation of Technical Pronouncement CPC 02(R2) of the Accounting Pronouncements Committee – CPC, which deals with the effects of changes in exchange rates and translation of financial statements.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM makes it public that the Board, in a meeting held on April 14, 2022, based on §§ 3 and 5 of art. 177 of Law No. 6.404, of December 15, 1976, combined with items II and IV of § 1 of art. 22 of Law No. 6.385, of December 7, 1976, as well as arts. 5 and 14 of Decree No. 10.139, of November 28, 2019,

APPROVED the following Resolution:

Art. 1. It is made mandatory for publicly-held companies the Technical Pronouncement CPC 02(R2), which deals with the effects of changes in exchange rates and translation of financial statements, issued by the Accounting Pronouncements Committee – CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. CVM Deliberation No. 640, of October 7, 2010, is hereby 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

ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL PRONOUNCEMENT CPC 02 (R2)
Effects of Changes in Foreign Exchange Rates and Translation of Financial Statements Correlation to International Accounting Standards – IAS 21 (BV2010)

Summary Item
OBJECTIVE 1 – 2
SCOPE 3 – 7
DEFINITIONS 8 – 16
Detailing of definitions 9 – 16
Functional currency 9 – 14
Net investment in a foreign operation 15 – 15A Monetary item 16 SUMMARY OF THE APPROACH REQUIRED BY THIS PRONOUNCEMENT 17 – 19 PRESENTATION OF A FOREIGN CURRENCY TRANSACTION IN THE FUNCTIONAL CURRENCY 20 – 37 Initial recognition 20 – 22 Presentation at the end of subsequent reporting periods 23 – 26 Recognition of exchange differences 27 - 34 Change in functional currency 35 - 37 USE OF A PRESENTATION CURRENCY DIFFERENT FROM THE FUNCTIONAL CURRENCY 38 – 49 Translation into the presentation currency 38 – 43 Translation of a foreign operation 44 – 47 Disposal of a foreign operation in whole or in part 48 – 49 TAX EFFECTS OF ALL EXCHANGE DIFFERENCES 50 DISCLOSURE 51 – 57 TRANSITIONAL PROVISIONS 58 – 60C REVOCATION OF ANOTHER PRONOUNCEMENT 61 - 62

Objective

An entity may conduct foreign currency activities in two ways. It may have transactions in foreign currencies or it may have operations abroad. Additionally, the entity may present its financial statements in a foreign currency. The objective of this Technical Pronouncement is to guide on how to include foreign currency transactions and foreign operations in the entity’s financial statements and how to translate financial statements into a presentation currency.
The main points involve which exchange rates should be used and how to report the effects of changes in exchange rates in the financial statements.

Scope
3. This pronouncement shall be adopted:
(a) in the accounting for transactions and balances in foreign currencies, except for those transactions with derivatives and balances within the scope of CPC 48 – Financial Instruments; (b) in the translation of results and financial position of foreign operations that are included in the entity’s financial statements through consolidation or by applying the equity method; and (c) in the translation of results and financial position of an entity into a presentation currency.

CPC 48 is applicable to many foreign currency derivatives and, consequently, such derivative instruments are outside the scope of this pronouncement. However, those foreign currency derivatives that are outside the scope of CPC 48 (e.g., some embedded foreign currency derivatives in other contracts) are within the scope of this pronouncement. Additionally, this pronouncement shall be applied when the entity translates balances related to derivatives from its functional currency to the presentation currency.
This pronouncement is not applicable to hedge accounting for items in foreign currency, including the hedge of a net investment in a foreign operation. CPC 48 shall be applied to hedge accounting.
This pronouncement is applied in the presentation of the entity’s financial statements in a foreign currency and establishes requirements to be observed so that the resulting financial statements can be considered as conforming with the Technical Pronouncements issued by the Accounting Pronouncements Committee (CPC). In the translation of financial information into a foreign currency that does not meet these requirements, this Technical Pronouncement requires specific disclosures.
This pronouncement is not applied in the presentation of the statement of cash flows for those cash flows arising from foreign currency transactions, or for the translation of cash flows of the foreign entity (see Technical Pronouncement CPC 03 – Statement of Cash Flows).

