CVM Resolution 95: Approval of Consolidated Technical Pronouncement CPC 06(R2) on Leases

Approves the Consolidation of Technical Pronouncement CPC 06(R2) of the Accounting Pronouncements Committee - CPC, which deals with leases.

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 06(R2), which deals with leases, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2 Deliberation 787, of December 21, 2017, 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

ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL PRONOUNCEMENT CPC 06 (R2)
LEASES
Correlation to International Financial Reporting Standards – IFRS 16

Summary Item
OBJECTIVE 1 – 2
SCOPE 3 – 4
RECOGNITION EXEMPTIONS 5 – 8
IDENTIFICATION OF A LEASE 9 – 17
Separation of contract components 12 – 17
Lessee 13 – 16
Lessor 17
LEASE TERM 18 – 21
LESSEE 22 – 60
Recognition 22
Measurement 23 – 46
Initial measurement 23 – 28
Subsequent measurement 29 – 46B
Presentation 47 – 50
Disclosure 51 – 60A
LESSOR 61 – 98
Classification of lease 61 – 66
Finance lease 67 – 80
Recognition and measurement 67 – 80
Operating lease 81 – 88
Recognition and measurement 81 – 87
Presentation 88
Disclosure 89 – 98
Finance lease 93 – 94
Operating lease 95 – 97

Objective

This pronouncement establishes principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information, so that it faithfully represents these transactions. This information provides the basis for users of financial statements to assess the effect that leases have on the entity’s financial position, financial performance and cash flows. 1
The entity shall consider the terms and conditions of contracts and all relevant facts and circumstances when applying this pronouncement. The entity shall apply this pronouncement consistently with contracts that have similar characteristics and in similar circumstances.

Scope
3. The entity shall apply this pronouncement to all leases, including leases of right-of-use assets in subleases, except for:
(a) leases to explore or use minerals, oil, natural gas and similar non-renewable resources; (b) leases of biological assets within the scope of CPC 29 – Biological Asset and Agricultural Produce held by the lessee; (c) service concession arrangements within the scope of ICPC 01 – Concession Contracts; (d) licenses of intellectual property granted by the lessor within the scope of CPC 47 – Revenue from Contracts with Customers; and (e) rights held by the lessee under licensing contracts within the scope of CPC 04 – Intangible Assets for items such as: films, video recordings, reproductions, manuscripts, patents and copyrights.

1 The term “leases” adopted in this Pronouncement corresponds to the translation of the term 'leases' in the English language and may cover contracts (but is not limited to) of lease, rental, hiring and other contracts that confer on the reporting entity the right to use an asset in exchange for consideration.

Recognition Exemptions (items B3 to B8)
5. The lessee may elect not to apply the requirements of items 22 to 49 to:
(a) short-term leases; and
(b) leases for which the underlying asset is of low value (as described in items B3 to B8).
6. If the lessee elects not to apply the requirements of items 22 to 49 to short-term leases or to leases for which the underlying asset is of low value, the lessee shall recognize the lease payments associated with those leases as an expense on a straight-line basis over the lease term or on another systematic basis. The lessee shall apply another systematic basis if that basis better represents the pattern of benefit to the lessee.
7. If the lessee accounts for short-term leases by applying item 6, the lessee shall consider the lease as a new lease for the purposes of this pronouncement if:
(a) there is a modification of the lease; or
(b) there is any change in the lease term (for example, the lessee exercises an option not previously included in its determination of the lease term).
8. The election for short-term leases shall be made by class of underlying asset to which the right of use relates. A class of underlying asset is a grouping of underlying assets of a similar nature and use in the operations of the entity. The election for leases for which the underlying asset is of low value may be made on a lease-by-lease basis.

Identification of a Lease (items B9 to B33)
9. At inception of a contract, the entity shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Items B9 to B31 establish guidance on the assessment of whether the contract is, or contains, a lease.
10. The period of time may be described in terms of the quantity of use of the identified asset (for example, the number of units of production that the item of equipment will be used to produce).
11. The entity shall reassess whether the contract is, or contains, a lease only if the terms and conditions of the contract are changed.

Separation of contract components
12. For the contract that is, or contains, a lease, the entity shall account for each lease component within the contract separately from non-lease components of the contract, unless the entity applies the practical expedient in item 15. Items B32 and B33 establish guidance on how to separate contract components.

Lessee
13. For the contract that contains a lease component and one or more additional lease or non-lease components, the lessee shall allocate the consideration in the contract to each lease component based on the relative standalone price of the lease component and the aggregate standalone price of the non-lease components.
14. The relative standalone price of lease and non-lease components shall be determined based on the price that the lessor, or a similar supplier, would charge the entity for that component, or a similar component, separately. If the observable standalone price is not immediately available, the lessee shall estimate the standalone price, maximizing the use of observable information.
15. As a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-lease components from lease components and, instead, account for each lease component and any associated non-lease components as a single lease component. The lessee shall not apply this practical expedient to embedded derivatives that meet the criteria in item 4.3.3 of CPC 48 – Financial Instruments.
16. Unless the practical expedient described in item 15 is applied, the lessee shall account for non-lease components using other applicable pronouncements.

Lessor
17. For the contract that contains a lease component and one or more additional lease or non-lease components, the lessor shall allocate the consideration in the contract applying items 73 to 90 of CPC 47.

Lease Term (items B34 to B41)
18. The entity shall determine the lease term as the non-cancellable period of the lease, together with:
(a) periods covered by an option to extend the lease, if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease, if the lessee is reasonably certain not to exercise that option.
19. When assessing whether the lessee is reasonably certain to exercise the option to extend the lease or not to exercise the option to terminate the lease, the entity shall consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise the option to extend the lease or not to exercise the option to terminate the lease, as described in items B37 to B40.

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
20. The lessee shall reassess whether it is reasonably certain to exercise the extension option or not to exercise the termination option upon the occurrence of a significant event or a significant change in circumstances, that:
(a) is within the control of the lessee; and
(b) affects whether the lessee is reasonably certain to exercise the option not previously included in its determination of the lease term or not to exercise the option previously included in its determination of the lease term (as described in item B41).
21. The entity shall revise the lease term if there is a change in the non-cancellable period of the lease. For example, the non-cancellable period of the lease will be modified if:
(a) the lessee exercises an option not previously included in the entity’s determination of the lease term; (b) the lessee does not exercise an option previously included in the entity’s determination of the lease term; (c) an event occurs that contractually obligates the lessee to exercise an option not previously included in the entity’s determination of the lease term; or (d) an event occurs that contractually prohibits the lessee from exercising an option previously included in the entity’s determination of the lease term.

Lessee
Recognition
22. At the commencement date, the lessee shall recognize a right-of-use asset and a lease liability.

Measurement
Initial Measurement
Initial measurement of the right-of-use asset
23. At the commencement date, the lessee shall measure the right-of-use asset at cost.
24. The cost of the right-of-use asset shall comprise:
(a) the amount of the initial measurement of the lease liability, as described in item 26; (b) any lease payments made at or before the commencement date, less any lease incentives received; (c) any initial direct costs incurred by the lessee; and (d) an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories. The lessee incurs the obligation for those costs either at the commencement date or as a consequence of having used the underlying asset during a specific period.

