CVM Resolution No. 71 of March 22, 2022

SECURITY 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 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.gov.br/cvm

CVM RESOLUTION NO. 71, OF MARCH 22, 2022
Approves the Consolidation of Technical Pronouncement CPC 15(R1) of the Accounting Pronouncements Committee – CPC, which deals with business combinations.

THE PRESIDENT OF THE SECURITY AND EXCHANGE COMMISSION OF BRAZIL – CVM makes it public that the Board, in a meeting held on December 1, 2021, 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 15(R1), which deals with business combinations, issued by the Accounting Pronouncements Committee - CPC, as consolidated in Annex “A” to this Resolution.

Art. 2. CVM Deliberation No. 665, of August 4, 2011, 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

CVM RESOLUTION NO. 71, OF MARCH 22, 2022
ANNEX “A”
ACCOUNTING PRONOUNCEMENTS COMMITTEE
TECHNICAL PRONOUNCEMENT CPC 15 (R1)
BUSINESS COMBINATIONS
Correlation to International Financial Reporting Standards – IFRS 3 (IASB – BV 2011)

Summary Item
OBJECTIVE 1
SCOPE 2
IDENTIFICATION OF A BUSINESS COMBINATION 3
ACQUISITION METHOD 4 – 53
Identification of the acquirer 6 – 7
Determination of the acquisition date 8 – 9
Recognition and measurement of acquired identifiable assets, assumed liabilities and non-controlling interests in the acquiree 10 – 31 Recognition 10 – 17 Recognition conditions 11 – 14 Classification or designation of acquired identifiable assets and assumed liabilities in a business combination 15 – 17 Measurement 18 – 20 Exceptions in recognition or measurement 21 – 31 Exceptions in recognition 22 – 23 Contingent liability 22 – 23 Exceptions in recognition and measurement 24 – 28 Income taxes 24 – 25 Employee benefits 26 Indemnification assets 27 – 28 Exceptions in measurement 29 – 31 Right reacquired 29 Share-based payment transactions 30 Asset held for sale 31 Recognition and measurement of goodwill or gain from a bargain purchase 32 – 40 Bargain purchase 34 – 36 Consideration transferred in exchange for control of the acquiree 37 – 40 Contingent consideration 39 – 40 Additional guidance for applying the acquisition method to specific types of business combinations 41 – 44 Business combinations achieved in stages 41 – 42 Business combinations achieved without the transfer of consideration 43 – 44 Measurement period 45 – 50 Determination of what is part of the business combination transaction 51 – 53 Acquisition-related costs 53 SUBSEQUENT MEASUREMENT AND ACCOUNTING 54 – 58 Right reacquired 55 Contingent liability 56 Indemnification asset 57 Contingent consideration 58 DISCLOSURE 59 – 63 EFFECTIVE DATE AND TRANSITION 64 – 67 Effective date 64 – 64C Transition 65 – 67 Income taxes 67 TRANSITIONAL PROVISION 68
APPENDIX A – Glossary of terms used in the Pronouncement
APPENDIX B – Implementation Guide for the Pronouncement
APPENDIX C – Illustrative Examples

Objective

The objective of this Pronouncement is to improve the relevance, reliability and comparability of the information that an entity provides in its financial statements about business combinations and their effects. To this end, this Pronouncement establishes principles and requirements for how the acquirer:
(a) recognizes and measures, in its financial statements, the identifiable assets acquired, the liabilities assumed and the equity interests of non-controlling interests in the acquiree; (b) recognizes and measures the goodwill acquired arising from the business combination or the gain from a bargain purchase; and (c) determines what information must be disclosed to enable users of the financial statements to assess the nature and financial effects of the business combination.

Scope
2. This Pronouncement is applicable to transactions or other events that meet the definition of a business combination. This Pronouncement does not apply:
(a) to the accounting for the formation of joint ventures in their financial statements); (b) to the acquisition of an asset or group of assets that does not constitute a business as defined in this Pronouncement. In this case, the acquirer must identify and recognize the acquired identifiable assets individually (including those that meet the definition of an intangible asset and the criteria for its recognition according to Technical Pronouncement CPC 04 – Intangible Assets) and the assumed liabilities. The cost of the group must be allocated individually to the identifiable assets and liabilities that comprise it based on their respective fair values at the purchase date. Operations and events of this type do not generate goodwill; (c) to combinations of entities or businesses under common control (items B1 to B4 contain additional guidance).

2A. The requirements of this Pronouncement do not apply to the acquisition by an investment entity, as defined in Technical Pronouncement CPC 36 – Consolidated Financial Statements, of an investment in a subsidiary that is to be measured at fair value through profit or loss.

Identification of business combination
3. The entity must determine whether a transaction, or other event, is a business combination by applying the definition used in this Pronouncement, which requires that the acquired assets and assumed liabilities constitute a business. If the acquired assets do not constitute a business, the entity must account for the transaction or event as an asset acquisition. Items B5 to B12D provide guidance on the identification of the business combination and the definition of a business.

Acquisition method
4. The entity must account for each business combination by applying the acquisition method.
5. The application of the acquisition method requires:
(a) identification of the acquirer;
(b) determination of the acquisition date;
(c) recognition and measurement of the acquired identifiable assets, assumed liabilities and non-controlling equity interests in the acquiree; and (d) recognition and measurement of goodwill or gain from a bargain purchase.

Identification of the acquirer
6. For each business combination, one of the entities involved in the combination must be identified as the acquirer.
7. The guidance of Technical Pronouncement CPC 36 - Consolidated Financial Statements must be used to identify the acquirer, which is the entity that obtains control of the acquiree. When a business combination occurs and these guidelines from Technical Pronouncement CPC 36 do not clearly indicate which of the entities in the combination is the acquirer, the factors indicated in items B14 to B18 must be considered in this determination.

Determination of the acquisition date
8. The acquirer must identify the acquisition date, which is the date when control of the acquiree is obtained.
9. The date on which the acquirer obtains control of the acquiree is generally the date on which the acquirer legally transfers the consideration for control of the acquiree, acquires the assets and assumes the liabilities of the acquiree – the closing date of the deal. However, the acquirer may obtain control on a date prior to or subsequent to the closing date. For example, the acquisition date precedes the closing date if the written contract determines that the acquirer will obtain control of the acquiree on a date prior to the closing date. The acquirer must consider all relevant facts and circumstances in identifying the acquisition date.

Recognition and measurement of acquired identifiable assets, assumed liabilities and non-controlling interests in the acquiree

Recognition
10. From the acquisition date, the acquirer must recognize, separately from goodwill, the acquired identifiable assets, assumed liabilities and any non-controlling interests in the acquiree. The recognition of acquired identifiable assets and assumed liabilities is subject to the conditions specified in items 11 and 12.

Recognition conditions
11. To qualify for recognition, as part of the application of the acquisition method, the acquired identifiable assets and assumed liabilities 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 implement a plan to close 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 must 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 guidelines of the CPC.

Additionally, for recognition purposes, as part of the application of the acquisition method, the acquired identifiable assets and assumed liabilities must be part of what the acquirer and the acquiree (or their former owners) exchange in the business combination transaction, rather than being the result of separate transactions. The acquirer must apply the guidance in items 51 to 53 to determine which acquired assets and assumed liabilities are part of the exchange transaction to obtain control of the acquiree, as well as which result from separate transactions, if any, and which must be accounted for according to their nature and the applicable CPC Pronouncements, Interpretations and Guidelines.
The application of the principle and recognition conditions by the acquirer may result in the recognition of some assets and liabilities that were not previously recognized as such in the acquiree's financial statements. For example, the acquirer must recognize identifiable acquired intangible assets, such as a brand or a patent or a customer relationship, which were not recognized as assets in the acquiree's financial statements because they were developed internally and their costs were recorded as expense.
Items B31 to B40 provide guidance for the recognition of intangible assets. Items 21A to 28B specify the types of identifiable assets and assumed liabilities, which include items for which this pronouncement provides limited exceptions to the principle and conditions of recognition.

Classification or designation of acquired identifiable assets and assumed liabilities in a business combination
15. At the acquisition date, the acquirer must classify or designate the acquired identifiable assets and assumed liabilities in the manner necessary to subsequently apply other CPC Pronouncements, Interpretations and Guidelines. The acquirer must make these classifications or designations based on contractual terms, economic conditions, accounting or operational policies and other relevant conditions that existed at the acquisition date.

