CVM Resolution No. 191 of October 9, 2023

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CVM RESOLUTION NO. 191, OF OCTOBER 9, 2023

Approves the Review Document of Technical Pronouncements CPC No. 23, issued by the Accounting Pronouncements Committee.

The PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL – CVM makes public that the Collegiate Board, in a meeting held on October 4, 2023, 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, APPROVED the following Resolution:

Art. 1. It makes mandatory, for publicly-held companies, the Review Document of Technical Pronouncements No. 23, issued by the Accounting Pronouncements Committee – CPC, as per Annex “A” to this Resolution.

Art. 2. This Resolution enters into force on January 1, 2024, applying to fiscal years beginning on or after this date.

Signed electronically by
JOÃO PEDRO BARROSO DO NASCIMENTO
President

CVM RESOLUTION NO. 191, OF OCTOBER 9, 2023

ANNEX “A”

ACCOUNTING PRONOUNCEMENTS COMMITTEE
REVIEW OF TECHNICAL PRONOUNCEMENTS – NO. 23/2023

This review document presents changes in the Technical Pronouncements:
CPC 26 (R1) and CPC 06 (R2).

This document establishes changes in Technical Pronouncements resulting from changes in the Classification of Liabilities as Current or Non-Current, Non-Current Liabilities with Covenants, and Lease Liability in a Sale and Leaseback transaction. The effectiveness of these changes will be established by the regulatory bodies that approve them, with the entity required to apply these changes in annual periods beginning on or after January 1, 2024, for full compliance with international accounting standards.

The added text is underlined and the deleted text is struck through.

Amends letter “d” of item 69 and items 60, 71, 73, 74 and 76, includes items 72A, 72B, 75A, 76ZA, 76A, 76B, 139U and 139W and includes a subtitle before items 70, 71 and 72A in CPC 26 (R1) – Presentation of Financial Statements, which shall enter into force with the following wording:

Distinction between current and non-current

The entity shall present current and non-current assets, and current and non-current liabilities, as separate classifications on the statement of financial position, in accordance with items 66 to 76B, except when a presentation based on liquidity provides information that is reliable and more relevant. When that exception applies, all assets and liabilities shall be presented in order of liquidity.

Current Liability

A liability shall be classified as current when it satisfies any of the following criteria:

(a) it is expected to be settled in the normal operating cycle of the entity; (b) it is held primarily for the purpose of being traded; (c) it is due to be settled within twelve months after the reporting period; or (d) the entity does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting date (see item 73). The terms of a liability that could, at the counterparty’s option, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities shall be classified as non-current.

Normal operating cycle (item 69(a))

Some current liabilities, such as trade payables and some accruals for employee and other operating costs, are part of the working capital used in the normal operating cycle of the entity. Such operating items are classified as current liabilities even when they are to be settled more than twelve months after the reporting date. The same normal operating cycle applies to the classification of the entity’s assets and liabilities. When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be twelve months.

Held primarily for the purpose of being traded (item 69(b)) or due to be settled within twelve months (item 69(c))

Other current liabilities are not settled as part of the normal operating cycle, but settlement is expected for the period of up to twelve months after the reporting date or are held primarily for the purpose of being traded. Examples of this are some financial liabilities that meet the definition of held for trading in CPC 48, bank overdrafts and the current portion of non-current financial liabilities, dividends payable, income tax and other non-trade payables. Financial liabilities that provide long-term financing (i.e., do not form part of the working capital used in the normal operating cycle of the entity) and whose settlement is not expected to be within twelve months after the reporting date are non-current liabilities, subject to items 74 and 72A to 75.

Right to defer settlement for at least twelve months (item 69(d))

72A. The entity’s right to defer settlement of a liability for at least twelve months after the reporting date shall have substance and, as described in items 72B to 75, shall exist at the reporting date.

72B. An entity’s right to defer settlement of a liability arising from a borrowing for at least 12 months after the reporting date may be subject to the entity complying with conditions specified in that borrowing agreement (hereinafter referred to as ‘covenants’). For the purposes of applying paragraph 69(d), these covenants:

(a) affect the existence of that right at the reporting date – as described in items 74 and 75 – if an entity is required to comply with the covenants at the reporting date or before that date. These covenants affect the existence of the right at the reporting date, even if their compliance is assessed only after the reporting date (for example, a covenant based on the entity’s financial position at the reporting date, but whose compliance is assessed only after the reporting date).

(b) do not affect the existence of that right at the reporting date if the entity is required to comply with the covenants only after the reporting date (for example, a covenant based on the entity’s financial position six months after the reporting date).

If the entity has the expectation, and has the discretionary right, at the reporting date, to refinance or roll over an obligation for at least twelve months after the reporting date under an existing borrowing agreement, it shall classify the obligation as non-current, even if it would otherwise be due within a shorter period. However, when the refinancing or rollover of the obligation does not depend solely on the entity (for example, if there is no refinancing agreement) If the entity does not have this right, the mere potential for refinancing is not considered sufficient for classification as non-current and, therefore, the obligation is classified as current.
When the entity breaches a contractual agreement (covenant) of a long-term loan (debt-to-equity ratio or interest coverage ratio, for example) at the end or before the end of the reporting period, making the liability due and payable to the creditor at the creditor’s request, the liability shall be classified as current even if the creditor has agreed, after the reporting date and before the date of authorization for the issuance of the financial statements, not to demand early payment as a consequence of the covenant breach. The liability shall be classified as current because, at the reporting date, the entity does not have an unconditional right to defer its settlement for at least twelve months after that date.