Initial measurement of the lease liability
26. At the commencement date, the lessee shall measure the lease liability at the present value of the lease payments that are not paid at that date. The lease payments shall be discounted, using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee’s incremental borrowing rate.
27. At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments, for the right to use the underlying asset during the lease term, which are not paid at the commencement date:
(a) fixed payments (including fixed payments in substance, as described in item B42), less any lease incentives receivable; (b) variable lease payments that depend on an index or a rate, initially measured using the index or rate at the commencement date (as described in item 28); (c) amounts expected to be payable by the lessee under residual value guarantees; (d) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option (evaluated considering the factors described in items B37 to B40); and (e) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.
28. The variable lease payments that depend on an index or a rate, described in item 27(b), include, for example, payments linked to a consumer price index, payments linked to a benchmark interest rate (such as LIBOR) or payments that vary to reflect changes in market rental rates.

Subsequent Measurement
Subsequent measurement of the right-of-use asset
29. After the commencement date, the lessee shall measure the right-of-use asset, using the cost model, unless it uses one of the measurement models described in items 34 and 35.

Cost model
30. To apply the cost model, the lessee shall measure the right-of-use asset at cost:
(a) less any accumulated depreciation and any accumulated impairment losses; and (b) adjusted for any remeasurement of the lease liability specified in item 36(c).
31. The lessee shall apply the depreciation requirements of CPC 27 – Property, Plant and Equipment in the depreciation of the right-of-use asset, in accordance with the requirements of item 32.
32. If the lease transfers ownership of the underlying asset to the lessee by the end of the lease term or if the cost of the right-of-use asset reflects that the lessee will exercise a purchase option, the lessee shall depreciate the right-of-use asset from the commencement date to the end of the useful life of the underlying asset. Otherwise, the lessee shall depreciate the right-of-use asset from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term.
33. The lessee shall apply CPC 01 – Impairment of Assets to determine whether the right-of-use asset is subject to impairment and account for any identified impairment loss.

Other measurement models
34. If the lessee applies the fair value model in CPC 28 – Investment Property to its investment property, the lessee shall also apply that fair value model to right-of-use assets that meet the definition of investment property in CPC 28.
35. If right-of-use assets refer to the class of property, plant and equipment to which the lessee applies the revaluation model in CPC 27, if permitted by law, the lessee may elect to apply that revaluation model to all right-of-use assets that refer to that class of property, plant and equipment.

Subsequent measurement of the lease liability
36. After the commencement date, the lessee shall measure the lease liability:
(a) by increasing the carrying amount to reflect interest on the lease liability; (b) by reducing the carrying amount to reflect the lease payments made; and (c) by remeasuring the carrying amount to reflect any reassessment or modifications of the lease, specified in items 39 to 46, or to reflect revised in-substance fixed payments (see item B42).
37. The interest on the lease liability in each period during the lease term shall be the amount that produces a constant periodic rate of interest on the remaining balance of the lease liability. The periodic interest rate is the discount rate described in item 26 or, if applicable, the revised discount rate, described in items 41, 43 or 45(c).
38. After the commencement date, the lessee shall recognize in profit or loss, unless the costs are included in the carrying amount of another asset by using other applicable pronouncements:
(a) interest on the lease liability; and

Remeasurement of the lease liability
39. After the commencement date, the lessee shall apply items 40 to 43 to remeasure the lease liability to reflect changes in lease payments. The lessee shall recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. However, if the carrying amount of the right-of-use asset is reduced to zero and there is a further reduction in the measurement of the lease liability, the lessee shall recognize any remaining amount of the remeasurement in profit or loss.
40. The lessee shall remeasure the lease liability by discounting the revised lease payments, using the revised discount rate, if:
(a) there is a change in the lease term, as described in items 20 and 21. The lessee shall determine the revised lease payments based on the revised lease term; or (b) there is a change in the assessment of whether the lessee will exercise a purchase option of the underlying asset, evaluated considering the events and circumstances described in items 20 and 21 in the context of the purchase option. The lessee shall determine the revised lease payments to reflect the change in amounts payable under the purchase option.
41. When applying item 40, the lessee shall determine the revised discount rate as the interest rate implicit in the lease for the remainder of the lease term, if that rate can be readily determined, or the lessee’s incremental borrowing rate at the date of reassessment, if the interest rate implicit in the lease cannot be readily determined.
42. The lessee shall remeasure the lease liability by discounting the revised lease payments if:
(a) there is a change in the amounts expected to be payable under the residual value guarantee. The lessee shall determine the revised lease payments to reflect the change in the amounts expected to be payable under the residual value guarantee; (b) there is a change in future lease payments resulting from a change in an index or a rate used to determine those payments, including, for example, a change to reflect changes in market rental rates after the review of market rents. The lessee shall remeasure the lease liability to reflect those revised lease payments only when there is a change in cash flows (i.e., when the adjustment to lease payments takes effect). The lessee shall determine the revised lease payments for the remainder of the lease term based on the revised contractual payments.
43. When applying item 42, the lessee shall use the unchanged discount rate, unless the change in lease payments results from a change in floating interest rates. In that case, the lessee shall use the revised discount rate that reflects the changes in the interest rate.

