CVM Resolution No. 126 Approves Consolidated Technical Interpretation ICPC 13 — CVM — BR

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL
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CVM RESOLUTION NO. 126, OF JUNE 3, 2022

Approves the Consolidation of Technical Interpretation ICPC 13 of the Accounting Pronouncements Committee - CPC, which deals with rights to participations arising from funds for decommissioning, restoration and environmental rehabilitation.

THE PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM makes public that the Board, in a meeting held on May 4, 2022, based on §§ 3 and 5 of 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 Interpretation ICPC 13, which deals with rights to participations arising from funds for decommissioning, restoration and environmental rehabilitation, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. CVM Deliberation No. 637, of August 6, 2010, is hereby revoked, from the effective date of this Resolution.

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

Signed electronically by
Marcelo Barbosa
President

CVM RESOLUTION NO. 126, OF JUNE 3, 2022
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ANNEX “A”

ACCOUNTING PRONOUNCEMENTS COMMITTEE

TECHNICAL INTERPRETATION ICPC 13

RIGHTS TO PARTICIPATIONS ARISING FROM FUNDS FOR DECOMMISSIONING, RESTORATION AND ENVIRONMENTAL REHABILITATION

Correlation to International Financial Reporting Interpretations Committee – IFRIC 5

Index Item

REFERENCES

CONTEXT 1 – 3
SCOPE 4 – 5
ISSUES 6
CONSENSUS 7 – 13
Accounting for participation in a fund 7 – 9
Accounting for obligation to make additional contributions 10 Disclosure 11 – 13 EFFECTIVE DATE 14

References

CPC 23 – Accounting Policies, Changes in Accounting Estimates and Errors
CPC 36 – Consolidated Financial Statements
CPC 18 – Investment in Associate, in Subsidiary and in Jointly Controlled Entity
CPC 19 – Joint Ventures
CPC 25 – Provisions, Contingent Liabilities and Contingent Assets
CPC 48 – Financial Instruments

CVM RESOLUTION NO. 126, OF JUNE 3, 2022
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Context

The purpose of decommissioning, restoration and environmental rehabilitation funds, hereinafter referred to as “decommissioning funds” or “funds”, is to segregate assets to fund some or all of the costs of decommissioning factories (such as a nuclear power plant) or certain equipment (such as vehicles) or environmental rehabilitation (such as water decontamination or restoration of contaminated land), collectively referred to as “decommissioning”.
Contributions to these funds may be voluntary or required by regulation or law. The funds may have one of the following structures:
(a) funds that are established by a single contributor to fund its own decommissioning obligations, either for a specific location or for a series of geographically dispersed locations; (b) funds that are established with multiple contributors to fund their individual or joint decommissioning obligations, when the contributors have the right to reimbursement for decommissioning expenses to the extent of their contributions plus any actual gains on those contributions, less their share of the fund’s administrative expenses. Contributors may have an obligation to make additional contributions, for example, in the event of another contributor’s bankruptcy; (c) funds that are established with multiple contributors, to fund their individual or joint decommissioning obligations, when the required level of contributions is based on a contributor’s current activity and the benefit obtained by that contributor is based on its past activity. In these cases, there is a potential mismatch between the value of contributions made by a contributor (based on current activity) and the realizable value from the fund (based on past activity).
These funds generally have the following characteristics:
(a) the fund is administered separately by independent trustees; (b) the entities (contributors) make contributions to the fund, which are invested in a range of assets that may include both debt and equity instruments, and are available to help pay the contributors’ decommissioning expenses. The trustees determine how the contributions are invested, within the limitations defined by the fund’s constitutive documents and any applicable legislation or other regulations; (c) the contributors retain the obligation to pay the decommissioning expenses. However, the contributors are able to obtain reimbursement for decommissioning expenses from the fund up to the lower of the decommissioning expenses incurred and the contributor’s share of the fund’s assets; (d) contributors may have restricted or no access to any excess fund assets over those used to meet eligible decommissioning expenses.

CVM RESOLUTION NO. 126, OF JUNE 3, 2022
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Scope

This Interpretation shall be applied to accounting in the financial statements of a contributor for participations arising from decommissioning funds that have both of the following characteristics:
(a) the assets are administered separately (either by being held in a separate legal entity or as segregated assets within another entity); and (b) the contributor’s right to access the assets is restricted.
The residual interest in the fund that extends beyond the right to reimbursement, such as the contractual right to distributions when all decommissioning has been completed or upon the liquidation of the fund, may be an equity instrument within the scope of CPC 48 – Financial Instruments, and in that case, is not within the scope of this Interpretation.

Issues

The issues addressed in this Interpretation are:
(a) how should the entity (contributor) account for its participation in the fund?
(b) when the entity (contributor) has an obligation to make additional contributions, for example, in the event of another contributor’s bankruptcy, how should this obligation be accounted for?

Consensus

Accounting for participation in a fund

The contributor shall recognize its obligation to pay decommissioning expenses as a liability and shall recognize its participation in the fund separately, unless the contributor is not responsible for paying the decommissioning expenses even if the fund fails to pay.
The contributor shall determine whether it has control, joint control or significant influence over the fund by reference to Technical Pronouncements CPC 18 – Investment in Associate, in Subsidiary and in Jointly Controlled Entity, CPC 19 – Joint Ventures and CPC 36 – Consolidated Financial Statements. If so, the contributor shall account for its participation in the fund in accordance with those Technical Pronouncements.
If the contributor does not have control, joint control or significant influence over the fund, it shall recognize the right to receive reimbursement from the fund as a reimbursement, in accordance with Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets. This reimbursement shall be measured at the lower of:
(a) the value of the recognized decommissioning obligation; and (b) the contributor’s share of the fair value of the net assets of the fund attributable to contributors.

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Changes in the carrying amount of the right to receive reimbursement, except for contributions to the fund, and payments from the fund, shall be recognized in profit or loss in the period in which those changes occur.

Accounting for obligation to make additional contributions

When the contributor has an obligation to make potential additional contributions, for example, in the event of another contributor’s bankruptcy or if the value of investment assets held by the fund decreases to a level that is insufficient to meet the fund’s reimbursement obligations, this obligation is considered a contingent liability, which is within the scope of Technical Pronouncement CPC 25. The entity (contributor) shall recognize a liability only if it is probable that additional contributions will be made.

Disclosure

The entity (contributor) shall disclose the nature of its participation in the fund and any restrictions on access to the assets in the fund.
When the entity (contributor) has an obligation to make potential additional contributions that are not recognized as a liability (see item 10), it shall make the disclosures required by item 86 of Technical Pronouncement CPC 25.
When the entity (contributor) accounts for its participation in the fund in accordance with item 9, it shall make the disclosures required by item 85(c) of Technical Pronouncement CPC 25.

Effective Date

This Interpretation is applicable together with the initial adoption of Technical Pronouncements CPC 38 and CPC 25.

Lineage: No known changes