In some situations, CPC pronouncements, interpretations and guidelines may require different accounting treatments, depending on how the entity classifies or designates a particular asset or liability. Examples of classification or designation that the acquirer must make based on relevant conditions existing at the acquisition date include, but are not limited to:
(a) classifying specific financial assets and liabilities as measured at fair value through profit or loss, or at amortized cost, or as a financial asset measured at fair value through other comprehensive income, in accordance with the provisions of CPC 48 – Financial Instruments; (b) designating a derivative instrument as a hedging instrument, in accordance with CPC 48; and (c) determining whether an embedded derivative should be separated from the main contract, in accordance with CPC 48 (which is a matter of “classification,” as this pronouncement uses such term).
This pronouncement provides for two exceptions to the principle of item 15:
(a) classification of a lease contract in which the acquiree is the lessor as an operating or finance lease, as described in CPC 06 – Leases; and (b) classification of a contract as an insurance contract, in accordance with Technical Pronouncement CPC 11 – Insurance Contracts.
The acquirer must classify such contracts based on their contractual clauses and other factors at the contract inception date (or, at the contract modification date, which may be the same as the acquisition date, if their clauses have been modified in a way that alters their classification).

Measurement
18. The acquirer must measure the acquired identifiable assets and assumed liabilities at their respective fair values at the acquisition date.

In each business combination, the acquirer must measure, at the acquisition date, the components of the non-controlling interest in the acquiree that represent at that date equity instruments and confer on their holders a proportional interest in the net assets of the acquiree in the event of its liquidation, by one of the following criteria:
(a) at fair value, or
(b) at the current proportional interest conferred by the equity instruments in the amounts recognized of the identifiable net assets of the acquiree.
All other components of the non-controlling interest must be measured at fair value at the acquisition date, unless another measurement basis is required by CPC Pronouncements, Interpretations and Guidelines.
Items 24 to 31 specify the types of identifiable assets and assumed liabilities that include items for which this Technical Pronouncement provides limited exceptions to the measurement principle.

Exceptions in recognition or measurement
21. This Pronouncement provides for limited exceptions to the principles of recognition and measurement. Items 21A to 31 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 21A to 31, which will result in some items being:
(a) recognized by applying additional recognition conditions to those provided in items 11 and 12, or by applying the requirements of other CPC Pronouncements, Interpretations and Guidelines, with results different from those that would be obtained by applying the principle and recognition conditions; (b) measured at an amount different from their fair value at the acquisition date.

21A. Item 21B applies to liabilities and contingent liabilities that are within the scope of CPC 25 or IFRIC 19 if they were incurred separately rather than 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 IFRIC 19, the acquirer must apply IFRIC 19 to determine if the event giving rise to the obligation to pay the tax occurred by 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.

Exceptions in recognition
Contingent liability
22. Technical Pronouncement CPC 25 defines “contingent liability” as:
(a) a possible obligation that results from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more future uncertain events not wholly within the control of the entity; or (b) a present obligation that results 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 acquirer must recognize, at the acquisition date, a contingent liability assumed in a business combination if it is a present obligation arising 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 provides guidance on the subsequent accounting of contingent liabilities.