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 and (c) there is no substantial change in other terms and conditions of the lease contract. Presentation
47. The lessee must present in the statement of financial position or disclose in the notes:
(a) right-of-use assets separately from other assets. If the lessee does not present right-of-use assets separately in the statement of financial position, the lessee must:
(i) include right-of-use assets in the same line item in which the corresponding underlying assets would be presented if they were owned; and (ii) disclose which line items in the statement of financial position include these right-of-use assets; (b) lease liabilities separately from other liabilities. If the lessee does not present lease liabilities separately in the statement of financial position, the lessee must disclose which line items in the statement of financial position include these liabilities.
48. The requirement in paragraph 47(a) does not apply to right-of-use assets that meet the definition of investment property, which must be presented in the statement of financial position as investment property.
49. In the statement of profit or loss and other comprehensive income, the lessee must present interest expense on the lease liability separately from the depreciation charge for the right-of-use asset. Interest expense on the lease liability is a component of finance costs, in which paragraph 82(b) of CPC 26 – Presentation of Financial Statements requires it to be presented separately in the statement of profit or loss and other comprehensive income.
50. In the statement of cash flows, the lessee must classify:
(a) cash payments for the principal portion of the lease liability within financing activities; (b) cash payments for the interest portion of the lease liability, applying the requirements of CPC 03 – Statement of Cash Flows for interest paid; and (c) payments for short-term leases, payments for low-value asset leases, and variable lease payments not included in the measurement of the lease liability within operating activities. Disclosure
51. The objective of disclosure is that lessees disclose information in the notes that, together with the information provided in the statement of financial position, the statement of profit or loss, and the statement of cash flows, provides a basis for users of financial statements to assess the effect that leases have on the lessee’s financial position, financial performance, and cash flows. Paragraphs 52 to 60 specify the requirements on how to meet this objective.
52. The lessee must disclose information about its leases in which it is a lessee in a single note or separate section in its financial statements. However, the lessee does not need to repeat information, which is already presented elsewhere in the financial statements, provided that the information is incorporated by cross-reference in the single note or separate section on leases.
53. The lessee must disclose the following amounts for the reporting period:
(a) depreciation charges for right-of-use assets by class of underlying asset; (b) interest expense on lease liabilities; (c) expense relating to short-term leases accounted for, applying paragraph 6. This expense does not need to include expense relating to leases with a lease term of one month or less; (d) expense relating to low-value asset leases accounted for, applying paragraph 6. This expense should not include expense relating to short-term leases of low-value assets included in paragraph 53(c); (e) expense relating to variable lease payments not included in the measurement of lease liabilities; (f) income arising from subleasing right-of-use assets; (g) total cash outflows for leases; (h) additions to right-of-use assets; (i) gains or losses arising from sale and leaseback transactions; and (j) carrying amount of right-of-use assets at the end of the reporting period by class of underlying asset.
54. The lessee must provide the disclosures specified in paragraph 53 in tabular form, unless another format is more appropriate. The disclosed amounts must include costs that the lessee has included in the carrying amount of another asset during the reporting period.
55. The lessee must disclose the value of its commitments for short-term leases accounted for, applying paragraph 6, if the portfolio of short-term leases to which it is committed at the end of the reporting period is different from the portfolio of short-term leases to which the expense for short-term leases disclosed applying paragraph 53(c) refers.
56. If the right-of-use assets meet the definition of investment property, the lessee must apply the disclosure requirements of CPC 28. In this case, the lessee does not need to provide the disclosures specified in paragraph 53(a), (f), (h) or (j) for these right-of-use assets.
57. If the lessee measures right-of-use assets at revalued amounts, applying CPC 27, if permitted by law, the lessee must disclose the information required by paragraph 77 of CPC 27 for these right-of-use assets.
58. The lessee must disclose the maturity analysis of lease liabilities, applying paragraphs 39 and B11 of CPC 40 – Financial Instruments: Disclosure separately from the maturity analyses of other financial liabilities.
59. In addition to the disclosures required in paragraphs 53 to 58, the lessee must disclose additional qualitative and quantitative information about its lease activities necessary to achieve the disclosure objective in paragraph 51 (as described in paragraph B48). This additional information may include, among other things, information that helps users of financial statements to assess:
(a) the nature of the lessee’s lease activities; (b) future cash outflows to which the lessee is potentially exposed, which are not reflected in the measurement of lease liabilities. This includes exposure arising from:
(i) variable lease payments (as described in paragraph B49); (ii) extension options and termination options (as described in paragraph B50); (iii) residual value guarantees (as described in paragraph B51); and (iv) leases not yet commenced to which the lessee is committed; (c) restrictions or covenants imposed by leases; and (d) sale and leaseback transactions (as described in paragraph B52).
60. The lessee that accounts for short-term leases or low-value asset leases, applying paragraph 6, must disclose that fact.
60A. If the lessee applies the practical expedient in paragraph 46A, it must disclose:
(a) that it applied the practical expedient to all Concessions Granted in Lease Contracts that met the conditions of paragraph 46B or, if it did not apply to all concessions, information about the nature of the contracts for which it applied the practical expedient (see paragraph 2); and (b) the amount recognized in profit or loss for the period that reflects the changes in payments occasioned by the concessions granted with respect to the lease contracts for which the practical expedient in paragraph 46A was applied. Lessor Classification of Leases (paragraphs B53 to B58)
61. The lessor must classify each of its leases as an operating lease or a finance lease.
62. A lease is classified as a finance lease if it transfers substantially all the risks and benefits incidental to ownership of the underlying asset. A lease is classified as an operating lease if it does not transfer substantially all the risks and benefits incidental to ownership of the underlying asset.
63. Whether a lease is a finance lease or an operating lease depends on the substance of the transaction, rather than the form of the contract. The following are examples of situations that, individually or in combination, would normally lead to a lease being classified as a finance lease:
(a) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term; (b) the lessee has the option to purchase the underlying asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised;

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

(a) if the lease has been classified as an operating lease, and if the modification is effective on the date of the lease agreement, the lessor must:
(i) account for the lease modification as a new lease from the effective date of the modification; and (ii) measure the carrying amount of the underlying asset as a net investment in the lease immediately before the effective date of the lease modification.
(b) otherwise, the lessor must apply the requirements of CPC 48.

Operating Lease
Recognition and Measurement
81. The lessor must recognize lease payments arising from operating leases as revenue on a straight-line basis or on another systematic basis. The lessor must apply another systematic basis if that basis better represents the pattern in which the benefit from the use of the underlying asset is diminished.
82. The lessor must recognize costs, including depreciation, incurred in earning lease revenue as expenses.
83. The lessor must add initial direct costs incurred in obtaining the operating lease to the carrying amount of the underlying asset and must recognize those costs as expenses over the lease term on the same basis as the lease revenue.
84. The depreciation policy for depreciable underlying assets subject to operating leases must be consistent with the lessor’s normal depreciation policy for similar assets. The lessor must calculate depreciation in accordance with CPC 27 and CPC 04.
85. The lessor must apply CPC 01 to determine whether the underlying asset subject to an operating lease has suffered an impairment loss and must account for any identified impairment loss.
86. A manufacturer or dealer lessor must not recognize any selling profit or loss on the conclusion of an operating lease, because such a transaction does not constitute a sale.

Modification of the Lease
87. The lessor must account for a modification to an operating lease as a new lease, from the effective date of the modification, taking into account any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease.

Presentation
88. The lessor must present underlying assets subject to operating leases in its statement of financial position according to the nature of the underlying asset.

Disclosure
89. The objective of disclosure is that lessors disclose information in the notes to the financial statements that, together with the information provided in the statement of financial position, statement of profit or loss and statement of cash flows, provides a basis for users of the financial statements to assess the effect that leases have on the lessor’s financial position, financial performance and cash flows. Items 90 to 97 specify the requirements on how to meet this objective.
90. The lessor must disclose the following amounts for the reporting period:
(a) for finance leases:
(i) selling profit or loss;
(ii) finance income on the net investment in the lease; and (iii) revenue relating to variable lease payments not included in the measurement of the net investment in the lease; (b) for operating leases, lease revenue, disclosing separately revenue relating to variable lease payments that do not depend on an index or rate.
91. The lessor must provide the disclosures specified in item 90 in tabular form, unless another format is more appropriate.
92. The lessor must disclose additional qualitative and quantitative information about its leasing activities necessary to achieve the disclosure objective described in item 89. This additional information includes, among other things, information that helps users of the financial statements to assess:
(a) the nature of the lessor’s leasing activities; and (b) how the lessor manages the risk associated with any rights it has in underlying assets. In particular, the lessor must disclose its risk management strategy for the rights it has in underlying assets, including any means by which the lessor reduces this risk. These means may include, for example, repurchase agreements, residual value guarantees or variable lease payments for use beyond the specified limits.

Finance Lease
93. The lessor must provide qualitative and quantitative explanation about significant changes in the carrying amount of the net investment in finance leases.
94. The lessor must disclose an analysis of the maturity of lease receivables, showing the undiscounted lease payments to be received annually for each of the first five years, at a minimum, and the total amounts for the remaining years. The lessor must reconcile the undiscounted lease payments to the net investment in the lease. The reconciliation must identify unearned finance income relating to the lease receivables and any unguaranteed residual value discounted.

Operating Lease
95. For items of property, plant and equipment subject to operating leases, the lessor must apply the disclosure requirements of CPC 27. In applying the disclosure requirements of CPC 27, the lessor must disaggregate each class of property, plant and equipment into assets subject to operating leases and assets not subject to operating leases. Consequently, the lessor must provide the disclosures required by CPC 27 for assets subject to operating leases (by class of underlying asset), separately from assets held and used by the lessor.
96. The lessor must apply the disclosure requirements specified in CPC 01, CPC 04, CPC 28 and CPC 29 for assets subject to operating leases.
97. The lessor must disclose an analysis of the maturity of lease payments, showing the undiscounted lease payments to be received annually for each of the first five years, at a minimum, and the total amounts for the remaining years.

Sale and Leaseback Transaction
98. If the entity (seller-lessee) transfers the asset to another entity (buyer-lessor) and enters into a leaseback of that asset from the buyer-lessor, both the seller-lessee and the buyer-lessor must account for the transfer contract and the lease by applying items 99 to 103.

