CVM Resolution No. 213 of September 23, 2024

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL (CVM) Seven of September Street, 111/2-5th and 23-34th Floors, Center, Rio de Janeiro/RJ – ZIP: 20050-901 – Brazil - Tel.: (21) 3554-8686 Cincinato Braga Street, 340/2nd, 3rd and 4th Floors, Bela Vista, São Paulo/ SP – ZIP: 01333-010 – Brazil - Tel.: (11) 2146-2000 SCN Q.02 – Bl. A – Corporate Financial Center Building, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil - Tel.: (61) 3327-2030/2031 www.cvm.gov.br

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
Approves the Review Document of Technical Pronouncements No. 27, issued by the Accounting Pronouncements Committee – CPC.

The PRESIDENT OF THE SECURITIES AND EXCHANGE COMMISSION OF BRAZIL – CVM makes public that the Board, in a meeting held on September 18, 2024, 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. 27, issued by the Accounting Pronouncements Committee – CPC, as per Annex “A” to this Resolution.

Art. 2. This Resolution enters into force on January 1, 2025, applying to fiscal years beginning on or after this date.

Signed electronically by
JOÃO PEDRO BARROSO DO NASCIMENTO
President

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
REVIEW OF TECHNICAL PRONOUNCEMENTS – NO. 27/2024

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This review document presents changes in Technical Pronouncements CPC 02 (R2) and CPC 37 (R1).
This document establishes changes in Technical Pronouncements CPC 02 (R2) - Effects of Changes in Foreign Exchange Rates and Conversion of Financial Statements and CPC 37 (R1) - Initial Adoption of International Accounting Standards. The added text is underlined and the deleted text is struck through. The validity of these changes will be established by the regulatory bodies.

Includes items 8A, 8B, 19A, 57A, 57B, 60L, 60M and Appendix A and alters items 8 and 26 in CPC 02 (R2) - Effects of Changes in Foreign Exchange Rates and Conversion of Financial Statements, which shall enter into force with the following wordings:

Definitions
8 The following terms are used in this Technical Pronouncement with the meanings described below:
[...]
A currency is convertible into another currency when an entity is able to obtain the other currency within a timeframe that allows for normal administrative delay and through a foreign exchange market or mechanism in which a foreign exchange transaction would create enforceable rights and obligations;

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
[...]

Detailed definitions
Convertible (items A2 to A10)
8A An entity assesses whether a currency is convertible into another currency:
(a) at a measurement date; and
(b) for a specified purpose.
8B If an entity is able to obtain no more than an insignificant amount of the other currency at the measurement date for the specified purpose, the currency is not convertible into another currency.
[...]

Estimation of the spot exchange rate when a currency is not convertible (items A11 to A17) 19A An entity shall estimate the spot exchange rate at the measurement date when a currency is not convertible into another currency (as described in items 8, 8A–8B and A2–A10) at that date. The objective of an entity when estimating the spot exchange rate is to reflect the rate at which a regular foreign exchange transaction would occur at the measurement date between market participants under prevailing economic conditions.

Presentation of foreign currency transactions in the functional currency [...]

Presentation at the end of subsequent reporting periods [...]
26 When several exchange rates are available, the exchange rate to be used is that from which the future cash flows represented by the transaction or balances could be settled if those cash flows had occurred at the measurement date. If, temporarily, there is no exchange between two currencies, the rate to be used is the first subsequent exchange rate from which foreign exchange operations can be conducted. [...]

Disclosure
[...]

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
57A When an entity estimates a spot exchange rate because a currency is not convertible into another currency (see item 19A), the entity shall disclose information that enables users of its financial statements to understand how the currency not convertible into another currency affects, or is expected to affect, the financial performance, position, and cash flows of the entity. To achieve this objective, an entity shall disclose information about:
(a) the nature and financial effects of the currency not convertible into another currency; (b) the spot exchange rate(s) used; (c) the estimation process; and (d) the risks to which the entity is exposed due to the currency not being convertible into another currency. 57B Items A18 to A20 specify how an entity applies item 57A.