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 SCN Q.02 – Bl. A – Ed. Corporate Financial Center, S.404/4º Andar, Brasília/DF – CEP: 70712-900 – Brasil -Tel.: (61) 3327-2030/2031 www.cvm.gov.br RESOLUÇÃO CVM Nº 71, DE 22 DE MARÇO DE 2022 23A. CPC 25 defines a 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 within the control of the entity”. The acquirer must not recognize a contingent asset on the acquisition date. Exceptions in recognition and measurement Taxes on profit
24. The acquirer must recognize and measure deferred tax assets and liabilities, arising from the acquired assets and assumed liabilities in a business combination, in accordance with Technical Pronouncement CPC 32 – Taxes on Profit.
25. The acquirer must account for the potential tax effects of temporary differences and tax losses (or negative bases for social contribution on net profit) of the acquiree existing on the acquisition date or arising from the acquisition, in accordance with Technical Pronouncement CPC 32 – Taxes on Profit.
Employee benefits
26. The acquirer must recognize and measure a liability (or asset, if any) related to the acquiree’s contracts regarding employee benefits, in accordance with Technical Pronouncement CPC 33 – Employee Benefits.
Indemnification assets
27. In a business combination, the seller may be contractually obligated to indemnify the acquirer for the outcome of an uncertainty or contingency relating to all or part of a specific asset or liability. For example, the seller may indemnify the acquirer against losses that exceed a certain amount or relate to a liability arising from a specific contingency; in other words, the seller guarantees that the acquirer’s obligation does not exceed a certain amount. As a result, the acquirer obtains an indemnification asset. The acquirer must recognize an indemnification asset at the same time it recognizes the item subject to indemnification, measured on the same basis as that item to be indemnified and subject to the assessment of the need to establish a provision for uncollectible amounts. Therefore, if the indemnification relates to an asset or liability recognized on the acquisition date and measured at fair value on that date, the acquirer must recognize, on the acquisition date, the indemnification asset at its fair value on that date. If an indemnification asset is measured at fair value, the effects of uncertainties on the future cash flows of the amounts expected to be received are already included in the calculated fair value, so a separate assessment of uncollectible amounts is not necessary (item B41 provides guidance applied to this provision).
28. In some circumstances, the indemnification may relate to an asset or liability covered by the exceptions to the recognition and measurement principles. For example, an indemnification may arise from a contingent liability not recognized on the acquisition date because it was not possible to measure its fair value reliably on that date. Alternatively, an indemnification asset may arise from an asset or liability not measured at fair value on the acquisition date, such as those arising from employee benefits. In these cases, the indemnification assets must be recognized and measured based on assumptions consistent with those used to measure the item subject to indemnification, subject to management’s assessment of potential losses from uncollectible amounts and also subject to any contractual limitations on the amount of indemnification. Item 57 provides guidance on the subsequent accounting of an indemnification asset.
Lease in which the acquiree is the lessee
28A. The acquirer must recognize the right-of-use asset and lease liabilities for identified leases in accordance with CPC 06, in which the acquiree is the lessee. The acquirer is not required to recognize the right-of-use asset and lease liabilities for:
(a) a lease for which the lease term (as defined in CPC 06) ends within 12 months from the acquisition date; or (b) a lease for which the underlying asset is of low value (as described in items B3 to B8 of CPC 06).
28B. The acquirer must measure the lease liability at the present value of the remaining lease balance (as defined in CPC 06) as if the acquired lease contract were a new lease contract on the acquisition date. The acquirer must measure the right-of-use asset at the same value as the lease liability, adjusted to reflect favorable or unfavorable terms of the lease when compared to market terms. Exceptions in measurement Acquired right
29. The acquirer must measure the value of the acquired right, recognized as an intangible asset, based on the remaining contractual term of the contract that gave rise to it, regardless of whether market participants consider the potential renewal of the contract in measuring the fair value of this intangible asset. Items B35 and B36 provide guidance for applying this requirement.
Share-based payment transactions
30. The acquirer must measure a liability or an equity instrument related to a share-based benefit plan of the acquiree or to the replacement of a share-based benefit plan of the acquiree by a share-based benefit plan of the acquirer in accordance with the method set forth in Technical Pronouncement CPC 10 – Share-Based Payment on the acquisition date (this Pronouncement refers to the result of applying this method as the “market-based measurement” of the share-based benefit plan).
Asset held for sale
31. The acquirer must measure a non-current asset of the acquiree (or a disposal group) that is classified as held for sale on the acquisition date in accordance with Technical Pronouncement CPC 31 - Non-Current Asset Held for Sale and Discontinued Operation, at its fair value less costs to sell, as provided in items 15 to 18 of the cited Technical Pronouncement.
Recognition and measurement of goodwill or gain from a bargain purchase
32. The acquirer must recognize goodwill, on the acquisition date, measured by the amount that (a) exceeds (b) below:
(a) the sum:
(i) of the consideration transferred in exchange for control of the acquiree, measured in accordance with this Pronouncement, for which fair value on the acquisition date is generally required (see item 37); (ii) of the amount of any non-controlling interests in the acquiree, measured in accordance with this Pronouncement; and (iii) in the case of a business combination achieved in stages (see items 41 and 42), the fair value, on the acquisition date, of the acquirer’s interest in the acquiree immediately before the combination; (b) the net amount, on the acquisition date, of identifiable assets acquired and liabilities assumed, measured in accordance with this Pronouncement.
33. In a business combination in which the acquirer and the acquiree (or their former owners) exchange only equity interests, the fair value, on the acquisition date, of the interest in the acquiree may be measured more reliably than the fair value of the equity interest in the acquirer. If this is the case, the acquirer must determine the value of goodwill using the fair value, on the acquisition date, of the equity interest in the acquiree instead of the fair value of the transferred equity interest. To determine the value of goodwill in business combinations where no consideration is transferred to obtain control of the acquiree, the acquirer must use the fair value, on the acquisition date, of the acquirer’s interest in the acquiree, in place of the fair value, on the acquisition date, of the consideration transferred – item 32(a)(i). Items B46 to B49 provide guidance for applying this requirement.
Bargain purchase
34. Occasionally, an acquirer may make a bargain purchase, understood as a business combination whose value determined by item 32(b) is greater than the sum of the values specified in item 32(a). If this excess value remains after applying the requirements contained in item 36, the acquirer must recognize the resulting gain, in the income statement, on the acquisition date. The gain must be attributed to the acquirer.
35. A bargain purchase may occur, for example, in a business combination resulting from a forced sale, in which the seller is compelled to act in this manner. However, the recognition and measurement exceptions for certain items, as set forth in items 22 to 31, may also result in the recognition of a gain (or change the value of the recognized gain) in a bargain purchase.
36. Before recognizing the gain arising from a bargain purchase, the acquirer must conduct a review to ensure that all acquired assets and all assumed liabilities have been correctly identified and, therefore, recognize any additional assets or liabilities identified in the review. The acquirer must also review the procedures used to measure the values to be recognized on the acquisition date, as required by this Pronouncement, for all of the following items:
(a) identifiable assets acquired and liabilities assumed; (b) non-controlling interest in the acquiree, if any; (c) in the case of a business combination achieved in stages, any prior equity interest of the acquirer in the acquiree; and (d) the consideration transferred to obtain control of the acquiree.
The purpose of the review is to ensure that the measurements adequately reflect the consideration of all information available on the acquisition date.
Consideration transferred in exchange for control of the acquiree
37. The consideration transferred in exchange for control of the acquiree in a business combination must be measured at its fair value, which must be calculated by the sum of the fair values on the acquisition date: a) of the assets transferred by the acquirer; b) of the liabilities incurred by the acquirer with the former owners of the acquiree; and c) of the equity interests issued by the acquirer. (However, any portion of the acquirer’s share-based benefit plan exchanged for the acquiree’s share-based benefit plan in the hands of its employees and included in the calculation of the consideration transferred in the business combination must be measured in accordance with item 30 and not at its fair value). Examples of potential forms of consideration transferred include cash, other assets, a business or a subsidiary of the acquirer, contingent consideration, ordinary shares, preferred shares, capital quotas, options, non-standardized options - warrants, subscription bonuses, and interests in mutual entities (associations, cooperatives, etc.).
38. The consideration transferred may include items from the acquirer’s assets or liabilities whose book values differ from their fair values on the acquisition date (for example, non-monetary asset or a business of the acquirer). In this case, the acquirer must remeasure, on the acquisition date, the assets or liabilities transferred at their respective fair values and recognize the resulting gain or loss, if any, in the income statement. However, when the transferred assets and liabilities remain within the combined entity after the business combination (for example, because assets or liabilities are transferred to the acquiree and not to its former owners), the acquirer remains in control of them. In this situation, the acquirer must measure such assets and liabilities at their respective book values immediately before the acquisition date. No gain or loss should be recognized on assets or liabilities that the acquirer already controlled before and continues to control after the business combination.
Contingent consideration
39. The consideration that the acquirer transfers in exchange for control over the acquiree must include any asset or liability resulting from an agreement on contingent consideration (see item 37). The acquirer must recognize the contingent consideration at its fair value on the acquisition date as part of the consideration transferred in exchange for control of the acquiree.
40. The acquirer must classify the obligation to pay contingent consideration that meets the definition of a financial instrument as a financial liability or as a component of equity, based on the definitions of equity instrument and financial liability, contained in item 11 of Technical Pronouncement CPC 39 – Financial Instruments: Presentation. The acquirer must classify contingent consideration as an asset when the agreement confers on the acquirer the right to recover part of the consideration already transferred, if specific conditions are met. Item 58 provides guidance on the subsequent accounting of contingent considerations.
Additional guidance for applying the acquisition method to specific types of business combinations Business combination achieved in stages
41. The acquirer may obtain control of an acquiree in which it held an equity interest immediately before the acquisition date. For example, on December 31, 20X1, entity “A” owns 35% of the equity (voting and total) of entity “B”, without controlling it. On this date, entity “A” purchases an additional 40% equity interest (voting and total) in entity “B”, obtaining control over it. This Pronouncement refers to this operation as a business combination achieved in stages, sometimes also referring to it as a step acquisition.
42. In a business combination achieved in stages, the acquirer must remeasure its prior interest in the acquiree at fair value on the acquisition date and must recognize in the period’s income statement the resulting gain or loss, if any, or in other comprehensive income, as appropriate. In prior accounting periods, the acquirer may have recognized adjustments to the book value of its prior interest in the acquiree, the counterpart of which was accounted for as other comprehensive income (in equity valuation adjustments), in its equity. In this case, the amount accounted for by the acquirer, in other comprehensive income, must be recognized on the same basis that would be required if the acquirer had disposed of its prior interest in the acquiree (i.e., it must be reclassified to the income statement).
42A. When a party in a joint venture (as defined in CPC 19) obtains control of a business that is a joint operation (as defined in CPC 19) and had rights to the assets and obligations of the liabilities related to that joint operation immediately before the acquisition date, the transaction is a business combination achieved in stages. The acquirer must, therefore, apply the requirements for business combination achieved in stages, including the remeasurement of its prior interest in the joint operation as described in item 42. In doing so, the acquirer must remeasure its entire prior interest in the joint operation. Business combination achieved without the transfer of consideration
43. The acquirer may obtain control of an acquiree without transferring consideration. The acquisition method for accounting for a business combination also applies to this type of combination. Such circumstances include:
(a) the acquiree repurchases such a number of its own shares that a certain investor (the acquirer) ends up obtaining control over it; (b) veto rights of non-controlling interests that previously prevented the acquirer from controlling the acquiree lose effect; (c) acquirer and acquiree combine their businesses through purely contractual agreements. The acquirer does not transfer any consideration in exchange for control of the acquiree and also does not hold any equity interest in the acquiree, neither on the acquisition date nor before it. Examples of business combinations achieved by contract include, when legally permitted, joining two businesses through contractual agreements (stapling arrangements) or the formation of a dual-listed corporation1.
44. In a combination achieved through a purely contractual agreement, the acquirer must attribute to the owners of the acquiree the value of the acquiree’s net assets recognized in accordance with this Pronouncement. In other words, the equity interest in the acquiree held by other parties than the acquirer constitutes the non-controlling interest in the acquiree, to be presented in the acquirer’s post-combination financial statements, even if 100% of the equity interest in the acquiree is treated as non-controlling interest.
Measurement period
45. When the initial accounting of a business combination is incomplete at the end of the

1 Dual-listed company or dual-listed company is a corporate structure in which two companies operate as a single operational entity through an equalization agreement, maintaining separate legal identities and separate listings on one or more stock exchanges. The two companies continue to exist, have two separate sets of shareholders, but agree to share the risks and benefits of their operational businesses in a fixed contractual proportion. The equalization agreement ensures the use of voting rights, dividends, and others. They usually have common administrators and a single administrative structure. 2 Specialized literature qualifies these two types of contractual agreements as follows: stapling arrangements – these are generally contractual agreements entered into between two parties through which the securities issued by one legal entity are combined with the securities issued by another legal entity. These securities, which usually receive the nickname “stapled securities”, are then quoted at a single market price and cannot be traded or transferred separately. Dual-listed corporation – in such transactions, no consideration is transferred by the involved companies and the contracts are executed by the parties with the purpose of equalizing the rights of the partners of the contracting companies. Among the rights covered by these contractual agreements are frequently present, the right to vote, the right to dividends, the rights related to governance decisions and acts practiced by administrators. Although the legal entities are maintained separately (i.e., the securities of each entity involved in the contract are, usually, traded and quoted separately in the markets where they are listed), a dual-listed corporation (dual listed corporation) is, in essence, similar to a business combination in which the partners of the respective societies share the risks and benefits of the two entities. Historically, the Securities and Exchange Commission – SEC in the USA has required that such transactions be accounted for as business combinations.