Evaluating whether the transfer of the asset is a sale
99. The entity must apply the requirements to determine when the performance obligation will be satisfied based on CPC 47, to determine whether the transfer of the asset should be accounted for as a sale of that asset.

Transfer of the asset is a sale
100. If the transfer of the asset by the seller-lessee meets the requirements of CPC 47 to be accounted for as a sale of the asset:
(a) the seller-lessee must measure the resulting right-of-use asset arising from the leaseback proportionally to the previous carrying amount of the asset relating to the right-of-use retained by the seller-lessee. Consequently, the seller-lessee must recognize only the amount of any gain or loss relating to the rights transferred to the buyer-lessor; (b) the buyer-lessor must account for the purchase of the asset using the applicable pronouncements, and the lease, by applying the lessor’s lease accounting requirements of this pronouncement.
101. If the fair value of the consideration for the sale of the asset does not equal the fair value of the asset, or if the lease payments are not at market rates, the entity must make the following adjustments to measure the sales proceeds at fair value:
(a) any below-market terms must be accounted for as prepaid lease payments; and

(b) any above-market terms must be accounted for as additional financing provided by the buyer-lessor to the seller-lessee.
102. The entity must measure any potential adjustment required by item 101 based on the more readily determinable value between:
(a) the difference between the fair value of the consideration for the sale and the fair value of the asset; and (b) the difference between the present value of the contractual lease payments and the present value of the lease payments at market rates.

Transfer of the asset is not a sale
103. If the transfer of the asset by the seller-lessee does not meet the requirements of CPC 47 to be accounted for as a sale of the asset:
(a) the seller-lessee must continue to recognize the transferred asset and must recognize a financial liability equivalent to the proceeds of the transfer. It must account for the financial liability by applying CPC 48; (b) the buyer-lessor must not recognize the transferred asset and must recognize a financial asset equivalent to the proceeds of the transfer. It must account for the financial asset by applying CPC 48.

Temporary Exception Arising from the Reform of the Reference Interest Rate
104. A lessee must apply items 105 and 106 to all lease modifications that change the basis for determining future lease payments as a result of the reform of the reference interest rate (see items 5.4.6 and 5.4.8 of CPC 48). These items apply only to such lease modifications. For this purpose, the term “reform of the reference interest rate” refers to the market-wide reform of the reference interest rate, as described in item 6.8.2 of CPC 48.
105. As a practical expedient, the lessee must apply item 42 to recognize a lease modification required by the reform of the reference interest rate. This practical expedient applies only to such modifications. For this purpose, a modification to the lease is required by the reform of the reference interest rate if, and only if, both of the following conditions are met:
(a) the modification is necessary as a direct consequence of the reform of the reference interest rate; and (b) the new basis for determining lease payments is economically equivalent to the previous basis (i.e., the basis immediately preceding the modification).
106. However, if lease modifications are made beyond those modifications required by the reform of the reference interest rate, a lessee must apply the applicable requirements in this Pronouncement to account for all lease modifications made at the same time, including those required by the reference interest rate reform.

Appendix A – Definition of Terms
This appendix is an integral part of the pronouncement.

Lessor is the entity that provides the right to use the underlying asset for a period of time in exchange for consideration.
Lease is a contract, or part of a contract, that transfers the right to use an asset (underlying asset) for a period of time in exchange for consideration.
Short-term lease is a lease that, at the commencement date, has a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease.
Finance lease is a lease that transfers substantially all the risks and benefits incidental to ownership of the underlying asset.
Operating lease is a lease that does not transfer substantially all the risks and benefits incidental to ownership of the underlying asset.
Lessee is the entity that obtains the right to use the underlying asset for a period of time in exchange for consideration.
Right-of-use asset is the asset that represents the lessee’s right to use the underlying asset during the lease term.
Underlying asset is the asset that is the subject of the lease, for which the right to use that asset was provided by the lessor to the lessee.
Initial direct cost is the incremental cost of obtaining the lease that would not have been incurred if the lease had not been obtained, except for costs incurred by a manufacturer or dealer lessor associated with the finance lease.
Lease commencement date is the date that occurs before, between the date of the lease contract and the date when the parties commit to the main terms and conditions of the lease.
Lease commencement date is the date on which the lessor makes the underlying asset available for use by the lessee.
Modification effective date is the date on which both parties agree to the lease modification.
Residual value guarantee is a guarantee made to the lessor by a party unrelated to the lessor that the value (or part of the value) of the underlying asset at the end of the lease will be at least the specified value.

Lease incentives are payments made by the lessor to the lessee associated with the lease, or reimbursement or assumption, by the lessor, of the lessee’s costs.
Gross investment in the lease is the sum:
(a) of the lease payments receivable by the lessor in a finance lease; and (b) of any unguaranteed residual value for which the lessor is responsible.
Net investment in the lease is the gross investment in the lease discounted at the interest rate implicit in the lease.
Modification of the lease is the change in the scope of the lease, or the consideration for the lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or reducing the contractual lease term). Optional lease payment is the payment to be made by the lessee to the lessor for the right to use the underlying asset during the periods covered by the option to extend or terminate the lease, which are not included in the lease term. Lease payment is the payment made by the lessee to the lessor for the right to use the underlying asset during the lease term, which comprises the following:
(a) fixed payments (including fixed payments in substance), less any lease incentives; (b) variable lease payments, which depend on an index or rate; (c) exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and (d) penalties for terminating the lease, if the lease term reflects the lessee exercising the option to terminate the lease. For the lessee, lease payments also include amounts that are expected to be paid by the lessee under residual value guarantees. Lease payments do not include payments allocated to non-lease components of the contract, unless the lessee decides to combine non-lease components with the lease component and account for them as a single lease component. For the lessor, lease receipts also include any residual value guarantees provided to the lessor by the lessee, by the party related to the lessee or by a third party unrelated to the lessor that is financially capable of settling the obligations arising from the guarantee. Lease receipts do not include receipts allocated to non-lease components. Fixed payment is the payment made by the lessee to the lessor for the right to use the underlying asset during the lease term, excluding variable lease payments. Variable lease payment is the portion of the payment made by the lessee to the lessor for the right to use the underlying asset during the lease term that varies due to changes in facts or circumstances occurring after the commencement date, other than the passage of time. Usage period is the total period of time in which the asset is used to fulfill the contract with the customer (including any non-consecutive periods of time).

Lease term is the non-cancellable period during which the lessee has the right to use the underlying asset, together with:
(a) periods covered by an option to extend the lease, if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease, if the lessee is reasonably certain not to exercise that option.
Unearned finance income is the difference between:
(a) the gross investment in the lease; and
(b) the net investment in the lease.
Sublease is the transaction in which the underlying asset is re-leased by the lessee (intermediate lessor) to a third party, and the lease (head lease) between the head lessor and the lessee remains in effect.
Interest rate implicit in the lease is the interest rate that causes the present value (a) of the lease payments and (b) of the unguaranteed residual value to be equal to the sum (i) of the fair value of the underlying asset and (ii) of any initial direct costs of the lessor. Lessee’s incremental borrowing rate is the interest rate that the lessee would have to pay to borrow, over a similar term and with similar security, the funds necessary to obtain an asset with a value similar to the right-of-use asset in a similar economic environment. Fair value, for the purposes of applying the lessor’s accounting requirements in this pronouncement, is the value at which the asset could be exchanged, or the liability settled, between knowledgeable and willing parties in a transaction on usual market terms. Unguaranteed residual value is the portion of the residual value of the underlying asset whose realization by the lessor is not guaranteed or is guaranteed exclusively by the party related to the lessor. Economic life is the period over which the asset is expected to be economically usable by one or more users or the number of units of production or similar that are expected to be obtained from the asset by one or more users.