Definitions
8. The following terms are used in this Technical Pronouncement with the meanings described below:
Closing rate is the spot exchange rate prevailing at the end of the reporting period.
Exchange difference is the difference resulting from the conversion of a given number of units of one currency into another currency at different exchange rates.
Exchange rate is the ratio of exchange between two currencies.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (see Technical Pronouncement CPC 46).
Foreign currency is any currency other than the functional currency of the entity.
Foreign operation is an entity that is a subsidiary, associate, joint venture or branch of the reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity.
Functional currency is the currency of the primary economic environment in which the entity operates.
Group is a parent and all its subsidiaries.
Monetary items are units of currency held as cash and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
Net investment in a foreign operation is the amount of the reporting entity’s interest in the net assets of that entity.
Presentation currency is the currency in which the financial statements are presented.
Spot exchange rate is the exchange rate for immediate settlement on foreign exchange transactions.

Detailing of definitions
Functional currency

The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. The entity shall consider the following factors in determining its functional currency:
(a) the currency:
(i) that mainly influences sales prices for goods and services (often the currency in which sales prices for its goods and services are denominated and settled); and (ii) of the country whose competitive forces and regulations mainly influence the sales prices for its goods and services; (b) the currency that mainly influences labor, material and other costs for providing goods or services (often the currency in which such costs are denominated and settled).
The following factors may also serve as evidence in determining the entity’s functional currency:
(a) the currency in which funds from financing activities (e.g., issuing debt or equity instruments) are generated.
(b) the currency in which funds generated from operating activities are usually retained.
The following additional factors shall be considered in determining the functional currency of a foreign operation, and shall also be considered to assess whether the functional currency of that foreign operation is the same as that used by the reporting entity (in this case, the reporting entity is the one that has a foreign operation through a subsidiary, branch, agency, associate or joint venture):
(a) whether the activities of the foreign operation are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy. An example to illustrate the first case is when the foreign operation only sells goods that are imported from the reporting entity and remits the proceeds to it. An example to illustrate the second case is when the foreign operation accumulates cash and other monetary items, incurs expenses, generates revenue and raises borrowings, all substantially in its local currency; (b) whether transactions with the reporting entity represent a high or low proportion of the foreign operation’s activities; (c) whether cash flows from the activities of the foreign operation directly affect the cash flows of the reporting entity and are readily available for remittance to it; (d) whether cash flows from the activities of the foreign operation are sufficient to service existing and normally expected debt obligations without funds from the reporting entity being necessary to do so.
When the above indicators are mixed and the determination of the functional currency is not an obvious process, management shall use judgment to determine the functional currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. As part of this approach, management shall prioritize the primary indicators in paragraph 9 before taking into account the indicators listed in paragraphs 10 and 11, which are provided to serve as additional evidence in determining the functional currency of the entity.
The functional currency of an entity reflects the transactions, events and conditions that are relevant to it. Thus, once determined, the functional currency shall not be changed unless there has been a change in the underlying transactions, events and conditions.
If the functional currency is the currency of a hyperinflationary economy, the entity’s financial statements shall be restated in accordance with Technical Pronouncement CPC 42 – Accounting and Reporting in Hyperinflationary Economies (by the full restatement method until this Pronouncement is issued). The entity cannot avoid restatement in accordance with Technical Pronouncement CPC 42 by, for example, electing another currency that is not the one determined in accordance with this Technical Pronouncement as its functional currency (such as the functional currency of its parent).

Net investment in a foreign operation

The entity may hold a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, part of the entity’s net investment in that foreign operation, and shall receive the accounting treatment set out in paragraphs 32 and 33 of this Technical Pronouncement. Such monetary items may include long-term receivables and loans. They do not include trade receivables and trade payables arising from normal commercial operations.

15A. The entity that holds a monetary item receivable from a foreign operation or a monetary item payable to a foreign operation, as described in paragraph 15, may be any subsidiary of the group. For example, an entity has two subsidiaries: “A” and “B”. Subsidiary “B” is a foreign operation. Subsidiary “A” grants a loan to Subsidiary “B”. The loan that Subsidiary “A” has receivable from Subsidiary “B” shall be considered part of the parent’s net investment in Subsidiary “B” if its settlement is neither planned nor likely to occur in the foreseeable future. The same understanding would apply if Subsidiary “A” were entirely a foreign operation.