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 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

RESOLUTION CVM NO. 71, OF MARCH 22, 2022

period during which the combination occurs, the acquirer must, in its financial statements, report provisional values for items whose accounting is incomplete.
During the measurement period, the acquirer must retrospectively adjust the provisional values recognized at the acquisition date to reflect any new information obtained regarding facts and circumstances existing at the acquisition date, which, if known at that time, would have affected the measurement of the recognized values. During the measurement period, the acquirer must also recognize additional assets or liabilities when new information is obtained regarding facts and circumstances existing at the acquisition date, which, if known at that time, would have resulted in the recognition of those assets and liabilities at that date. The measurement period ends as soon as the acquirer obtains the information it was seeking about facts and circumstances existing at the acquisition date, or when it concludes that more information cannot be obtained. However, the measurement period cannot exceed one year from the acquisition date.

The measurement period is the period following the acquisition date during which the acquirer may adjust the provisional values recognized for a business combination. The measurement period provides a reasonable time for the acquirer to obtain the information necessary to identify and measure, at the acquisition date and in accordance with this Pronouncement, the following items:
(a) the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree; (b) the consideration transferred for control of the acquiree (or another amount used in measuring goodwill); (c) in the case of a business combination achieved in stages, the interest held by the acquirer in the acquiree immediately before the combination; and (d) goodwill or a gain from a bargain purchase.
The acquirer must consider all relevant factors to determine whether information obtained after the acquisition date would have resulted in an adjustment to the provisional values recognized or whether that information is from events that occurred after the acquisition date. Relevant factors include the date when the additional information is obtained, as well as whether the acquirer can identify a reason for the change in the provisional values. Information obtained shortly after the acquisition date is more likely to represent circumstances existing at the acquisition date than information obtained several months later. For example, unless an intervening event that changes the fair value can be identified, the sale of an asset to third parties shortly after the acquisition date for a value significantly different from the provisionally measured fair value of that asset constitutes an indicative event that the recognized provisional value was likely incorrect.
The acquirer must recognize an increase (or decrease) in the provisional values recognized for an identifiable asset (or assumed liability) through an increase (or decrease) in goodwill. However, sometimes new information obtained during the measurement period may result in an adjustment to the provisional values of more than one asset or liability. For example, the acquirer may have assumed a liability due to the payment of damages related to an accident at one of the acquiree's manufacturing facilities, which is fully or partially covered by the acquiree's insurance policy. If the acquirer obtains new information during the measurement period regarding the fair value of that liability at the acquisition date, the adjustment to goodwill resulting from the change in the provisional value of the respective liability will be offset (in full or in part) by the corresponding adjustment to goodwill resulting from the change in the provisionally recognized initial value of the indemnification to be received from the insurer.
During the measurement period, the acquirer must recognize adjustments to provisional values as if the accounting for the business combination had been completed at the acquisition date. Therefore, the acquirer must revise and adjust comparative information for periods prior to that presented in its financial statements, whenever necessary, including changes in depreciation, amortization, or any other effect recognized in the income statement, upon completing the initial accounting.
After the end of the measurement period, the acquirer must review the accounting records of the business combination only to correct errors, in accordance with the provisions of Technical Pronouncement CPC 23 - Accounting Policies, Change in Estimate and Correction of Error.

Determination of what is part of the business combination transaction

The acquirer and the acquiree may have a pre-existing relationship or contractual agreement before the start of negotiations for the business combination, or they may make agreements during the negotiations that are distinct from the business combination. In any of these situations, the acquirer must identify all values that do not form part of what the acquirer and the acquiree (or their former owners) exchanged to effectuate the business combination, i.e., values that do not form part of the exchange to obtain control of the acquiree. The acquirer must recognize as part of the application of the acquisition method only the consideration transferred for control of the acquiree and the assets acquired and liabilities assumed in obtaining control of the acquiree. Separate transactions must be accounted for in accordance with the relevant CPC Pronouncements, Interpretations, and Guidance.
A transaction carried out by the acquirer or on its behalf, or a transaction carried out primarily for the benefit of the acquirer or the combined entity, and not for the benefit of the acquiree (or its former owners) before the combination, is likely a separate transaction. The items below are examples of separate transactions that should not be included in the application of the acquisition method:
(a) a transaction carried out essentially to settle a preexisting relationship between the acquirer and the acquiree; (b) a transaction carried out essentially to remunerate employees or former owners of the acquiree for future services; and (c) a transaction carried out essentially to reimburse the acquiree or its former owners for the acquirer's costs related to the acquisition. Items B50 to B62 provide guidance related to these requirements.

Costs related to the acquisition

Costs directly related to the acquisition are costs that the acquirer incurs to effectuate the business combination. These costs include professional and consultant fees, such as lawyers, accountants, experts, appraisers; general administrative costs, including costs arising from maintaining an acquisitions department; and registration and issuance costs for debt securities and equity instruments. The acquirer must account for costs directly related to the acquisition as an expense in the period in which they are incurred and the services are received, with only one exception. Costs arising from the issuance of debt securities and equity instruments must be recognized in accordance with CPC 08 – Transaction Costs and Premiums on Issuance of Securities and Financial Instruments, CPC 48 – Financial Instruments, and CPC 39 – Financial Instruments: Presentation.

Subsequent measurement and accounting

Generally, the acquirer must measure and account for subsequently for the assets acquired, liabilities assumed or incurred, and equity instruments issued in a business combination in accordance with other relevant CPC Pronouncements, Interpretations, and Guidance, depending on their respective natures. However, this Pronouncement provides guidance on subsequent measurement and accounting for the following assets acquired, liabilities assumed or incurred, and equity instruments issued in a business combination:
(a) reacquired rights;
(b) contingent liabilities recognized at the acquisition date; (c) indemnification assets; and (d) contingent consideration.
Item B63 provides guidance for the application of these requirements.

Reacquired right

The reacquired right recognized as an intangible asset must be amortized over the remaining term of the contract under which the right was granted. An acquirer that subsequently sells the reacquired right to a third party must include the net book value of the intangible asset in determining the gain or loss arising from its disposal.

Contingent liability

After initial recognition and until the liability is settled, cancelled, or extinguished, the acquirer must measure any contingent liability recognized in a business combination at the higher of:
(a) the amount by which that liability would be recognized in accordance with Technical Pronouncement CPC 25 – Provisions, Contingent Liabilities and Contingent Assets; and (b) the amount by which the liability was initially recognized, less, where appropriate, revenue recognized in accordance with the principles of CPC 47 – Revenue from Contracts with Customers. This requirement does not apply to contracts accounted for in accordance with CPC 48.

Indemnification asset

At the end of each subsequent reporting period, the acquirer must measure any indemnification asset recognized at the acquisition date on the same basis as the asset or liability being indemnified, subject to any contractual limit on its value and, in the case of an indemnification asset not subsequently measured at fair value, subject to management's assessment of its recoverable amount. The acquirer must derecognize the indemnification asset only if the asset is realized, by receipt or sale, or by loss of the right to indemnification.

Contingent consideration

Some changes in the fair value of contingent consideration, which the acquirer may recognize after the acquisition date, may result from additional information obtained by the acquirer after the acquisition date regarding facts and circumstances already existing at that date. These changes are measurement period adjustments, as provided in items 45 to 49. However, changes resulting from events occurring after the acquisition date, such as meeting a profit target; reaching a specified share price; or achieving a certain stage of research and development project, are not measurement period adjustments. The acquirer must account for changes in the fair value of contingent consideration, which do not constitute measurement period adjustments, as follows:
(a) contingent consideration classified as a component of equity is not subject to remeasurement, and its subsequent settlement must be accounted for within equity; (b) other contingent consideration that:
(i) falls within the scope of CPC 48, must be measured at fair value at each balance sheet date, and changes in fair value must be recognized in profit or loss, in accordance with the cited pronouncement; (ii) does not fall within the scope of CPC 48, must be measured at fair value at each balance sheet date, and changes in fair value must be recognized in profit or loss.

Disclosure

The acquirer must disclose information that allows users of the financial statements to assess the nature and financial effects of business combinations that occur:
(a) during the current reporting period; or
(b) after the end of the reporting period but before the authorization of the issuance of the financial statements.
To meet the objectives of item 59, the acquirer must disclose the information specified in items B64 to B66.
The acquirer must disclose information that allows users of the financial statements to assess the financial effects of adjustments recognized in the current reporting period related to business combinations that occurred in the current period or in prior periods.
To meet the objectives of item 61, the acquirer must disclose the information specified in item B67.
If the disclosures required by this and other CPC Pronouncements, Interpretations, and Guidance are not sufficient to meet the objectives established in items 59 and 61, the acquirer must disclose any and all additional information necessary for these objectives to be met.

Effectiveness and transition

Effectiveness

This Pronouncement must be applied prospectively to business combinations from the date indicated by the regulatory body that approved it.