Terms defined in other pronouncements and used in this pronouncement with the same meaning:
Contract is the agreement between two or more parties that creates enforceable rights and obligations.
Useful life is the period over which the asset is expected to be available for use by the entity, or the number of units of production or similar that the entity expects to obtain from the asset.

Application to portfolios
B1. This pronouncement specifies the accounting for individual leases. However, as a practical expedient, an entity may apply this pronouncement to a portfolio of leases with similar characteristics if that entity reasonably expects that the effects on the financial statements of applying this pronouncement to the portfolio would not differ significantly from applying this pronouncement to the individual leases within that portfolio. If accounting for the portfolio, the entity must use estimates and assumptions that reflect the size and composition of the portfolio.

Combination of contracts
B2. When applying this pronouncement, an entity must combine two or more contracts entered into at or near the same date with the same counterparty (or related parties of the counterparty) and account for those contracts as a single contract if one or more of the following criteria are met:
(a) the contracts are negotiated as a package with an overall commercial objective that cannot be understood without considering the contracts together; (b) the amount of consideration to be paid in one contract depends on the price or performance of another contract; or (c) the rights to use the underlying assets transferred in the contracts (or some rights to use underlying assets transferred in each of the contracts) constitute a single component of the lease, as described in paragraph B32.

Exemption from recognition: lease for which the underlying asset is of low value (paragraphs 5 to 8) B3. Except as specified in paragraph B7, this pronouncement allows the lessee to apply paragraph 6 to account for leases for which the underlying asset is of low value. The lessee must assess the value of the underlying asset based on the value of the asset when it is new, regardless of the age of the asset being leased. B4. The assessment of whether the underlying asset is of low value must be performed on an absolute basis. Leases of low-value assets qualify for the accounting treatment described in paragraph 6, regardless of whether those leases are material to the lessee. The assessment is not affected by the size, nature, or circumstances of the lessee. Consequently, different lessees are expected to reach the same conclusions about whether a specific underlying asset is of low value. B5. The underlying asset can be of low value only if:
(a) the lessee can benefit from the use of the underlying asset either on its own or together with other resources that are readily available to the lessee; and

Identification of a lease (paragraphs 9 to 11) B9. To assess whether a contract transfers the right to control the use of an identified asset (see paragraphs B13 to B20) for a period of time, an entity must assess whether, throughout the period of use, the customer has the following:
(a) the right to obtain substantially all of the economic benefits from use of the identified asset (as described in paragraphs B21 to B23); and (b) the right to direct the use of the identified asset (as described in paragraphs B24 to B30).
B10. If the customer has the right to control the use of an identified asset only for part of the term of the contract, the contract contains a lease for that part of the term.
B11. A contract to receive goods or services may be entered into by a joint arrangement, or on behalf of a joint arrangement, as defined in CPC 19 – Joint Arrangements. In that case, the joint arrangement is considered to be the customer in the contract. Consequently, when assessing whether that contract contains a lease, an entity must assess whether the joint arrangement has the right to control the use of the identified asset throughout the period of use. B12. An entity must assess whether a contract contains a lease for each potential separate lease component. See paragraph B32 for guidance on separate lease components.

Identified asset
B13. An asset is typically identified when it is expressly specified in the contract. However, an asset can also be identified when it is implicitly specified at the time that the asset is made available for use by the customer.

Substantive right to substitute
B14. Even if an asset is specified, the customer does not have the right to use the identified asset if the supplier has a substantive right to substitute the asset throughout the period of use. A supplier’s right to substitute the asset is substantive only if both of the following conditions are met:

Parts of assets
B20. A part of an asset’s capacity is the identified asset if it is physically distinct (for example, a floor of a building). A part of an asset’s capacity or another part of the asset that is not physically distinct (for example, a part of the capacity of a fibre optic cable) is not an identified asset, unless it represents substantially all of the capacity of the asset and thereby gives the customer the right to obtain substantially all of the economic benefits from use of the asset.

Right to direct use
B24. The customer has the right to direct the use of the identified asset throughout the period of use only if:
(a) the customer has the right to direct how and for what purpose the asset is used throughout the period of use (as described in paragraphs B25 to B30); or (b) the relevant decisions about how and for what purpose the asset is used are predetermined and:
(i) the customer has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use, without the supplier having the right to change those operating instructions; or (ii) the customer designed the asset (or specific aspects of the asset) in a way that predetermines how and for what purpose the asset will be used throughout the period of use.

Decisions determined during and before the period of use B28. Relevant decisions about how and for what purpose the asset is to be used may be predetermined in various ways. For example, relevant decisions may be predetermined by the design of the asset or by contractual restrictions on the use of the asset. B29. When assessing whether the customer has the right to direct the use of the asset, an entity must consider only the rights to make decisions about the use of the asset during the period of use, unless the customer designed the asset (or specific aspects of the asset), as described in paragraph B24(b)(ii). Consequently, unless the conditions in paragraph B24(b)(ii) exist, an entity must not consider decisions that are predetermined before the period of use. For example, if the customer is able only to specify the output of the asset before the period of use, the customer does not have the right to direct the use of that asset. The ability to specify the output in a contract before

Protection rights
B30. A contract may include terms and conditions that are intended to protect the supplier’s interest in the asset or in other assets; to protect its personnel; or to ensure compliance with laws or regulations by the supplier. The following are examples of protection rights. For example, the contract may (i) specify a maximum amount of use of the asset or limit where or when the customer may use the asset, (ii) require the customer to follow certain operating practices, or (iii) require the customer to inform the supplier about changes in how the asset will be used. Protection rights typically define the scope of the customer’s right of use but do not, on their own, preclude the customer from having the right to direct the use of the asset. B31. The flowchart below can help an entity make the assessment of whether a contract is, or contains, a lease.

Is there an identified asset?
Consider paragraphs B13 to B20.
Does the customer have the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use?
Consider paragraphs B21 to B23.
Did the customer design the asset in a way that predetermines how and for what purpose the asset will be used throughout the period of use?
Consider paragraph B24(b)(ii)
Does the customer, the supplier, or neither party, have the right to direct how and for what purpose the asset is used throughout the period of use?
Consider paragraphs B25 to B30.
Does the customer have the right to operate the asset throughout the period of use, without the supplier having the right to change those operating instructions?
Consider paragraph B24(b)(i).
No
Customer Supplier
No one; the way in which and for what purpose the asset will be used is predetermined Yes The contract contains a lease The contract does not contain a lease

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

B33. The contract may include the amount to be paid by the lessee for activities and costs that do not transfer the good or service to the lessee. For example, the lessor may include in the total amount to be paid the charges for administrative tasks or other costs incurred by the lessor associated with the lease, which do not transfer the good or service to the lessee. These amounts to be paid do not result in a separate component of the contract, but must be considered part of the total consideration that is allocated to the separately identifiable components of the contract.

Lease Term (items 18 to 21)

B34. When determining the lease term and when assessing the duration of the non-cancellable period of the lease, the entity must apply the definition of a contract and determine the period during which the contract is enforceable. The lease is no longer enforceable when the lessee and the lessor individually have the right to terminate the lease without the permission of the other party upon payment of a penalty that is insignificant.

B35. If only the lessee has the right to terminate the lease, this right is considered to be a termination option available to the lessee that the entity must consider when determining the lease term. If only the lessor has the right to terminate the lease, the non-cancellable period of the lease includes the period covered by the termination option.

B36. The lease term begins at the commencement date and includes any periods of free lease granted to the lessee by the lessor.