Monetary item

The essential feature of a monetary item is a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Some examples include: pension or other employee benefit liabilities to be paid in cash; provisions that are to be settled in cash; lease liabilities; and dividends to be distributed in cash, which are recognized as liabilities. Similarly, a contract that provides for a right to receive (or an obligation to deliver) a variable number of the entity’s own equity instruments or a variable quantity of assets, the fair value of which to be received (or to be delivered) equals a fixed or determinable number of units of currency, is considered a monetary item. On the other hand, the essential feature of a non-monetary item is the absence of a right to receive (or an obligation to deliver) a fixed or determinable number of units of currency. Some examples include: advances to suppliers of goods; advances to service providers; goodwill; intangible assets; inventories; property, plant and equipment; right-of-use assets; and provisions to be settled by the delivery of a non-monetary asset.

Summary of the approach required by this pronouncement

In preparing financial statements, each entity – whether it is a single entity, an entity with foreign operations (such as a parent) or a foreign operation (such as a subsidiary or branch) – shall determine its functional currency based on paragraphs 9 to 14. The entity shall translate items expressed in a foreign currency into its functional currency and shall report the effects of such translation in accordance with paragraphs 20 to 37 and 50.
Many reporting entities are composed of a number of individual entities (e.g., a group is formed by the parent and one or more subsidiaries). Various types of entities, whether they are members of a group or not, may have investments in associates or joint ventures. They may also have branches, agencies, subsidiaries or offices. It is necessary that the results and financial position of each individual entity included in the reporting entity be translated into the currency in which that reporting entity presents its financial statements. This Technical Pronouncement allows the presentation currency of the reporting entity to be any currency (or currencies). The results and financial position of any individual entity included in the reporting entity, whose functional currency differs from the presentation currency, shall be translated in accordance with paragraphs 38 to 50.
This Pronouncement also allows the entity, in preparing its individual financial statements, or in preparing its separate financial statements, as provided in Technical Pronouncement CPC 35 Separate Financial Statements, to present these financial statements in any currency (or currencies). If the presentation currency of the reporting entity differs from its functional currency, its results and financial position shall also be translated into that presentation currency, in accordance with paragraphs 38 to 50.

Presentation of a foreign currency transaction in the functional currency Initial recognition

A foreign currency transaction is a transaction that is fixed or requires settlement in a foreign currency, including transactions that originate when the entity:
(a) buys or sells goods or services whose price is denominated in a foreign currency; (b) borrows or lends funds, when the amounts payable or receivable are denominated in a foreign currency; or (c) otherwise acquires or disposes of assets, or incurs or settles liabilities denominated in a foreign currency.
A foreign currency transaction shall be recorded initially, in the functional currency, by applying the spot exchange rate between the functional currency and the foreign currency, at the date of the transaction, to the foreign currency amount.
The date of the transaction is the date on which the transaction first qualifies for recognition in accordance with accounting practices adopted in Brazil. For practical reasons, an exchange rate that approximates the rate prevailing on the date of the transaction is usually adopted, such as the average weekly or monthly exchange rate, which may be applied to all transactions, in each foreign currency, occurring during the period. However, if exchange rates fluctuate significantly, the adoption of the average exchange rate for the period is not appropriate.