64A. (Eliminated)

64B. The revision made to Technical Pronouncement CPC 15 altered items 19, 30, and B56, and included items B62A and B62B. The application of these altered items must be done prospectively. If early application is permitted, this fact must be duly evidenced in a note attached to the financial statements.

64C. The revision made to Technical Pronouncement CPC 15 also included items 65A to 65E. If early application is permitted, this fact must be duly evidenced in a note attached to the financial statements. These items must be applied to balances of contingent consideration arising from business combinations whose acquisition dates precede the date on which the entity first applies this Pronouncement (before its R1 revision).

64D to 64F. (Eliminated)

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 effectiveness of this Revision must be established by the regulatory bodies that approve it; however, to fully comply with international accounting standards, the entity must apply these amendments for annual periods beginning on or after January 1, 2022.

Transition

Assets and liabilities arising from business combinations whose acquisition dates precede the application of this Pronouncement shall not be adjusted due to its application.

65A. Balances of contingent consideration arising from business combinations whose acquisition dates precede the date on which the entity first applies this Pronouncement (before its R1 revision) shall not be adjusted upon its first application (already in the revised R1 version). Items 65B to 65E must be applied in the subsequent accounting of said balances. Items 65B to 65E shall not be applied in the accounting of balances of contingent consideration arising from business combinations whose acquisition dates occur on or after the date on which the entity first applies this Pronouncement (before its R1 revision). Items 65B to 65E deal exclusively with business combinations whose acquisition dates precede the application of this Pronouncement (before its R1 revision).

65B. If a business combination agreement provides for an adjustment to the cost of the transaction, contingent on future events, the acquirer must include the amount of the adjustment in the cost of the business combination transaction at the acquisition date, if it is probable that the adjustment will occur and if it can be measured reliably.

65C. A business combination agreement may allow for adjustments to the cost of the transaction that are contingent on one or more future events. The adjustment may, for example, be contingent on a specific level of profits to be maintained or achieved in future periods, or on the market price of issued instruments that needs to be maintained. It is usually possible to estimate the amount of this adjustment at the time of initial accounting of the business combination without casting doubt on the reliability of the information, even if some uncertainty exists. If future events do not occur or the estimate needs to be revised, the cost of the business combination will need to be adjusted accordingly.

65D. However, when a business combination agreement provides for this adjustment, it will not be included in the cost of the business combination at the time of its initial accounting if it is not probable that the adjustment will occur or if it cannot be measured reliably. If such an adjustment subsequently becomes probable and can be measured reliably, the additional consideration shall be treated as an adjustment to the cost of the business combination transaction.

65E. In some situations, the acquirer may be required to make subsequent payments to the seller as compensation for the reduction in the value of assets given, equity instruments issued, or liabilities assumed or incurred by the acquirer in exchange for control of the acquiree. This is the case, for example, when the acquirer guarantees the market price of an equity instrument or a debt instrument as part of the cost of the business combination and is required to make additional issuances of equity instruments or debt instruments to restore the originally determined cost. In these cases, no increase in the cost of the business combination should be recognized. In the case of equity instruments, the fair value of the additional payment must be offset by an equal reduction in the value attributed to the initially issued instruments. In the case of debt instruments, the additional payment must be considered a reduction in the premium or an increase in the discount observed in the initial issuance.

The entity, such as a mutual entity, that has not applied this Pronouncement and has accounted for one or more business combinations using the acquisition method must apply the transitional provisions set forth in items B68 and B69.

Income Taxes

For business combinations whose acquisition date precedes the effective date of this Pronouncement, the acquirer must prospectively comply with the requirements contained in item 68 of Technical Pronouncement CPC 32 – Income Taxes. This means that the acquirer shall not adjust the accounting of prior business combinations due to previously recognized changes in registered deferred tax assets. However, from the date this Pronouncement is applied, the acquirer must recognize as an adjustment to profit or loss (or if Technical Pronouncement CPC 32 requires, outside profit or loss) changes in registered deferred tax assets.

Transitional disposition

This Pronouncement replaces Technical Pronouncement CPC 15, approved by the Accounting Pronouncements Committee in the Extraordinary Meeting held on June 26, 2009.

CVM RESOLUTION NO. 71, OF MARCH 22, 2022

Appendix A - Glossary of Terms Used in the Pronouncement
This appendix is an integral part of this Pronouncement.

Acquired is the business or businesses whose control is obtained by the acquirer through a business combination.

Acquirer is the entity that obtains control of the acquired.

Acquisition date is the date on which the acquirer effectively obtains control of the acquired.

Business is an integrated set of activities and assets capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other revenues from ordinary activities.

Business combination is an operation or other event through which an acquirer obtains control of one or more businesses, regardless of the legal form of the operation. In this Pronouncement, the term also includes mergers that occur between independent parties (including those known as true mergers or merger of equals).

Contingent consideration are contractual obligations, assumed by the acquirer in the business combination transaction, to transfer additional assets or additional equity interests to the former owners of the acquired, if certain future events occur or specified conditions are met. However, a contingent consideration may also give the acquirer the right to recover part of the consideration previously transferred or paid, if specified conditions are met.

Equity interest, for the purposes of this Pronouncement, this expression is used broadly, both in the sense of an investor's participation in the capital of its investees, and in entities of mutual ownership (associations, cooperatives, etc.).

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (see Technical Pronouncement CPC 46).

Goodwill is an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized.

Identifiable: an asset is identifiable when it: (a) is separable, i.e., capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, individually or together with a related asset, liability, or contract, regardless of the entity's intention to do so; or (b) arises from a contractual or other legal right, regardless of whether that right is transferable or separable from the entity and from other rights and obligations.

Intangible asset is an identifiable non-monetary asset without physical substance.

Mutual entity is an entity, other than one whose entire ownership is held by an investor, that generates distribution of results, low costs, or other economic benefits directly to its owners, members, or participants (such as a mutual insurance entity, association, or cooperative).

Non-controlling interest is the portion of the equity of a subsidiary not attributable directly or indirectly to the parent (formerly referred to as "minority interests").

Owner, for the purposes of this Pronouncement, this term is used broadly, both to include holders of equity interests in a company, and the owners, members, or participants of a mutual entity (association, cooperative, etc.).

CVM RESOLUTION NO. 71, OF MARCH 22, 2022

Appendix B – Application Guide for the Pronouncement
This appendix is an integral part of this Pronouncement.

Business combination of entities under common control – application of item 2(c)

B1. This Pronouncement does not apply to business combinations of entities or businesses under common control. A business combination involving entities or businesses under common control is a business combination in which all entities or businesses in the combination are controlled by the same party or parties, before and after the business combination, and this control is not transitory.

B2. A group of individuals must be considered as controlling an entity when, as a result of a contractual agreement, they collectively have the power to govern its financial and operating policies so as to obtain benefits from its activities. Therefore, a business combination is outside the scope of this Pronouncement when the same group of individuals has, as a result of a contractual agreement, the ultimate collective power to govern the financial and operating policies of each of the entities in the combination so as to obtain benefits from its activities, and this ultimate collective power is not transitory.

B3. The entity may be controlled by an individual or group of individuals acting together under a contractual agreement, and this individual or group of individuals may not be subject to the disclosure requirements for financial statements under CPC standards. Therefore, in this case, it is not necessary for the entities in the combination to be included in the same set of consolidated financial statements for a business combination to be considered as involving entities under common control.

B4. The extent of non-controlling interest in each entity in the combination, before or after the business combination, is not relevant for determining whether the combination involves entities under common control. Similarly, it is not relevant for determining whether a combination involves entities under common control that one of the entities in the combination is a subsidiary and has been excluded from consolidated financial statements.

Identification of business combination – application of item 3

B5. This Pronouncement defines a business combination as the operation or other event in which the acquirer obtains control of one or more businesses. The acquirer may obtain control of the acquired in various ways, such as:
(a) by the transfer of cash, cash equivalents, or other assets (including net assets that constitute a business); (b) by the assumption of liabilities; (c) by the issuance of equity instruments; (d) by more than one of the types of consideration above; or (e) without the transfer of any consideration, including through purely contractual agreements (see item 43).

B6. A business combination, for legal, tax, or other reasons, may be structured in various ways, which include, but are not limited to:
(a) one or more businesses become controlled by an acquirer or a merger occurs between the acquirer and the net assets of one or more businesses; (b) an entity in the combination transfers its net assets or its owners transfer their respective equity interests to other entities in the combination (or to the owners of these entities); (c) all entities in the combination transfer their net assets or their owners transfer their respective equity interests to form a new entity (a transaction sometimes qualified in literature as a roll-up transaction or a put-together transaction); or (d) a group of former owners of one of the entities in the combination obtains control of the combined entity.