Effective date and transition
[...]
60L Review of Technical Pronouncements No. 27, approved by the CPC on July 5, 2024, altered items 8 and 26, and included items 8A and 8B, 19A, 57A and 57B and Appendix A to Technical Pronouncement CPC 02 - Effects of Changes in Foreign Exchange Rates and Conversion of Financial Statements. The entity shall apply these changes as approved by the regulatory bodies. Notwithstanding compliance with international accounting standards, the entity shall apply these changes for annual reporting periods beginning on or after January 1, 2025. The initial application date is the beginning of the annual reporting period in which an entity first applies these changes. 60M When applying Review of Technical Pronouncements No. 27, the entity shall not restate comparative information. Instead:
(a) when the entity presents foreign currency transactions in its functional currency and, at the date of initial application, concludes that its functional currency is not convertible into foreign currency or, if applicable, concludes that the foreign currency is not convertible into its functional currency, the entity shall, at the date of initial application:
(i) convert the affected foreign currency monetary items and non-monetary items measured at fair value in foreign currency, using the estimated spot exchange rate at that date; and (ii) recognize any effect of the initial application of the changes as an adjustment to the opening balance of retained earnings.

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
(b) when the entity uses a presentation currency different from its functional currency, or converts the results and financial position of a foreign operation and, at the date of initial application, concludes that its functional currency (or the functional currency of the foreign operation) is not convertible into its presentation currency or, if applicable, concludes that its presentation currency is not convertible into its functional currency (or the functional currency of the foreign operation), the entity shall, at the date of initial application:
(i) convert the affected assets and liabilities using the estimated spot exchange rate at that date; (ii) convert the affected equity items using the estimated spot exchange rate at that date if the functional currency of the entity is hyperinflationary; and (iii) recognize any effect of the initial application of the changes as an adjustment to the accumulated amount of translation differences – accumulated in a separate component of equity. [...]

Appendix A
Application guidance
This appendix is an integral part of this pronouncement.

Convertibility
A1 The objective of the diagram below is to help entities assess whether a currency is convertible and estimate the spot exchange rate when a currency is not convertible.

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
Step I: Assess whether a currency is convertible (items 8, 8A and 8B) A2 Items A3 to A10 establish the application guidance to help an entity assess whether a currency is convertible into another currency. An entity may determine that a currency is not convertible into another currency, even if that other currency may be convertible in the other direction. For example, an entity may determine that currency PC is not convertible into currency LC, even if currency LC is convertible into currency PC.

Timeframe
A3 Item 8 defines a spot exchange rate as the exchange rate for immediate delivery. However, a foreign exchange transaction may not always be completed instantly due to legal or regulatory requirements, or for practical reasons, such as public holidays. A normal administrative delay in obtaining the other currency does not prevent a currency from being convertible into that other currency. What constitutes a normal administrative delay will depend on the facts and circumstances.

Ability to obtain the other currency
A4 When assessing whether a currency is convertible into another currency, an entity shall consider its ability to obtain the other currency, and not its intention or decision to do so. Subject to the other requirements in items A2 to A10, a currency is convertible into another currency if an entity is able to obtain the other currency – directly or indirectly – even if it intends or decides not to do so. For example, subject to the other requirements in items A2 to A10, regardless of whether the entity intends or decides to obtain PC, currency LC is convertible into currency PC if an entity is able to convert LC for PC, or convert LC for another currency (FC) and then convert FC for PC.

Foreign exchange markets or mechanisms

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
A5 When assessing whether a currency is convertible into another currency, an entity shall consider only foreign exchange markets or mechanisms in which a transaction to convert the currency into another currency would create enforceable rights and obligations. Enforceability is a matter of law. Whether a foreign exchange transaction in a foreign exchange market or mechanism creates enforceable rights and obligations depends on the facts and circumstances.