Presentation at the end of subsequent reporting periods

At the end of each reporting period:
(a) foreign currency monetary items shall be translated using the closing rate; (b) non-monetary items that are measured at historical cost in a foreign currency shall be translated using the exchange rate at the date of the transaction; and (c) non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates at the dates when the fair value was measured.
The carrying amount of an item shall be determined in conjunction with other relevant Technical Pronouncements. For example, land, industrial plants, machinery and equipment may be measured at fair value or at historical cost as a basis of value, in accordance with Technical Pronouncement CPC 27 – Property, Plant and Equipment. Regardless of whether the carrying amount is determined based on historical cost or on fair value, if the carrying amount is determined in a foreign currency, it shall be translated into the functional currency in accordance with this Technical Pronouncement.
The carrying amount of some items shall be determined by comparing two or more amounts. For example, the carrying amount of inventories shall be determined as the lower of cost and net realizable value, in accordance with Technical Pronouncement CPC 16 – Inventories. Similarly, in accordance with Technical Pronouncement CPC 01 – Impairment of Assets, the carrying amount of an asset, for which there is an indication of impairment, is the lower of its carrying amount, before considering possible impairment losses, and its recoverable amount. When this asset is a non-monetary item and is measured in a foreign currency, the carrying amount is determined by comparing:
(a) the cost or carrying amount, as appropriate, translated at the exchange rate prevailing at the date when the value is determined (e.g., the rate at the date of the transaction for an item measured in terms of historical cost as a basis of value); and (b) the net realizable value or recoverable amount, as appropriate, translated at the exchange rate prevailing at the date when the value is determined (e.g., the closing exchange rate at the end of the reporting period). The effect of this comparison may give rise to the recognition of an impairment loss in the functional currency without giving rise to its recognition in the foreign currency or vice versa.
When more than one exchange rate is available, the exchange rate to be used is the one from which the future cash flows represented by the transaction or balances could be settled if those cash flows had occurred at the measurement date. If, temporarily, there is no exchange between two currencies, the rate to be used is the first subsequent exchange rate from which foreign exchange transactions can be made.

Recognition of exchange differences

As noted in paragraphs 3(a) and 5, CPC 48 shall be applied to hedge accounting for items in foreign currency. In applying hedge accounting, the entity is required to account for some exchange differences differently from the treatment provided by this pronouncement for exchange differences. For example, CPC 48 requires that exchange differences arising from a monetary item, qualified as an instrument of...

hedge in a cash flow hedge, are initially recognized in a specific account of other comprehensive income (within equity), to the extent of the effectiveness of the hedge transaction.

Exchange differences arising from the settlement of monetary items or from the conversion of monetary items at rates different from those at which they were converted when initially recognized during the period or in previous financial statements, shall be recognized in profit or loss in the period in which they arise, except for those described in paragraph 32.
When monetary items arise from transactions in a foreign currency and there is a change in the exchange rate between the transaction date and the settlement date, an exchange difference arises. When the transaction is settled within the same accounting period in which it originated, the entire exchange difference shall be recognized in that same period. However, when the transaction is settled in a subsequent accounting period, the exchange difference recognized in each period, up to the settlement date, shall be determined by the changes in exchange rates occurring during each period.
When a gain or loss on non-monetary items is recognized in a specific account of other comprehensive income, any exchange difference attributable to that component of gain or loss shall also be recognized in a specific account of other comprehensive income. On the other hand, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange difference attributable to that gain or loss shall also be recognized in profit or loss.
Other Technical Pronouncements of the CPC require that some gains or losses be recognized in a specific account of other comprehensive income. For example, Technical Pronouncement CPC 27 - Property, Plant and Equipment requires that some gains and losses arising from the revaluation of property, plant and equipment, when such procedure is permitted by law, be recognized in a specific account of other comprehensive income (directly in Equity). When such revalued asset is measured in a foreign currency, paragraph 23(c) of this Technical Pronouncement requires that the revalued amount be converted, using the exchange rate in effect on the date the revalued amount is determined, resulting in an exchange difference that must also be recognized in a specific account of other comprehensive income.
Exchange differences arising from monetary items that form part of the net investment in a foreign entity by the reporting entity (see paragraph 15) shall be recognized in profit or loss in the separate financial statements of the reporting entity or in the individual financial statements of the foreign entity, as appropriate. In the financial statements that include the foreign entity and the reporting entity (for example: individual financial statements with investments accounted for using the equity method, or consolidated financial statements when the foreign entity is a controlled entity), such exchange differences shall be initially recognized in other comprehensive income in a specific account of equity, and shall be transferred from equity to profit or loss upon derecognition of the net investment, in accordance with paragraph 48.
When a monetary item forms part of the net investment in a foreign entity by the reporting entity and is denominated in the functional currency of the reporting entity, an exchange difference arises in the individual financial statements of the foreign entity, in accordance with paragraph 28. If this item is denominated in the functional currency of the foreign entity, an exchange difference arises in the separate and individual financial statements of the reporting entity, in accordance with paragraph 28. If this item is denominated in a currency that is neither the functional currency of the reporting entity nor the functional currency of the foreign entity, an exchange difference arises in the separate and individual financial statements of the reporting entity and in the individual financial statements of the foreign entity, in accordance with paragraph 28. Such exchange differences shall be recognized in other comprehensive income in a specific account of equity in the financial statements that include the foreign entity and the reporting entity (for example: financial statements in which the foreign entity is consolidated or is accounted for using the equity method).
When an entity keeps its accounting records in a currency different from its functional currency, at the time of preparing its financial statements, all amounts shall be converted to the functional currency, in accordance with paragraphs 20 to 26. This procedure generates the same amounts in the functional currency as would have occurred if the items had been initially recorded in the functional currency. For example, monetary items are converted to the functional currency using the closing exchange rate; and non-monetary items that are measured based on historical cost shall be converted, using the exchange rate of the transaction date that resulted in their recognition.