B37. At the commencement date, the entity must assess whether the lessee is reasonably certain to exercise the option to extend the lease or to purchase the underlying asset or not to exercise the option to terminate the lease. The entity must consider all relevant facts and circumstances that create an economic incentive for the lessee to exercise, or not to exercise, the option, including any expected changes in facts and circumstances from the commencement date to the date of exercise of the option. Examples of factors to be considered include, among others:

(a) contractual terms and conditions for optional periods compared to market rates, such as:
(i) the amount of lease payments in any optional period; (ii) the amount of any variable lease payments or other contingent payments, such as payments resulting from termination penalties and residual value guarantees; and (iii) the terms and conditions of any options that are exercisable after initial optional periods (for example, a purchase option that is exercisable at the end of the extension period at a rate that is currently below market rates);

(b) significant improvements to leased properties made (or expected to be made) during the term of the contract and that are expected to have significant economic benefit for the lessee, when the option to extend or terminate the lease, or to purchase the underlying asset, becomes exercisable;

(c) costs related to the termination of the lease, such as negotiation costs, relocation costs, costs of identifying another suitable underlying asset for the needs of the lessee, costs of integrating the new asset into the lessee's operations, or termination penalties and similar costs, including costs associated with returning the underlying asset in a contractually specified condition or to a contractually specified location;

(d) the importance of this underlying asset to the lessee's operations, considering, for example, whether the underlying asset is a specialized asset, the location of the underlying asset and the availability of suitable alternatives; and

(e) conditionalities associated with the exercise of the option (i.e., when the option can only be exercised if one or more conditions are met) and the probability that these conditions exist.

B38. The option to extend or terminate the lease may be combined with one or more contractual features (for example, a residual value guarantee), so that the lessee guarantees the lessor a fixed or minimum cash return that is substantially the same, regardless of whether the option is exercised. In these cases, and notwithstanding the guidance on payments fixed in substance in item B42, the entity must assume that the lessee is reasonably certain to exercise the option to extend the lease or not to exercise the option to terminate the lease.

B39. The shorter the non-cancellable period of the lease, the greater the probability that the lessee will exercise the option to extend the lease and not to exercise the option to terminate it. This is because the costs associated with obtaining a replacement asset are likely to be proportionally higher the shorter the non-cancellable period.

B40. The lessee's past practices regarding the period during which it normally used specific types of assets (whether leased or owned), and its economic reasons for doing so, may provide useful information in assessing whether the lessee is reasonably certain to exercise, or not to exercise, the option. For example, if the lessee normally uses specific types of assets for a certain period of time or if the lessee has a practice of frequently exercising options on leases of certain types of underlying assets, the lessee must consider the economic reasons for this past practice when assessing whether it is reasonably certain to exercise the option on leases of these assets.

B41. Item 20 specifies that, after the commencement date, the lessee must reassess the lease term upon the occurrence of a significant event or significant change in circumstances that is within the control of the lessee and affects whether the lessee is reasonably certain to exercise the option not previously included in its determination of the lease term or not to exercise the option previously included in its determination of the lease term. Examples of significant events or changes in circumstances include:

(a) significant improvements to leased properties not anticipated at the commencement date, which are expected to have significant economic benefit for the lessee when the option to extend or terminate the lease, or to purchase the underlying asset, becomes exercisable;

(b) significant modification or customization of the underlying asset, which was not anticipated at the commencement date;

(c) the signing of a sublease of the underlying asset for a period beyond the end of the previously determined lease term; and

(d) a commercial decision by the lessee that is directly relevant to the exercise or non-exercise of the option (for example, a decision to extend the lease of the complementary asset, to dispose of the alternative asset or to dispose of the business unit within which the right-of-use asset is employed).

Payments fixed in substance (items 27(a), 36(c) and 70(a))

B42. Lease payments include any payments fixed in substance. Payments fixed in substance are payments that may, in form, contain variation, but in substance are inevitable. Payments fixed in substance exist, for example, if:

(a) the payments are structured as variable lease payments, but there is no genuine variation in these payments. These payments contain variable clauses that have no real economic substance. Examples of these types of payments include:
(i) payments that must be made only if it is proven that the asset is capable of operating during the lease, or only if an event occurs that has no true possibility of not occurring; or (ii) payments that are initially structured as variable lease payments linked to the use of the underlying asset, but for which the variation will be resolved at some point after the commencement date so that the payments become fixed for the remainder of the lease term. These payments become payments fixed in substance when the variation is resolved;

(b) there is more than one set of payments that the lessee could make, but only one of these sets of payments is realistic. In this case, the entity must consider the set of realistic payments as being the lease payments;

(c) there is more than one set of realistic payments that the lessee could make, but must make at least one of these sets of payments. In this case, the entity must consider the set of payments that aggregates the lowest value (on a discounted basis) as being the lease payments.

Lessee's involvement with the underlying asset before the commencement date

Costs of the lessee related to the construction or design of the underlying asset

B43. The entity may negotiate the lease before the underlying asset is available for use by the lessee. For some leases, the underlying asset may need to be constructed or redesigned for use by the lessee. Depending on the terms and conditions of the contract, the lessee may be required to make payments related to the design and construction of the asset.

B44. If the lessee incurs costs related to the design or construction of the underlying asset, the lessee must account for these costs using other applicable pronouncements, such as CPC 27. Costs related to the design or construction of the underlying asset must not include payments made by the lessee for the right to use the underlying asset. Payments for the right to use the underlying asset are lease payments, regardless of the schedule of these payments.

Legal ownership of the underlying asset

B45. The lessee may obtain legal ownership of the underlying asset before this legal ownership is transferred to the lessor and the asset is leased to the lessee. Obtaining legal ownership does not determine by itself how to account for the transaction.

B46. If the lessee controls the underlying asset (or obtains its control) before the asset is transferred to the lessor, the transaction is a sale and leaseback transaction that must be accounted for using items 98 to 103.

B47. However, if the lessee does not obtain control of the underlying asset before the asset is transferred to the lessor, the transaction is not a sale and leaseback transaction. For example, this may be the case if the manufacturer, the lessor or the lessee negotiates a transaction for the purchase of an asset by the lessor from the manufacturer, which in turn is leased to the lessee. The lessee may obtain legal ownership of the underlying asset before the legal ownership is transferred to the lessor. In this case, if the lessee obtains legal ownership of the underlying asset, but does not obtain control of the asset before it is transferred to the lessor, the transaction must not be accounted for as a sale and leaseback transaction, but rather as a lease.

Lessee disclosure (item 59)

B48. When determining whether additional information about lease activities is necessary to achieve the disclosure objective of item 51, the lessee must consider:

(a) whether this information is relevant to users of the financial statements. The lessee must provide the additional information specified in item 59 only if it is expected that this information will be relevant to users of the financial statements. In this context, this is likely to be the case if it helps these users to understand:
(i) the flexibility provided by leases. Leases can provide flexibility if, for example, the lessee is able to reduce its exposure by exercising termination options or renewing leases with favorable terms and conditions; (ii) the restrictions imposed by leases. Leases can impose restrictions, for example, by requiring the lessee to maintain certain financial ratios; (iii) the sensitivity of reported information to important variables. Reported information may be sensitive, for example, to future variable lease payments; (iv) exposure to other risks resulting from leases; (v) deviations from industry practices. These deviations may include, for example, unusual or unique lease terms and conditions that affect the lessee's lease portfolio;

(b) whether this information results from information presented in the primary financial statements or disclosed in the notes. The lessee does not need to repeat information that is already presented elsewhere in the financial statements.