75A. The classification of a liability is not affected by the probability of the entity exercising its right to defer settlement of the liability for at least twelve months after the reporting date. If a liability meets the criteria of item 69 for classification as non-current, it is classified as non-current even if management intends or expects the entity to settle the liability within twelve months after the reporting date, or even if the entity settles the liability between the reporting date and the date when the balance sheet is authorized for issuance. However, in any of these circumstances, the entity may have to disclose information about the timing of settlement to allow users of its financial statements to understand the impact of the liability on the entity’s financial position (see items 17(c) and 76(d)).

With respect to loans classified as current liabilities, if the following events occur between the reporting date and the date when the financial statements are authorized for issuance, these events shall be qualified for disclosure as events that do not originate adjustments in accordance with Technical Pronouncement CPC 24 – Subsequent Events:

(a) refinancing on a long-term basis of a liability classified as current (see item 72); (b) rectification of a breach of covenant of a long-term loan classified as current (see item 74) ; and

(c) grant by the creditor of an extension to rectify the breach of contractual covenant (restructuring in debt-to-equity and interest coverage ratios, for example) of a long-term loan, which ends at least twelve months after the reporting date. classified as current (see item 75); and

(d) settlement of a liability classified as non-current (see item 75A).

Settlement (items 69(a), 69(c) and 69(d))

76A. For the purposes of classifying a liability as current or non-current, settlement refers to a transfer to the counterparty that results in the extinguishment of the liability. The transfer may be of:

(a) cash or other economic resources - for example, goods or services; or (b) the entity’s own equity instruments, unless item 76B applies.

76B. The terms of a liability that could, at the counterparty’s option, result in its settlement by the transfer of the entity’s own equity instruments do not affect its classification as current or non-current if, applying CPC 39 - Financial Instruments: Presentation, the entity classifies the option as an equity instrument, recognizing it separately from the liability as an equity component of a compound financial instrument.

76ZA. When applying items 69 to 75, an entity may classify liabilities arising from borrowings as non-current when its right to defer settlement of these liabilities is subject to the entity complying with covenants in up to 12 months after the reporting date (see item 72B(b)). In these situations, the entity shall disclose information in the notes that allows users of the financial statements to understand the risk that the liabilities may become due within 12 months after the reporting date, including:

(a) information about the covenants (including their nature and when the entity is required to comply with them) and the carrying amount of the related liabilities.

(b) facts and circumstances, if any, that indicate that the entity may have difficulty complying with the covenants – for example, if the entity acted during or after the reporting period to avoid or mitigate a possible covenant breach. These facts and circumstances may also include the fact that the entity would not have complied with the covenants if they were assessed for compliance based on the entity’s circumstances at the reporting date.

Transition and Effective Date

139U. Technical Pronouncements Review No. 23, approved by the CPC on August 4, 2023, amended letter “d” of item 69 and items 60, 71, 73, 74 and 76, included items 72A, 72B, 75A, 76ZA, 76A and 76B, and included a subtitle before items 70, 71 and 72A.

139W. Technical Pronouncements Review No. 23, approved by the CPC on August 4, 2023, also included items 76ZA and 139U. The entity shall apply:

(a) the amendment to item 139U immediately upon the issuance of Non-Current Liabilities with Covenants.

(b) the effectiveness of this Review shall be established by the regulatory bodies that approve it, with the entity required to apply all other changes for annual reporting periods beginning on or after January 1, 2024, retrospectively, in accordance with Technical Pronouncement CPC 23.

Includes items 102A, C1D, C20E and its subtitle and amends item C2 in CPC 06 (R2) – Leases, which shall enter into force with the following wording:

102A. After the commencement date, the seller-lessee shall apply items 29 to 35 to the right-of-use asset arising from the backlease and items 36 to 46 to the lease liability arising from the backlease. When applying items 36 to 46, the seller-lessee shall determine “lease payments” or “revised lease payments” in such a way that the seller-lessee does not recognize any amount of gain or loss related to the right-of-use asset retained by the seller-lessee. The application of the requirements of this paragraph does not prevent the seller-lessee from recognizing in profit or loss any gain or loss related to the partial or total termination of a lease contract, as required by item 46(a).

Effective Date

C1D. Technical Pronouncements Review No. 23, approved by the CPC on August 4, 2023, amended item C2 and included items 102A and C20E. The effectiveness of this Review shall be established by the regulatory bodies that approve it, with the entity required to apply this review for annual periods beginning on or after January 1, 2024.

Transition

C2. For the purposes of the requirements of items C1 to C19 C20E, the date of initial application is the beginning of the annual reporting period in which the entity first applies this pronouncement.

Lease liability in a sale and leaseback transaction

C20E. A seller-lessee shall apply Technical Pronouncements Review No. 23 (see paragraph C1D) retrospectively, in accordance with CPC 23, to sale and leaseback transactions entered into after the date of initial application.

CVM Resolution No. 191 of October 9, 2023

Lineage: In force