Definition of business – application of item 3

B7. A business consists of inputs – entry of resources – and processes (the processes are applied to the inputs), which have the capacity to contribute to generating outputs – exit of resources. The three elements of a business are defined below (see items B8 to B12D for guidance on business elements):
(a) input: any economic resource that generates outputs or has the capacity to contribute to generating outputs when one or more processes are applied to it. Examples include non-current assets (including intangible assets or rights to use non-current assets), intellectual property, the ability to obtain access to necessary materials or rights and employees; (b) processes: any system, standard, protocol, convention, or rule that, when applied to an input or inputs, generates outputs or has the capacity to contribute to generating outputs. Examples include strategic management processes, operational processes, and resource management processes. These processes are usually documented, however, the intellectual capital of the organized workforce, which holds the experience and skills necessary to follow rules and conventions, can generate the necessary processes and be able to apply them to inputs to generate outputs (billing, accounting, payroll, and other administrative systems are usually not processes used to create outputs); (c) output: the result of inputs and processes applied to the inputs that provide goods or services to customers, generate investment income (such as dividends or interest) or generate other revenues from ordinary activities.

Optional test to identify fair value concentration

B7A. Item B7B establishes an optional test (concentration test) to allow simplified assessment of whether the set of acquired activities and assets is not a business. The entity may choose whether or not to apply the test. The entity may make such a choice separately for each transaction or other event. The concentration test has the following consequences:
(a) if the concentration test is met, the set of activities and assets is determined as not being a business and no further assessment is required; (b) if the concentration test is not met, or if the entity chooses not to apply the test, the entity must then perform the assessment provided for in items B8 to B12D.

B7B. The concentration test is met if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. For the concentration test:
(a) the gross assets acquired must exclude cash and cash equivalents, deferred tax assets, and goodwill resulting from the effects of deferred tax liabilities; (b) the fair value of the gross assets acquired must include any consideration transferred (plus the fair value of any non-controlling interest and the fair value of any previously held interest) in excess of the fair value of the identifiable net assets acquired. The fair value of the gross assets acquired can usually be determined as the total obtained by summing the fair value of the consideration transferred (plus the fair value of any non-controlling interest and the fair value of any previously held interest) to the fair value of liabilities assumed (except deferred tax liabilities), excluding the items identified in item (a). However, if the fair value of the gross assets acquired is greater than the total, a more precise calculation may sometimes be necessary; (c) a single identifiable asset must include any asset or group of assets that would be recognized and measured as a single identifiable asset in the business combination; (d) if the tangible asset is attached and cannot be physically removed and used separately from another tangible asset (or underlying asset subject to a lease, as defined in CPC 06 – Leases), without incurring significant costs or significant reduction in the usefulness or fair value of said assets (for example, land and buildings), these assets must be considered a single identifiable asset; (e) when assessing whether assets are similar, the entity must consider the nature of each individual identifiable asset and the risks associated with the management and creation of outputs by the assets (i.e., risk characteristics); (f) the following items should not be considered similar assets:
(i) tangible asset and intangible asset;
(ii) tangible assets in different classes (for example, inventory, manufacturing equipment, and automobiles), unless they are considered a single identifiable asset according to the criterion of item (d); (iii) identifiable intangible assets in different classes (for example, brand names, licenses, and intangible assets under development); (iv) financial asset and non-financial asset; (v) financial assets in different classes (for example, accounts receivable and investments in equity instruments); and (vi) identifiable assets that are within the same asset class, but have significantly different risk characteristics.

B7C. The requirements of item B7B do not modify the guidance on similar assets in CPC 04 – Intangible Assets, nor do they modify the meaning of the term "class" in CPC 27 – Property, Plant and Equipment, in CPC 04, and in CPC 40 – Financial Instruments: Disclosure.

Business elements

B8. Although a business usually has outputs, outputs are not necessary for the integrated set of activities and assets to qualify as a business. To be capable of being conducted and managed for the purpose identified in the definition of a business, the integrated set of activities and assets must have two essential elements – the inputs and the processes to be applied to the inputs. The business does not need to include all the inputs and processes that the seller used in operating that business. However, to be considered a business, the integrated set of activities and assets must include, at minimum, the input and the substantive process that together contribute significantly to the capacity to generate output. Items B12 to B12D specify how to assess whether the process is substantive.

B8A. If the set of acquired activities and assets has outputs, the continuation of revenue does not, by itself, indicate that both the input and the substantive process were acquired.

B9. The nature of the business elements varies according to the type of industry, segment, and structure of the entity's operations (activities), including the stage of development of the entity. Established businesses often have different types of inputs, processes, and outputs, while new businesses often have few inputs and processes, and sometimes only a single output (product). Almost all businesses also have liabilities, but it is not necessary for a business to contain liabilities. Furthermore, the set of acquired activities and assets that is not a business may have liabilities.

B10. (Eliminated)

B11. The determination of a given set of activities and assets as a business must be based on the capacity for that set to be conducted and managed as a business by a market participant. Thus, when assessing whether the set is a business, it is not relevant whether the seller operated the set as a business or whether the acquirer intends to operate the set as a business.

Assessing whether the acquired process is substantive

B12. Items B12A to B12D explain how to assess whether the acquired process is substantive; if the set of acquired activities and assets has no outputs (item B12B); and if it has outputs (item B12C).

B12A. An example of a set of acquired activities and assets that has no outputs at the acquisition date is an early-stage entity that has not started generating revenue. Furthermore, if the set of acquired activities and assets was generating revenue at the acquisition date, it is considered to have outputs at that date, even if it subsequently ceases to generate revenue from external customers, for example, because it will be integrated by the acquirer entity.

B12B. If the set of activities and assets has no outputs at the acquisition date, the acquired process (or group of processes) should only be considered substantive if:
(a) it is essential to the capacity to develop or convert the acquired input or inputs into outputs; and (b) the acquired inputs include both the organized workforce that possesses the necessary skill, knowledge, or experience to execute this process (or group of processes) and other inputs that the organized workforce could develop or convert into outputs. These other inputs may include:
(i) intellectual property that could be used to develop the good or service; (ii) other economic resources that could be developed to generate outputs; or (iii) rights to obtain access to necessary materials or rights that allow the generation of future outputs.
Examples of inputs mentioned in items (i) to (iii) of item (b) include technology, ongoing research and development projects, real estate, and mineral interests.

B12C. If the set of activities and assets has outputs at the acquisition date, the acquired process (or group of processes) should be considered substantive if, when applied to acquired input or inputs, it:
(a) is fundamental to the capacity to continue producing outputs, and the acquired inputs include the organized workforce with the necessary skills, knowledge, or experience to execute this process (or group of processes); or (b) contributes significantly to the capacity to continue producing outputs and:
(i) is considered unique or scarce; or
(ii) cannot be replaced without significant cost, effort, or delay in the capacity to continue producing outputs.

B12D. The following discussion supports both items B12B and B12C:
(a) acquired contract is an input and not a substantive process. However, the acquired contract, for example, a contract for outsourced property management or outsourced asset management, may provide access to the organized workforce. The entity must assess whether the organized workforce accessed through such contract performs a substantive process that the entity controls and, therefore, acquired. The factors to be considered when making this assessment include the duration of the contract and its renewal terms; (b) difficulties in replacing the acquired organized workforce may indicate that the acquired organized workforce performs a process that is critical to the capacity to create outputs; (c) a process (or group of processes) is not critical if, for example, it is secondary or minor in the context of all processes necessary to create outputs.

Identification of the acquirer – application of items 6 and 7

B13. The guidance of Technical Pronouncement CPC 36 – Consolidated Financial Statements should be used to identify the acquirer – the entity that obtains control of the acquired. When a business combination occurs and this guidance does not clearly indicate which of the entities in the combination is the acquirer, the factors indicated in items B14 to B18 should be considered for this determination.

B14. In a business combination effected fundamentally by the transfer of cash or other assets or by the assumption of liabilities, the acquirer is normally the entity that transfers cash or other assets or incurs liabilities.

B15. In a business combination effected fundamentally by the exchange of equity interests, the acquirer is normally the entity that issues equity instruments. However, in some business combinations, commonly referred to as "acquisition

3 It is important to clarify that this type of transaction does not coincide with the "reverse merger" modality, actively practiced in Brazil, at the beginning of the privatization process of the electricity and telecommunications sectors. "Reverse merger" transactions do not qualify for the application of this Pronouncement, due to not involving a change in control.

