CVM Resolution No. 58 of October 22, 2021

SECURITIES AND EXCHANGE COMMISSION OF BRAZIL - CVM Seven de Setembro 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

CVM RESOLUTION NO. 58, OF OCTOBER 22, 2021
Approves the Revision Document of Technical Pronouncements No. 19, 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 October 20, 2021, based on §§ 3 and 5 of Article 177 of Law No. 6,404, of December 15, 1976, combined with items II and IV of § 1 of Article 22 of Law No. 6,385, of December 7, 1976, APPROVED the following Resolution:

Art. 1. It becomes mandatory for publicly-held companies the Revision Document of Technical Pronouncements No. 19 issued by the Accounting Pronouncements Committee – CPC, annexed to this Resolution.

Art. 2. This Resolution enters into force on January 1, 2022, applying to social fiscal years beginning on or after this date.

Signed electronically by
Marcelo Barbosa
President

This revision document presents changes in the Technical Pronouncements: CPC 37 (R1), CPC 48, CPC 29, CPC 27, CPC 25, and CPC 15 (R1).

This document establishes changes in Technical Pronouncements as a result of the annual changes related to the 2018-2020 improvement cycle; Property, Plant and Equipment – sales before intended use; Onerous Contracts - costs of fulfilling contracts; and References to the Conceptual Framework. The validity of these changes must be established by the regulatory bodies that approve them, and, for full compliance with international accounting standards, the entity must apply these changes for annual periods beginning on or after January 1, 2022.

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

Includes items 39AG and new D13A, alters item D1(f) and renumbers item D13A to D13B in CPC 37 (R1) - Initial Adoption of International Financial Reporting Standards, which will enter into force with the following wordings:

39AG. CPC Revision 19, approved by the CPC on October 1, 2021, altered item D1(f), renumbered item D13A and added new item D13A. The validity of this Revision must be established by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply these changes for annual periods beginning on or after January 1, 2022.

D1. The entity may opt for one or more of the following exemptions:
(...)
(f) cumulative translation differences (items D12 to D13A D13B);

D13A. Instead of applying item D12 or item D13, a subsidiary that uses the exemption in item D16(a) may choose, in its financial statements, to measure the cumulative translation differences for all foreign operations at the carrying amount that would be included in the parent's consolidated statement, based on the parent's transition date to the CPCs, if no adjustment were made for consolidation procedures and for the effects of the business combination in which the parent acquired the subsidiary. A similar option is available for a jointly controlled entity or associate that opts for the exemption in item D16(a).

D13A D13B. As a consequence of items D12 and D13, and considering that entities have, by virtue of the validity given to Technical Pronouncement CPC 02 by their regulatory bodies, recognized these gains or losses from translation differences likely at a date prior to the transition date to IFRSs, first-time adopters must zero out the balances of these existing cumulative translation differences in their financial statements prepared in accordance with CPC 02, at the transition date, transferring them to retained earnings or accumulated losses, as well as disclose the profit distribution policy applicable to such balances.

Includes items 7.1.9, 7.2.35, and its title, and B3.3.6A and alters item B3.3.6 in CPC 48 – Financial Instruments, which will enter into force with the following wordings:

7.1.9 CPC Revision 19, approved by the CPC on October 1, 2021, added items 7.2.35 and B3.3.6A and altered item B3.3.6. The validity of this Revision must be established by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply these changes for annual periods beginning on or after January 1, 2022.

Transition to annual changes to pronouncements

7.2.35 The entity may apply CPC Revision 19 to financial liabilities that are modified or exchanged at the beginning or after the beginning of the annual reporting period, in which the entity applies the revision for the first time.

B3.3.6 For the purpose of item 3.3.2, terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. In determining these net fees paid of fees received, the debtor includes only fees paid or received between the debtor and the creditor, including fees paid or received by the debtor or by the creditor on behalf of the other.

B3.3.6A If the exchange of debt instruments or modification of terms is accounted for as extinguishment, any costs or fees incurred must be recognized as part of the gain or loss on extinguishment. If the exchange or modification is not accounted for as extinguishment, any costs or fees incurred must adjust the carrying amount of the liability and must be amortized over the remaining term of the modified liability.