Purpose of obtaining the other currency
A6 Different exchange rates may be available for different uses of a currency. For example, a jurisdiction facing pressure on its balance of payments may wish to prevent capital remittances (such as dividend payments) to other jurisdictions, but encourage imports of specific goods from those jurisdictions. In these circumstances, the competent authorities may:
(a) establish a preferential exchange rate for the imports of these goods and a “penalty” exchange rate for capital remittances to other jurisdictions, thus resulting in different exchange rates applicable to different foreign exchange transactions; or (b) make the other currency available only to pay for the imports of these goods and not for capital remittances to other jurisdictions. A7 Consequently, whether a currency is convertible into another currency may depend on the purpose for which the entity obtains (or hypothetically might need to obtain) the other currency. When assessing convertibility:
(a) when an entity presents foreign currency transactions in its functional currency (see items 20 to 37), it shall assume that its purpose in obtaining the other currency is to settle or liquidate individual foreign currency transactions, assets, or liabilities. (b) when an entity uses a presentation currency different from its functional currency (see items 38 to 43), it shall assume that its purpose in obtaining the other currency is to settle or liquidate its net assets or net liabilities. (c) when an entity converts the results and financial position of a foreign operation into the presentation currency (see items 44 to 47), it shall assume that its purpose in obtaining the other currency is to settle or liquidate its net investment in the foreign operation. A8 The net assets or net investment in a foreign operation of an entity may be realized, for example:
(a) by the distribution of a financial return to the owners of the entity; (b) by the receipt of a financial return from the entity’s foreign operation; or

CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024
(c) by the recovery of the investment by the entity or the owners of the entity, such as through the disposal of the investment.
A9 An entity shall assess whether a currency is convertible into another currency separately for each specified purpose in item A7. For example, an entity shall assess convertibility for the purpose of presenting foreign currency transactions in its functional currency (see item A7(a)) separately from convertibility for the purpose of converting the results and financial position of a foreign operation (see item A7(c)).

Ability to obtain only limited amounts of the other currency A10 A currency is not convertible into another currency if, for a specified purpose in item A7, an entity is not able to obtain more than an insignificant amount of the other currency. An entity shall assess the significance of the amount of the other currency that it is able to obtain for a specified purpose by comparing that amount with the total amount of the other currency required for that purpose. For example, an entity with functional currency LC has liabilities denominated in currency FC. The entity assesses whether the total amount of FC that it can obtain for the purpose of settling these liabilities is no more than an insignificant amount compared to the aggregate (sum) of its liability balances denominated in FC.

Step II: Estimate the spot exchange rate when a currency is not convertible (item 19A) A11 This Pronouncement does not specify how an entity estimates the spot exchange rate to meet the objective of item 19A. An entity may use an unadjusted observable exchange rate (see items A12 to A16) or another estimation technique (see item A17).

Use of an unadjusted observable exchange rate
A12 When estimating the spot exchange rate, as required by item 19A, an entity may use an unadjusted observable exchange rate if that observable exchange rate meets the objective of item 19A. Examples of an observable exchange rate include:
(a) a spot exchange rate for a purpose different from that for which an entity assesses convertibility (see items A13 and A14); and (b) the first rate at which an entity is able to obtain the other currency for the specified purpose after the convertibility of the currency is restored (first subsequent exchange rate) (see items A15 and A16).