4 Legally, in Brazil, this transaction would be classified as a merger of shares of the closed entity into the open company's equity, with the former shareholders of the closed entity receiving shares to be issued by the open company, according to the fair share exchange ratio contained in the merger protocol.
5 The fair value of the shares of the combined entity multiplied by the final interest of the legal parent's (accounting acquired) shareholders in the combined entity.

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CVM RESOLUTION NO. 71, OF MARCH 22, 2022

guidance regarding the measurement of the fair value of intangible assets, nor does it restrict the assumptions used in measuring that fair value. For example, the acquirer must consider assumptions that market participants would use in pricing the intangible asset, such as expectations of future contract renewals, in the measurement of fair value. It is not required that they be renewable to meet the identification criterion. (However, the provision in paragraph 29 establishes an exception to the measurement principle, in the case of reacquired rights recognized in a business combination). Paragraphs 36 and 37 of Technical Pronouncement CPC 04 – Intangible Assets provide guidance to determine whether an intangible asset should be combined into a single accounting reporting unit together with other intangible or tangible assets.

Measurement of the fair value of a certain identifiable asset and of the non-controlling interest in the acquiree – application of paragraphs 18 and 19

Assets with uncertain cash flows (loss allowance adjustment) B41. The acquirer shall not recognize a separate valuation allowance for losses at the acquisition date for assets acquired in a business combination that are measured at fair value at the acquisition date, because the effects of uncertainties about future cash flows are already included in the measured fair value. For example, because this Pronouncement requires the acquirer to measure acquired receivables, including loans, at their fair value at the business combination acquisition date, the acquirer shall not recognize a separate valuation allowance for losses for contractual cash flows that are considered uncollectible on that date, nor an allowance for expected credit losses.

Asset subject to an operating lease in which the acquiree is the lessor B42. In measuring the fair value, at the acquisition date, of an asset such as a building or patent that is subject to an operating lease, in which the acquiree is the lessor, the acquirer must consider the terms and conditions of the lease contract. The acquirer shall not recognize the asset or liability separately if the conditions of the operating lease are favorable or unfavorable relative to market conditions.

Assets that the acquirer does not intend to use or intends to use differently than other market participants would use them B43. To protect its competitive position, or for other reasons, the acquirer may intend not to actively use a non-financial asset acquired or may intend not to use it in accordance with its highest and best use. For example, this may be the case for an intangible research and development asset acquired that the acquirer plans to use defensively by preventing others from using it. Nevertheless, the acquirer must measure the fair value of the non-financial asset presuming its highest and best use by market participants in accordance with the appropriate valuation premise, both initially and when measuring fair value less costs to sell for subsequent impairment testing.

Non-controlling interest in the acquiree

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 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. 71, OF MARCH 22, 2022

B44. One of the methods permitted by this Pronouncement for the acquirer to measure the non-controlling interest in the acquiree is the fair value of that interest at the acquisition date. Sometimes, the acquirer is able to measure, at the acquisition date, the shares held by non-controlling interests (i.e., those not held by the acquirer) at their fair value based on a quoted price in an active market. However, in other situations, the quoted price in an active market for these shares may not be available. Therefore, the acquirer must measure the fair value of the non-controlling interest using other valuation techniques. B45. The fair value per share of the controlling interest in the acquiree may be different from the fair value per share of the non-controlling interest. The main difference likely arises from the control premium included in the fair value per share of the acquirer's interest in the acquiree or, otherwise, from the discount for the absence of a control premium (sometimes referred to as the non-controlling interest discount) in the fair value per share of the non-controlling interest if market participants were to take this premium or discount into account when pricing the non-controlling interest.

Measurement of goodwill or gain on a bargain purchase

Measurement of the fair value at the acquisition date of the acquirer's interest in the acquiree through valuation techniques – application of paragraph 33 B46. In business combinations carried out without the transfer of consideration to obtain control of the acquiree, to calculate goodwill or gain on a bargain purchase, the acquirer must use the fair value of its interest in the acquiree instead of the fair value of the consideration transferred (see paragraphs 32 to 34).

Specific considerations in the application of the acquisition method in combinations of mutual entities – application of paragraph 33 B47. When two mutual entities are combined, the fair value of the equity interest in the acquiree, or the member interest in the acquiree, or simply the fair value in the acquiree, may be measurable more reliably than the fair value of the membership representative securities transferred by the acquirer in exchange for control of the acquiree. In this situation, paragraph 33 requires the acquirer to determine goodwill using the fair value, at the acquisition date, of the equity interest in the acquiree that was obtained, in place of the fair value of the acquirer's equity interest that was transferred as consideration (in exchange for control of the acquiree). Additionally, in a combination involving mutual entities, the acquirer must recognize in its financial statements the net assets of the acquiree in exchange for capital or another component of equity, except for accumulated profits. This procedure is consistent with the way other types of entities apply the acquisition method. B48. Although similar to other businesses, mutual entities have distinct characteristics, mainly because their members are simultaneously customers and owners. The members of mutual entities generally expect to receive benefits from their rights as members, often in the form of reduced prices for products and services or dividends. The portion of dividends allocated to each member, in most cases, is based on the amount of business the member conducted with the mutual entity during the year. B49. The measurement of the fair value of a mutual entity must include the assumptions that market participants would make about future benefits as members, as well as any other relevant assumptions that market participants would make about the mutual entity. For example, the present value technique may be used to measure the fair value of a mutual entity. The cash flows used in the model must be based on the expected cash flows of the mutual entity, which will likely reflect reductions due to member benefits, such as reduced prices for products and services.

Determination of what is part of the business combination transaction – application of paragraphs 51 and B50. The acquirer must consider the factors listed below, which are not mutually exclusive nor individually conclusive, to determine whether an operation is part of the exchange transaction between the acquirer and the acquiree (or its former owners) to obtain control of the acquiree, or if it is a separate operation from the business combination:
(a) Reasons that motivated the operation: understanding the reasons why the parties involved in the combination (acquirer and acquiree, as well as their former owners, advisors, directors, administrators, and their representatives) entered into a particular operation or agreement may allow one to perceive whether this operation or agreement is part of the consideration transferred to obtain control of the acquiree and the assets acquired or liabilities assumed. For example, if an operation is agreed fundamentally for the benefit of the acquirer or the combined entity, rather than fundamentally for the benefit of the acquiree or its former owners before the combination, it is less likely that this portion of the amount paid (including any related asset or liability) is part of the exchange for obtaining control of the acquiree. Consequently, the acquirer must account for such portion separately from the business combination. (b) Who initiated the operation: understanding who initiated the operation may also allow determining whether it integrates the exchange operation between the parties for obtaining control of the acquiree. For example, an operation (or other event) initiated by the acquirer may have been carried out aiming to generate future economic benefits for the acquirer or for the combined entity, with little or no benefit for the acquiree or its former owners before the combination. On the other hand, it is less likely that an operation or agreement initiated by the acquiree or its former owners is for the benefit of the acquirer or the combined entity and, therefore, it is more likely that it is part of the business combination operation. (c) Timing of the operation: the timing when the operation occurs may also allow determining whether it integrates the exchange operation between the parties for obtaining control of the acquiree. For example, an operation between the acquirer and the acquiree during the negotiations of the terms of the business combination may have been contemplated, before the combination, to generate future economic benefits for the acquirer or for the combined entity. Thus, the acquiree or its former owners before the combination will likely receive little or no benefit from this operation, except for

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 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. 71, OF MARCH 22, 2022

the benefits they will receive as part of the combined entity.

Effective settlement of a pre-existing relationship between the acquirer and the acquiree in a business combination – application of paragraph 52(a) B51. The acquirer and the acquiree may have a relationship that existed before considering the business combination, referred to in this Pronouncement as a "pre-existing relationship". A pre-existing relationship between the acquirer and the acquiree may be contractual (seller and customer or licensor and licensee, for example) or non-contractual (author of a lawsuit and defendant, for example). B52. When the business combination effectively settles a pre-existing relationship, the acquirer must recognize the gain or loss measured as follows:
(a) at fair value, in the case of a non-contractual pre-existing relationship (such as a lawsuit); (b) at the lower of (i) and (ii) below, in the case of a contractual pre-existing relationship:
(i) the amount by which the contract is favorable or unfavorable, from the acquirer's perspective, when compared to current market transactions for the same item or for similar items. (An unfavorable contract is one that is unfavorable in terms of current market conditions. It is not necessarily an onerous contract where the inevitable costs inherent to the obligations stipulated in the contract exceed the economic benefits expected to be obtained from it); (ii) the amount of any settlement provision (such as a termination penalty) established in the contract and that is available to the counterparty for whom the contract is unfavorable. When (ii) is lower than (i), the difference must be included as part of the accounting for the business combination. The amount of the recognized gain or loss may depend, in part, on whether the acquirer had previously recognized a related asset or liability, and therefore the reported gain or loss may be different from the value calculated according to the requirements above. B53. A pre-existing relationship may be a contract that the acquirer recognizes as a reacquired right. If the contract includes conditions that are favorable or unfavorable relative to current market transaction prices for the same item or for similar items, the acquirer must recognize, separately from the business combination, the gain or loss from the effective settlement of the contract, measured in accordance with paragraph B52.