Change in Functional Currency

When there is a change in the functional currency of the entity, the entity shall apply, prospectively, the conversion procedures required to the new functional currency from the date of the change.
As noted in paragraph 13, the functional currency of the entity reflects the transactions, events and underlying conditions that are relevant to the entity. Therefore, once the functional currency is determined, it can only be changed if there is a change in the underlying transactions, events and conditions. For example, a change in the currency that strongly influences the prices of goods and services sold may lead to a change in the entity's functional currency.
The effect of the change in functional currency shall be accounted for prospectively.

Objectively, the entity shall convert all items to the new functional currency, using the exchange rate observed on the date of the change. The amounts resulting from the conversion, in the case of non-monetary items, shall be treated as their historical costs. Exchange differences arising from the conversion of the foreign entity, previously recognized in other comprehensive income, in accordance with paragraphs 32 and 39(c), shall not be transferred from equity to profit or loss until the derecognition of the foreign entity.

Use of Presentation Currency Different from Functional Currency

Conversion to Presentation Currency

The entity may present its financial statements in any currency (or currencies). If the presentation currency of the financial statements differs from the functional currency of the entity, its results and financial position shall be converted to the presentation currency. For example, when an economic group is composed of individual entities with different functional currencies, the results and financial position of each entity shall be expressed in the same common currency to all of them, so that consolidated financial statements can be presented.
The results and financial position of the entity, whose functional currency is not the currency of a hyperinflationary economy, shall be converted to a presentation currency different from the functional currency, adopting the following procedures:
(a) assets and liabilities for each balance sheet presented (including comparative balance sheets) shall be converted, using the closing exchange rate on the date of the respective balance sheet; (b) income and expenses for each statement of comprehensive income or statement of profit or loss presented (including comparative statements) shall be converted by the exchange rates in effect on the dates the transactions occurred; and (c) all resulting exchange differences shall be recognized in other comprehensive income.
For practical reasons, a rate that approximates the exchange rates in effect on the dates of the transactions, for example, the average rate for the period, may normally be used to convert income and expense items. However, if exchange rates fluctuate significantly, the use of the average rate for the period is inappropriate.
The exchange differences mentioned in paragraph 39(c) result from:
(a) conversion of income and expenses by the exchange rates in effect on the dates the transactions occurred and conversion of assets and liabilities by the closing exchange rate;

(b) conversion of the opening balances of net assets (equity) by the current closing exchange rate, which differs from the previous closing exchange rate.
These exchange differences shall not be recognized in profit or loss because changes in exchange rates have little or no direct effect on current and future cash flows arising from operations. The accumulated amount of exchange differences shall be presented in a separate specific account of equity until the derecognition of the foreign entity. When exchange differences relate to a foreign entity that is consolidated, but not wholly controlled, the accumulated exchange differences arising from the conversion and attributable to non-controlling interests shall be allocated to them and shall, thus, be recognized in the consolidated balance sheet.