Use of an observable exchange rate for other purposes A13 A currency that is not convertible into another currency for one purpose may be convertible into that currency for another purpose. For example, an entity may be able to obtain a currency to import specific goods, but not to pay dividends. In these situations, the entity may conclude that an observable exchange rate for another purpose meets the objective of item 19A. If the rate meets the objective of item 19A, an entity may use that rate as the estimated spot exchange rate. A14 When assessing whether this observable exchange rate meets the objective of item 19A, an entity shall consider, among other factors:
(a) whether there are multiple observable exchange rates – the existence of more than one observable exchange rate may indicate that the exchange rates are set to incentivize or discourage entities from obtaining the other currency for specific purposes. These observable exchange rates may include an “incentive” or a “penalty” and, therefore, may not reflect prevailing economic conditions. (b) the purpose for which the currency is convertible – if an entity is able to obtain the other currency only for limited purposes (such as importing emergency supplies), the observable exchange rate may not reflect prevailing economic conditions. (c) the nature of the exchange rate – a floating observable exchange rate is more likely to reflect prevailing economic conditions than a rate fixed by regular interventions of competent authorities. (d) the frequency with which exchange rates are updated – an observable exchange rate that does not change over time is less likely to reflect prevailing economic conditions than an observable exchange rate updated daily (or even more frequently).

Use of the first subsequent exchange rate
A15 A currency that is not convertible into another currency at the measurement date for a specified purpose may subsequently become convertible into that currency for that purpose. In these situations, an entity may conclude that the first subsequent exchange rate meets the objective of item 19A. If the rate meets the objective of item 19A, an entity may use that rate as the estimated spot exchange rate. A16 When assessing whether the first subsequent exchange rate meets the objective of item 19A, an entity shall consider, among other factors:
(a) the time between the measurement date and the date when convertibility is restored – the shorter this period, the more likely the first subsequent exchange rate is to reflect prevailing economic conditions.
(b) inflation rates – when an economy is subject to high inflation, including when an economy is hyperinflationary (as defined in Technical Pronouncement CPC 42 - Accounting in Hyperinflationary Economies), prices often change rapidly, even several times a day. Consequently, the first subsequent exchange rate for a currency from such an economy may not reflect prevailing economic conditions.

SECURITIES COMMISSION OF BRAZIL (CVM)
Rua Sete de Setembro, 111/2-5th and 23-34th Floors, Centro, 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 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4th Floor, Brasília/DF – ZIP: 70712-900 – Brazil - Tel.: (61) 3327-2030/2031 www.cvm.gov.br CVM RESOLUTION NO. 213, OF SEPTEMBER 23, 2024 Use of another estimation technique A17 An entity that uses another estimation technique may use any observable exchange rate – including exchange rates from transactions in markets or exchange mechanisms that do not create enforceable rights and obligations – and adjust that rate, as necessary, to meet the objective of item 19A. Disclosure when a currency is not convertible A18 The entity shall consider how much detail is necessary to meet the disclosure objective of item 57A. The entity shall disclose the information specified in items A19 and A20 and any additional information necessary to meet the disclosure objective of item 57A. A19 When applying item 57A, the entity shall disclose:
(a) the currency and a description of the restrictions that result in the impossibility of converting that currency into another currency; (b) a description of the affected transactions; (c) the carrying amount of the affected assets and liabilities; (d) the spot exchange rates used and whether those rates are:
(i) observable spot exchange rates without adjustment (see items A12 to A16); or (ii) estimated spot exchange rates using another estimation technique (see item A17).
(e) a description of any estimation technique that the entity has used and qualitative and quantitative information about the data and assumptions used in that estimation technique; and (f) qualitative information about each type of risk to which the entity is exposed because the currency is not convertible into another currency, and the nature and carrying amount of the assets and liabilities exposed to each type of risk. A20 When the functional currency of an operation abroad is not convertible into the presentation currency or, if applicable, the presentation currency is not convertible into the functional currency of an operation abroad, the entity shall also disclose:
(a) the name of the operation abroad; if the operation abroad is a subsidiary, joint operation, joint venture, associate or branch; and its headquarters; (b) summarized financial information about the operation abroad; and (c) the nature and terms of any contractual agreements that may require the entity to provide financial support to the operation abroad, including events or circumstances that may expose the entity to a loss.

CVM Resolution No. 213 of September 23, 2024

Lineage: In force