B49. Additional information regarding variable lease payments that, depending on the circumstances, may be necessary to satisfy the disclosure objective in item 51, may include information that helps users of the financial statements to assess, for example:

(a) the lessee's reasons for using variable lease payments and the prevalence of these payments; (b) the relative magnitude of variable lease payments compared to fixed payments; (c) the main variables on which variable lease payments depend and how payments are expected to vary in response to changes in these main variables; and (d) other operational and financial effects of variable lease payments.

B50. Additional information regarding extension options or termination options that, depending on the circumstances, may be necessary to satisfy the disclosure objective defined in item 51, may include information that helps users of the financial statements to assess, for example:

(a) the lessee's reasons for using extension options or termination options and the prevalence of these options; (b) the relative magnitude of optional lease payments compared to lease payments; (c) the prevalence of the exercise of options that were not included in the measurement of lease liabilities; and (d) other operational and financial effects of these options.

B51. Additional information regarding residual value guarantees that, depending on the circumstances, may be necessary to satisfy the disclosure objective defined in item 51, may include information that helps users of the financial statements to assess, for example:

(a) the lessee's reasons for providing residual value guarantees and the prevalence of these guarantees; (b) the magnitude of the lessee's exposure to residual value risk; (c) the nature of underlying assets for which these guarantees are provided; and (d) other operational and financial effects of these guarantees.

B52. Additional information regarding sale and leaseback transactions that, depending on the circumstances, may be necessary to satisfy the disclosure objective defined in item 51, may include information that helps users of the financial statements to assess, for example:

(a) the lessee's reasons for sale and leaseback transactions and the prevalence of these transactions; (b) the main terms and conditions of individual sale and leaseback transactions; (c) payments not included in the measurement of these lease liabilities; and (d) the cash flow effect of sale and leaseback transactions in the reporting period.

Classification of lease for lessor (items 61 to 66)

B53. The classification of leases for lessors in this pronouncement is based on the extent to which the lease transfers the risks and benefits inherent in the ownership of the underlying asset. Risks include the possibilities of losses resulting from idle capacity or technological obsolescence and of variations in return due to varying economic conditions. Benefits can be represented by the expectation of profitable operation over the economic life of the underlying asset and of gain from its appreciation or from the realization of the residual value.

B54. The lease contract may include terms and conditions to adjust lease receipts for specific changes that occurred between the date of signing the lease and the commencement date of the lease (such as a change in the cost to the lessor of the underlying asset or a change in the cost to the lessor of financing the lease). In this case, for the purposes of lease classification, the effect of any of these changes must be considered as having occurred on the date of signing the lease.

B55. When the lease includes both land and buildings together, the lessor must evaluate the classification of each element as a finance lease or an operating lease separately, applying items 62 to 66, B53 and B54. When determining whether the land element is an operating lease or a finance lease, an important consideration is that land normally has an indefinite economic useful life.

B56. Whenever necessary to classify and account for the lease of land and buildings, the lessor must allocate lease receipts (including any total advance receipts) between the land and building elements, in proportion to the relative fair values of the ownership interests in the leased property, in the land and building elements of the lease at the date of signing the lease. If the lease installments cannot be reliably allocated between these two elements, the entire lease must be classified as a finance lease, unless it is clear that both elements are operating leases, in which case the entire lease must be classified as an operating lease.

B57. For leases of land and buildings where the value of the land element is immaterial to the lease, the lessor may treat land and buildings as a single unit for the purpose of lease classification and to classify it as a finance lease or an operating lease, applying items 62 to 66, B53 and B54. In this case, the lessor must consider the economic life of the buildings as the economic life of the entire underlying asset.

Classification of sublease

B58. When classifying the sublease, the intermediate lessor must classify the sublease as a finance lease or an operating lease as follows:

(a) if the main lease is a short-term lease that the entity, as lessee, accounted for applying item 6, the sublease must be classified as an operating lease; (b) otherwise, the sublease must be classified based on the right-of-use asset resulting from the main lease and not based on the underlying asset (for example, a fixed asset item that is the object of the lease).

COMMISSION ON SECURITIES AND DERIVATIVES
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

Appendix C – Effective Date and Transition
This appendix is an integral part of the pronouncement and has the same importance as the other parts of the pronouncement.

Effective Date
C1. The effective date of this pronouncement will be defined by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply this pronouncement for annual periods beginning on or after January 1, 2019.

C1A. The revision of Technical Pronouncements No. 16/2020, regarding Covid-19 Benefits Granted to Lessees in Lease Contracts, approved by the CPC in 2020, added items 46A, 46B, 60A, C20A and C20B. The effective date of this pronouncement revision will be established by the regulatory bodies that approve it.

C1B. CPC Revision 17, approved by the CPC on January 8, 2021, amended CPC 48, CPC 38, CPC 40, CPC 11 and CPC 06, added items 104 to 106 and C20C and C20D. The effective date of this Revision will be established by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply this revision for annual periods beginning on or after January 1, 2021.

C1C. The revision of Technical Pronouncements No. 18, approved on June 11, 2021, regarding Covid-19 Benefits Granted to Lessees in Lease Contracts extending beyond June 30, 2021, approved by the CPC in 2021, modified item 46B and added items C20BA and C20BB. The effective date of this pronouncement revision will be established by the regulatory bodies that approve it.

Transition
C2. For the purposes of the requirements of items C1 to C19, the date of initial application is the beginning of the annual reporting period in which the entity first applies this pronouncement.

Definition of a lease
C3. As a practical expedient, the entity is not required to reassess whether a contract is or contains a lease at the date of initial application. Instead, the entity may:
(a) apply this pronouncement to contracts that were previously identified as leases, using CPC 06 (IAS 17) and ICPC 03 (IFRIC 4). The entity must apply the transition requirements, set out in items C5 to C18, to these leases; (b) not apply this pronouncement to contracts that were not previously identified as containing a lease, using CPC 06 (IAS 17) and ICPC 03 (IFRIC 4).

C4. If the entity chooses the practical expedient in item C3, it must disclose that fact and apply the practical expedient to all its contracts. As a result, the entity must apply the requirements, set out in items 9 to 11, only to contracts entered into (or modified) on or after the date of initial application.

Lessee
C5. The lessee must apply this pronouncement to its leases:
(a) retrospectively, to each prior reporting period presented, applying CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors; or (b) retrospectively, with the cumulative effect of initially applying the pronouncement recognized at the date of initial application in accordance with items C7 to C13.

C6. The lessee must apply the choice described in item C5 consistently to all its leases in which it is the lessee.

C7. If the lessee decides to apply this pronouncement in accordance with item C5(b), the lessee must not restate comparative information. Instead, the lessee must recognize the cumulative effect of initially applying this pronouncement as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the date of initial application.

Leases previously classified as operating leases C8. If the lessee decides to apply this pronouncement in accordance with item C5(b), the lessee must:
(a) recognize the lease liability at the date of initial application for leases previously classified as operating leases, using CPC 06 (IAS 17). The lessee must measure this lease liability at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate at the date of initial application; (b) recognize the right-of-use asset at the date of initial application for leases previously classified as operating leases, using CPC 06 (IAS 17). The lessee must choose, on a lease-by-lease basis, to measure this right-of-use asset:
(i) at its carrying amount as if the pronouncement had been applied since the commencement date, but discounted using the lessee’s incremental borrowing rate at the date of initial application; or (ii) at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease that were recognized in the balance sheet immediately before the date of initial application; (c) apply CPC 01 to right-of-use assets at the date of initial application, unless the lessee applies the practical expedient described in item C10(b).