3. Alters item 22 and includes item 65 in CPC 29 – Biological Assets and Agricultural Produce, which will enter into force with the following wordings:

22. The entity shall not include in the cash flow estimate any expectations of financing of assets, taxes, or restoration of the biological asset after harvest (for example, the cost of replanting trees in a plantation after harvest).

65. CPC Revision 19, approved by the CPC on October 1, 2021, altered item 22. The validity of this Revision must be established by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply this change for annual periods beginning on or after January 1, 2022.

4. Alters items 17 and 74 and includes items 20A, 74A, 80D and 81N in CPC 27 – Property, Plant and Equipment, which will enter into force with the following wordings:

17. Examples of directly attributable costs are:
(...)
(e) costs for testing to verify that the asset is functioning correctly (i.e., assessing whether the technical and physical performance of the asset is capable of being used in the production or supply of goods or services, for rental to third parties, or for administrative purposes); after deducting net revenues from the sale of any item produced while bringing the asset to this location and condition (such as samples produced when testing the equipment); and

20A. Items may be produced when bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management (such as samples produced when testing if the asset is functioning correctly). The entity must recognize the revenue from the sale of such items, and the cost of these items, in profit or loss in accordance with applicable accounting standards. The entity must measure the cost of these items by applying the measurement requirements of CPC 16.

The financial statements must also disclose:
(...)
(b) the amount of expenditures recognized in the carrying amount of an item of property, plant and equipment during its construction; and (c) the amount of contractual commitments arising from the acquisition of property, plant and equipment.; and

(d) if not disclosed separately in the body of the statement of comprehensive income, the amount of third-party compensation for items of property, plant and equipment that have been impaired, lost, or abandoned, included in profit or loss. (Eliminated)

74A. If not presented separately in the statement of comprehensive income, the financial statements must also disclose:
(a) the amount of third-party compensation for items of property, plant and equipment that were damaged, lost, or disposed of that are included in profit or loss; and (b) the amounts of revenues and costs included in profit or loss, in accordance with item 20A, that relate to items produced that are not an output of the ordinary activities of the entity, and which item of the statement of comprehensive income includes such revenues and costs.

80D. CPC Revision 19, approved by the CPC on October 1, 2021, altered items 17 and 74 and added items 20A and 74A. The entity must apply retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management in, or after, the beginning of the earliest period presented in the financial statements in which the entity applies the revision for the first time. The entity must recognize the cumulative effect of the initial application of the changes as an adjustment to the opening balance of retained earnings (or another component of equity, as appropriate) at the beginning of the earliest period presented.

81N. CPC Revision 19, approved by the CPC on October 1, 2021, altered items 17 and 74 and added items 20A, 74A, and 80D. The validity of this Revision must be established by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply these changes for annual periods beginning on or after January 1, 2022.

Includes items 68A, 94A and 108 and alters item 69 in CPC 25 – Provisions, Contingent Liabilities and Contingent Assets, which will enter into force with the following wordings:

68A. The cost of fulfilling a contract comprises costs that relate directly to the contract. Costs that relate directly to the contract consist of:
(a) incremental costs of fulfilling that contract, for example, direct labor and materials; and (b) the allocation of other costs that relate directly to the fulfillment of contracts, for example, the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling that contract, among others.

Before a separate provision is established for an onerous contract, the entity must recognize any loss resulting from impairment that has occurred in the assets related to those used in fulfilling the contract (see Technical Pronouncement CPC 01 – Impairment of Assets).

94A. CPC Revision 19, approved by the CPC on October 1, 2021, added item 68A and altered item 69. An entity must apply these changes to contracts for which it has not yet fulfilled all its obligations at the beginning of the first period in which it applies the changes (date of initial application). The entity must not restate comparative information. Instead, the entity must recognize the cumulative effect of the initial application of the changes as an adjustment to the opening balance of retained earnings or another component of equity, as appropriate, at the date of initial application.