The results and financial position of the entity whose functional currency is the currency of a hyperinflationary economy shall be converted to a presentation currency different from the functional currency, adopting the following procedures:
(a) all amounts (that is, assets, liabilities, equity items, income and expenses, including comparative balances) shall be converted by the closing exchange rate of the date of the most recent balance sheet, except that, (b) when amounts are converted to the currency of a non-hyperinflationary economy, the comparative amounts shall be those that would be presented as current year amounts in the financial statements of the previous year (that is, not adjusted for subsequent changes in the price level or subsequent changes in exchange rates).
When the functional currency of the entity is the currency of a hyperinflationary economy, the entity shall restate its financial statements in the manner of Technical Pronouncement CPC 42 - Accounting and Disclosure in Highly Inflationary Economies (or by the full restatement method while this Pronouncement is not issued) before applying the conversion method defined in paragraph 42, except for comparative amounts that are converted to the currency of a non-hyperinflationary economy (see paragraph 42(b)). When the economy ceases to be considered hyperinflationary and the entity no longer proceeds to restate its financial statements in the manner of Technical Pronouncement CPC 42, it shall consider as historical costs, for the purpose of conversion to the presentation currency, the amounts in constant purchasing power currency on the date the entity ceases to restate its financial statements.

Conversion of Foreign Entity

Paragraphs 45 to 47, in addition to paragraphs 38 to 43, shall be observed when the results and financial position of the foreign entity are converted to a presentation currency that allows the foreign entity to be included in the financial statements of the reporting entity through consolidation or the equity method.
The incorporation of the results and financial position of the foreign entity into those of the reporting entity shall follow the usual consolidation procedures, such as the elimination of balances and intra-group transactions of the controlled entity (see Technical Pronouncement CPC 36 - Consolidated Financial Statements). However, an intra-group monetary asset (or liability), whether short-term or long-term, cannot be eliminated against the corresponding intra-group liability (or asset), without the results of currency fluctuations being presented in the consolidated financial statements. This occurs because the monetary item represents a commitment to convert a given currency into another and exposes the reporting entity to gains and losses derived from currency fluctuations. Thus, in the consolidated financial statements of the reporting entity, such exchange difference shall be recognized in profit or loss or, if resulting from the circumstances described in paragraph 32, shall be recognized in other comprehensive income in a specific account of equity until the derecognition of the foreign entity.
When the financial statements of the foreign entity are prepared on a date different from the date on which the financial statements of the reporting entity are prepared, the foreign entity shall normally prepare additional statements relating to the same date as the financial statements of the reporting entity. When this is not done, Technical Pronouncement CPC 36 - Consolidated Financial Statements allows the use of a different date, provided that the difference is not greater than two months and that adjustments are made for the effects of any significant transactions or other events that may occur between the different dates. In this case, assets and liabilities of the foreign entity shall be converted by the exchange rate in effect on the closing date of the reporting period of the foreign entity. Adjustments shall be made for significant changes in exchange rates up to the closing date of the reporting period of the reporting entity, in consonance with Technical Pronouncement CPC 36 - Consolidated Financial Statements. The same approach shall be adopted when applying the equity method to associates, controlled entities and jointly controlled entities as required by Technical Pronouncement CPC 18 - Investment in Associate, Controlled Entity and Jointly Controlled Entity.
Any goodwill arising from the acquisition of a foreign entity and any fair value adjustments on the book values of assets and liabilities arising from the acquisition of that foreign entity shall be treated as assets and liabilities of the foreign entity. Thus, they shall be expressed in the functional currency of the foreign entity and shall be converted by the closing exchange rate, in accordance with paragraphs 39 and 42.

Total or Partial Derecognition of Foreign Entity

Upon derecognition of a foreign entity, the accumulated amount of exchange differences related to that foreign entity, recognized in other comprehensive income and recorded in a specific account of equity, shall be transferred from equity to profit or loss (as a reclassification adjustment) when the gain or loss on derecognition is recognized (on this matter see Technical Pronouncement CPC 26 - Presentation of Financial Statements).

48A. In addition to the accounting treatment provided for the total derecognition of the entity's interest in a foreign entity, the following partial derecognitions shall be accounted for as derecognition:
(a) when the partial derecognition involves the loss of control of a controlled entity that contains a foreign entity, even if the entity retains an interest in the former controlled entity after the partial derecognition; and (b) when the interest retained after the partial disposal of an interest in a joint venture or a partial disposal of an interest in an associate that includes an operation in a foreign country is a financial asset that includes an operation in a foreign country. (c) eliminated.

48B. Upon derecognition of a controlled entity that contains a foreign entity, the accumulated amount of exchange differences related to that entity, which had been attributed to non-controlling interests, shall be derecognized, without, however, being transferred to profit or loss.