C9. Notwithstanding the requirements of item C8, for leases previously classified as operating leases, using CPC 06 (IAS 17), the lessee:
(a) is not required to make any transition adjustments for leases for which the underlying assets are of low value (as described in items B3 to B8) and which are accounted for, using item 6. The lessee must account for these leases using this pronouncement from the date of initial application;

(b) is not required to make any transition adjustments for leases previously accounted for as investment property using the fair value model described in CPC 28. The lessee must account for the right-of-use asset and the resulting lease liability from these leases, using CPC 28 and this pronouncement from the date of initial application; (c) must measure the right-of-use asset at fair value at the date of initial application for leases previously accounted for as operating leases, using CPC 06 (IAS 17), and this must be accounted for as investment property, using the fair value model, described in CPC 28, from the date of initial application. The lessee must account for the right-of-use asset and the resulting lease liability from these leases, using CPC 28 and this pronouncement from the date of initial application.

C10. The lessee may use one or more of the following practical expedients when applying this pronouncement, retrospectively, in accordance with item C5(b) to leases previously classified as operating leases, using CPC 06 (IAS 17). The lessee may apply these practical expedients on a lease-by-lease basis:
(a) the lessee may apply a single discount rate to a portfolio of leases with reasonably similar characteristics (such as leases with similar remaining lease terms for a similar class of underlying asset in a similar economic environment); (b) the lessee may rely on its assessment of whether the leases are onerous, using CPC 25 immediately before the date of initial application as an alternative to performing the impairment review. If the lessee chooses this practical expedient, the lessee must adjust the right-of-use asset at the date of initial application by the amount of any provision for onerous leases recognized in the balance sheet immediately before the date of initial application; (c) the lessee may decide not to apply the requirements of item C8 to leases for which the lease term ends within 12 months of the date of initial application. In this case, the lessee must:
(i) account for these leases in the same manner as short-term leases, as described in item 6; and (ii) include the cost, associated with these leases, within the disclosure of short-term lease expense in the annual reporting period that includes the date of initial application; (d) the lessee may exclude initial direct costs from the measurement of the right-of-use asset at the date of initial application; (e) the lessee may use hindsight, such as in determining the lease term, if the contract contains options to extend or terminate the lease.

Leases previously classified as finance leases C11. If the lessee chooses to apply this pronouncement, in accordance with item C5(b), for leases that were classified as finance leases, using CPC 06 (IAS 17), the carrying amount of the right-of-use asset and the lease liability at the date of initial application must be the carrying amount of the lease asset and the lease liability immediately before that date, measured, using CPC 06 (IAS 17). For these leases, the lessee must account for the right-of-use asset and the lease liability, using this pronouncement from the date of initial application.

Disclosure
C12. If the lessee chooses to use this pronouncement in accordance with item C5(b), the lessee must disclose information about the initial application, required by item 28 of CPC 23, except for the information specified in item 28(f) of CPC 23. Instead of the information specified in item 28(f) of CPC 23, the lessee must disclose:
(a) the lessee’s weighted average incremental borrowing rate applied to lease liabilities recognized in the balance sheet at the date of initial application; and (b) an explanation of any difference between:
(i) operating lease commitments disclosed, using CPC 06 (IAS 17) at the end of the annual reporting period immediately preceding the date of initial application, discounted, using the incremental borrowing rate at the date of initial application, as described in item C8(a); and (ii) lease liabilities recognized in the balance sheet at the date of initial application.

C13. If the lessee uses one or more of the practical expedients specified in item C10, it must disclose that fact.

Lessor
C14. Except as described in item C15, the lessor is not required to make any transition adjustments for leases in which it is the lessor, and must account for these leases, using this pronouncement from the date of initial application.

C15. The intermediate lessor:
(a) must reassess subleases that were classified as operating leases, using CPC 06 (IAS 17), and are in existence at the date of initial application to determine whether each sublease would be classified as an operating lease or a finance lease, using this pronouncement. The intermediate lessor must perform this assessment at the date of initial application, based on the remaining terms and conditions of the head lease and sublease at that date; (b) for subleases that were classified as operating leases, using CPC 06 (IAS 17), and are not finance leases, using this pronouncement, must account for the sublease as a new finance lease, entered into at the date of initial application.

Sale and leaseback transactions, before the date of initial application C16. The entity must not reassess sale and leaseback transactions entered into before the date of initial application to determine whether the transfer of the underlying asset satisfies the requirements of CPC 47 to be accounted for as a sale.

C17. If the sale and leaseback transaction was accounted for as a sale and finance lease, using CPC 06 (IAS 17), the seller-lessee must:
(a) account for the leaseback in the same manner as it accounts for any other financial asset, existing at the date of initial application; and (b) continue to amortize any gain on sale over the lease term.

C18. If the sale and leaseback transaction was accounted for as a sale and operating lease, using CPC 06 (IAS 17), the seller-lessee must:
(a) account for the leaseback in the same manner as it accounts for any other operating asset, existing at the date of initial application; and (b) adjust the right-of-use asset of the leaseback for any deferred gains or losses relating to off-market conditions, recognized in the balance sheet immediately before the date of initial application.

Amounts previously recognized in relation to business combinations C19. If the lessee previously recognized the asset or liability applying CPC 15 – Business Combinations, regarding favorable or unfavorable terms of operating leases acquired as part of the business combination, the lessee must derecognize that asset or liability and adjust the carrying amount of the right-of-use asset by the corresponding amount at the date of initial application.

References to CPC 48 – Financial Instruments
C20. If the entity applies this pronouncement, but has not yet used CPC 48, any reference in this pronouncement to CPC 48 will be read as a reference to CPC 38 – Financial Instruments: Recognition and Measurement.

Covid-19-related lease benefit for lessees
C20A. The lessee must apply the Covid-19-related Benefit Granted in Lease Contract (see item C1A) retrospectively, recognizing the cumulative effect of the initial application of this revision as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the period in which the lessee first applies the revision.

C20B. In the period in which the lessee first applies the Covid-19-related Benefit Granted in Lease Contract, the lessee is not required to disclose the information required by item 28(f) of CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors.

C20BA. The lessee must apply the Covid-19-related Benefit Granted in Lease Contracts extending beyond June 30, 2021 (see item C1B) retrospectively, recognizing the cumulative effect of the initial application of this revision as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the period in which the lessee first applies the revision.

C20BB. In the period in which the lessee first applies the Covid-19-related Benefit Granted in Lease Contracts extending beyond June 30, 2021, the lessee is not required to disclose the information required by item 28 (f) of CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors.

C20BC. When applying item 2 of this Pronouncement, the lessee must apply the practical expedient of item 46A consistently to contracts that meet the conditions and have characteristics and are in similar circumstances, regardless of whether the contract became eligible for the practical expedient regarding Covid-19 Benefits Granted to Lessees in Lease Contracts (as described in item C1A) or after June 30, 2021 (as described in item C1C).

Interest Rate Benchmark Reform – Phase 2
C20C. The entity must apply these changes retrospectively in accordance with CPC 23, except as specified in item C20D.

C20D. The entity is not required to restate prior periods to reflect the application of these changes. The entity may restate prior periods if, and only if, it is possible without the use of hindsight. If the entity does not restate prior periods, the entity must recognize any difference between the carrying amount and the carrying amount at the beginning of the period that includes the date of initial application of these changes in opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application of these changes.

Revocation of other pronouncements
C21. This pronouncement replaces the following pronouncement and interpretation:
(a) CPC 06 (R1) – Leasing Transactions; and
(b) ICPC 03 – Supplementary Aspects of Leasing Transactions (IFRIC 4, SIC-15 and SIC-27).

Lineage: No known changes

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