105. CPC Revision 19, approved by the CPC on October 1, 2021, added items 68A and 94A and altered item 69. The validity of this Revision must be established by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply these changes for annual periods beginning on or after January 1, 2022.

6. Alters items 11, 14, 21, 22 and 23 and includes items 21A, 21B, 21C, 23A and 64Q in CPC 15 (R1) – Business Combinations, which will enter into force with the following wordings:

11. To qualify for recognition, as part of the application of the acquisition method, identifiable assets acquired and liabilities assumed must meet, at the acquisition date, the definitions of asset and liability set forth in CPC 00 – Conceptual Framework for Financial Reporting. For example, costs that the acquirer expects, but is not obligated to incur in the future, to effectuate a plan to discontinue an activity of the acquiree, or costs to relocate or dismiss employees of the acquiree do not constitute a liability at the acquisition date. Therefore, the acquirer should not recognize such costs as part of the application of the acquisition method. Instead, the acquirer must recognize such costs in its post-combination financial statements, in accordance with the provisions of other pronouncements, interpretations, and guidance of the CPC.

14. Items B31 to B40 provide guidance for the recognition of intangible assets. Items 2221A to 28B specify the types of identifiable assets and liabilities, which include items for which this Pronouncement provides limited exceptions to the recognition principle and conditions.

21. This Pronouncement provides limited exceptions to the recognition and measurement principles. Items 2221A to 31A determine the specific items for which exceptions are provided and also the nature of these exceptions. The acquirer must account for these items by applying the requirements set forth in items 2221A to 31A, which will result in some items being:
(a) recognized by applying additional recognition conditions to those set forth in items 11 and 12, or by applying the requirements of other pronouncements, interpretations, and guidance of the CPC, with results different from those that would be obtained by applying the principle and conditions of recognition; (b) measured by an amount different from its fair value at the acquisition date.

21A. Item 21B applies to liabilities and contingent liabilities that are within the scope of CPC 25 or ICPC 19 if they had been incurred separately instead of assumed in a business combination.

21B. The Conceptual Framework for Financial Reporting defines a liability as "a present obligation of the entity to transfer an economic resource as a result of past events". For a provision or contingent liability that is within the scope of CPC 25, the acquirer must apply items 15 to 22 of CPC 25 to determine if, at the acquisition date, there is a present obligation as a result of past events. For a tax that is within the scope of ICPC 19, the acquirer must apply ICPC 19 to determine if the event that generates the obligation to pay the tax occurred up to the acquisition date.

21C. The present obligation identified, in accordance with item 21B, may correspond to the definition of contingent liability set forth in item 22(b). In this case, item 23 applies to this contingent liability.

CPC 25 – Provisions, Contingent Liabilities and Contingent Assets defines “contingent liability” as:
(a) a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly controlled by the entity; or (b) a present obligation that arises from past events, but that is not recognized because:
(i) it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient reliability.
The requirements of Technical Pronouncement CPC 25 - Provisions, Contingent Liabilities and Contingent Assets do not apply in determining which contingent liabilities must be recognized at the acquisition date. Instead, the acquirer must recognize, at the acquisition date, a contingent liability assumed in a business combination if it is a present obligation that arises from past events and if its fair value can be measured reliably. Therefore, contrary to items 14(b), 23, 27, 29 and 30 of CPC 25, the acquirer must recognize, at the acquisition date, a contingent liability assumed in a business combination, even if it is not probable that outflows of resources (incorporating economic benefits) will be required to settle the obligation. Item 56 guides the subsequent accounting of contingent liabilities.

23A. CPC 25 defines contingent asset as “a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly under the control of the entity”. The acquirer must not recognize a contingent asset at the acquisition date.

64Q. CPC Revision 19, approved by the CPC on October 1, 2021, altered items 11, 14, 21, 22 and 23 and added items 21A, 21B, 21C and 23A. The validity of this Revision must be established by the regulatory bodies that approve it, and, for full compliance with international accounting standards, the entity must apply these changes for annual periods beginning on or after January 1, 2022.

Lineage: No known changes

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