48C. Upon partial derecognition of a controlled entity that contains a foreign entity, the entity shall reallocate the accumulated amount of exchange differences recognized in equity to the non-controlling interests in that foreign entity, in proportion to their interests. In any other partial derecognition of a foreign entity, the entity shall transfer to profit or loss only the proportionate part derecognized of the accumulated amount of exchange differences recognized in other comprehensive income.

48D. The partial derecognition of an entity's interest in a foreign entity is any reduction of the interest maintained by the entity in the foreign entity, except for those reductions provided in paragraph 48A that must be accounted for as derecognition.

Any entity may totally or partially derecognize its interests in a foreign entity through sale, liquidation, redemption, repayment or amortization of shares, or abandonment of all or part of the operation. The reduction of the book value of a foreign entity, whether due to its own losses or due to recognized impairment, does not constitute a partial derecognition. Thus, no part of the gain or loss on exchange recognized in other comprehensive income shall be transferred to profit or loss at the time of this reduction in book value.

Tax Effects of All Exchange Differences

Gains and losses on transactions in foreign currencies and exchange differences arising from the conversion of the results and financial position of the entity (including the foreign entity) to a different currency may produce tax effects. Technical Pronouncement CPC 32 - Income Taxes shall be applied in the treatment of these tax effects.

Disclosure

In paragraphs 53 and 55 to 57, the references to "functional currency" apply, in the case of an economic group, to the functional currency of the controlling entity.
The entity shall disclose:
(a) the amount of exchange differences recognized in profit or loss, except those arising from financial instruments measured at fair value through profit or loss, in accordance with CPC 48; and (a) net exchange differences recognized in other comprehensive income and recorded in a specific account of equity, and the reconciliation of the amount of such exchange differences, at the beginning and end of the period.
When the presentation currency of the financial statements is different from the functional currency, this fact shall be reported together with the disclosure of the functional currency and the reason for using a presentation currency different from the functional currency.
When there is a change in the functional currency of the reporting entity or of a significant foreign entity, this fact and the reason for the change in functional currency shall be disclosed.
When the entity presents its financial statements in a currency that is different from its functional currency, it shall only state that these financial statements are in compliance with accounting practices adopted in Brazil if they are in accordance with all requirements of each Technical Pronouncement, Guidance and Interpretation of the CPC applicable, including the conversion method defined in paragraphs 39 and 42.
Sometimes, the entity presents its financial statements or other financial information in a currency that is not its functional currency, without complying with the requirements of paragraph 55. For example, the entity may convert to another currency only selected items of its financial statements. Or still, the entity, whose functional currency is not the currency of a hyperinflationary economy, may convert its financial statements to another currency, applying to all items the most recent closing exchange rate. These conversions are not in accordance

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 with the accounting practices adopted in Brazil and the disclosures specified in item 57 are required.
57. When the entity presents its financial statements or other financial information in a currency different from its functional currency or the presentation currency of its financial statements, and the requirements of item 55 are not met, the same entity must:
(a) clearly identify the information as supplementary information to distinguish it from information that complies with the accounting practices adopted in Brazil; (b) disclose the currency used for this supplementary information; and (c) disclose the entity's functional currency and the conversion method used to determine the supplementary information.
Transitional Provisions
58. (Eliminated)
58A. (Eliminated)
59. The entity must apply item 47 prospectively to all acquisitions occurring after the beginning of the reporting period in which this Technical Pronouncement is initially adopted.
Retrospective application of item 47 to prior acquisitions is permitted. For an acquisition of an overseas entity treated prospectively, but which occurred prior to the date this Technical Pronouncement is initially adopted, the entity must not restate prior periods and, therefore, may, when appropriate, treat future profitability goodwill (goodwill) and fair value adjustments arising from the acquisition as assets and liabilities of the entity rather than as assets and liabilities of the overseas entity. In this way, future profitability goodwill (goodwill) and fair value adjustments will already be expressed in the entity's functional currency or will be considered non-monetary items in a foreign currency, which must be accounted for using the exchange rate in effect on the date of the acquisition.
60. All other changes resulting from the application of this Technical Pronouncement must be accounted for in accordance with the requirements of Technical Pronouncement CPC 23 – Accounting Policies, Change in Estimate and Correction of Errors.
60A to 60H. (Eliminated)
Revocation of another pronouncement

Lineage: No known changes

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