Agreement for contingent payment to employees or selling shareholders – application of paragraph 52(b) B54. Agreements for contingent payments to employees or selling shareholders constitute contingent consideration of the business combination or constitute separate operations, depending on the nature of these agreements. To determine the nature of the agreement, it is necessary to understand the reasons why the acquisition contract provides for such contingent payments, as well as which party initiated the agreement and when the parties entered into the contingent payment agreement. B55. When it is not clear whether the payments provided for in the agreement for employees or selling shareholders are part of the exchange operation to obtain control of the acquiree or if they constitute separate operations from the combination, the acquirer must consider the following indicators:
(a) Condition to remain as an employee: the conditions for remaining, as an employee, by the selling shareholders who become key employees in the combined entity may constitute an indicator of the essence of the contingent consideration agreement. The conditions pertinent to employee retention may be included in an employment agreement, in an acquisition contract, or in some other document. Contingent consideration in which payments are automatically extinguished when employees are terminated constitutes remuneration for post-combination services. Agreements in which contingent payments are not affected by the employee's termination may indicate that the contingent payment constitutes additional consideration for the exchange operation to obtain control of the acquiree, rather than remuneration for services rendered. (b) Duration of remaining as an employee: when the required period of remaining, as an employee, coincides with (or exceeds) the period of contingent payment, this fact may indicate that the contingent payment, in essence, is remuneration for services rendered. (c) Level of remuneration: in cases where the remuneration of employees, excluding contingent payments, is set at a reasonable level, compared to that of other employees of the combined entity, it may indicate that the contingent payments are additional considerations rather than remuneration for services rendered. (d) Incremental payment to employees: the fact that the per-share value of the contingent payments of selling shareholders who will not remain as employees of the combined entity is lower than that of selling shareholders who will remain as employees of the combined entity may indicate that the incremental value of the contingent payments of selling shareholders who will remain as employees constitutes remuneration for services rendered. (e) Number of shares held: the relative number of shares held by selling shareholders who will remain as key employees in the combined entity may be an indicator of the essence of the contingent consideration agreement. For example, the fact that selling shareholders who owned substantially all the shares or quotas of the acquiree remain as key employees in the combined entity may indicate that the agreement is, in essence, a profit-sharing agreement entered into to remunerate these shareholders for post-combination services (and therefore a separate operation). Alternatively, if the selling shareholders who will remain as key employees owned only a small number of shares of the acquiree, but the per-share value of the contingent consideration of all shareholders is the same, this fact may indicate that the contingent payments are additional considerations. The pre-acquisition ownership interest held by related parties to the selling shareholders who will remain as key employees in the combined entity, such as family members, must also be considered. (f) Connection with valuation: the fact that the consideration initially
transferred at the acquisition date is based on the lowest value of the range of values established in the valuation of the acquiree and the contingent payment formula is related to this valuation approach suggests that the contingent payments are additional compensations. Alternatively, the fact that the contingent payment formula is consistent with previous profit-sharing agreements suggests that the essence of the agreement is to produce

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 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. 71, OF MARCH 22, 2022

remuneration for services rendered.
(g) Formula for determining consideration: The calculation formula used to determine contingent payment may be useful in assessing the essence of the agreement. For example, the fact that the contingent payment is determined based on multiples of some profit indicator (or cash flow generation) may suggest that the obligation is a contingent consideration in the business combination and the formula constitutes a means of establishing or verifying the fair value of the acquired entity. Conversely, a contingent payment that is a specific percentage of profits may suggest that the obligation to employees is a profit-sharing agreement to remunerate employees for services rendered. (h) Other agreements and issues: the conditions of other agreements with selling shareholders (such as non-compete agreements, executory contracts, consulting agreements, and property lease agreements), as well as the treatment of income taxes on these contingent payments, may indicate that such contingent payments do not constitute consideration for obtaining control of the acquired entity. For example, in connection with the acquisition, the acquirer may enter into a property lease agreement with a significant selling shareholder. If the lease payments specified in the contract are significantly below market, part or all of the contingent payments to the lessor (i.e., the selling shareholder) required by a separate agreement for contingent payments may, in essence, be payments for the use of the leased property that the acquirer must recognize separately in its post-combination financial statements. Conversely, if the lease contract specifies consideration that is consistent with market conditions for the leased property, the agreement for contingent payments with the selling shareholder may be a contingent consideration of the business combination.

Acquirer’s share-based payment plans in exchange for the acquired entity’s employee plans – application of paragraph 52(b)

B56. The acquirer may deliver share-based payment benefit plans (referred to as replacement plans) in exchange for benefit plans held by the employees of the acquired entity. Exchanges of share options or other share-based payment benefit plans related to the business combination must be accounted for as modifications of share-based payments in accordance with Technical Pronouncement CPC 10 – Share-Based Payment. If the acquirer replaces the acquired entity’s plans, part or all of the market-based measurement (as a result of applying the procedure set forth in Technical Pronouncement CPC 10) of the acquirer’s replacement plans must be included in the measurement of consideration transferred to effect the business combination. Paragraphs B57 to B62 provide guidance on how to allocate the market-based measurement. However, in some situations, where the acquired entity’s benefit plans could expire as a consequence of the business combination, and in cases where the acquirer replaces such plans, even if not obligated to do so, all of the market-based measurement (by the result of applying the procedures set forth in Technical Pronouncement CPC 10) of the replacement plans (share-based payments of the acquirer delivered in exchange for share-based payments of the acquired entity) must be recognized as remuneration expense in the post-combination financial statements, in accordance with Technical Pronouncement CPC 10. This means that none of the value of the market-based measurement of those plans should be included in the measurement of consideration transferred in the business combination. The acquirer is obligated to replace the acquired entity’s plans when the acquired entity or its employees have the ability to force such replacement. For example, for the purposes of applying this requirement, the acquirer is obligated to replace the acquired entity’s plans if the replacement is required:
(a) by the terms of the acquisition agreement; (b) by the terms of the acquired entity’s share-based payment benefit plans; or (c) by force of applicable laws or regulations.

B57. To determine the part of the replacement plans that integrates the consideration transferred to obtain control of the acquired entity and the part that constitutes remuneration for post-combination services, the acquirer must measure, on the acquisition date, the replacement plans granted by the acquirer and the plans granted by the acquired entity in accordance with the provisions of Technical Pronouncement CPC 10 – Share-Based Payment. The part of the market-based measurement of the replacement plans that integrates the consideration transferred (in exchange for control of the acquired entity) is equivalent to the part of the acquired entity’s share-based payment benefit plan that is attributable to pre-combination services.

B58. The part of the replacement plans attributable to pre-combination services is the market-based measurement of the acquired entity’s plans multiplied by the ratio between the completed portion of the vesting period and the greater of the following periods: the total vesting period or the original vesting period of the acquired entity’s plans. The vesting period is the period over which all vesting conditions must be met. Vesting conditions are defined in Technical Pronouncement CPC 10 – Share-Based Payment.

B59. The part of the replacement plans not yet vested, attributable to post-combination services, is equal to the total market-based measurement of the replacement plans minus the value attributed to pre-combination services and must be recognized as remuneration expense in the post-combination financial statements. Consequently, the acquirer must attribute to post-combination services any excess value of the market-based measurement of the replacement plans over the market-based measurement of the acquired entity’s plans and recognize the excess value as remuneration expense in the post-combination financial statements. The acquirer must attribute part of the replacement plans to post-combination services if post-combination services are required by the acquirer, regardless of whether the employees render all services required for the vesting conditions of the acquired entity’s plans before the acquisition date.

B60. The part of the replacement plans not yet vested, attributable to pre- and post-combination services, must reflect the best available estimate of the number (quantity) of replacement plans expected to vest. For example, if the market-based measurement of the part of the replacement plans attributed to pre-combination services is $100 and the acquirer expects that only 95% of the benefit plans will meet the vesting condition, the amount included in the consideration transferred in the business combination must be $95. Changes in the estimated number of replacement plans for which vesting conditions are expected to be met must be reflected in remuneration expense in the periods in which such changes occur (or when the right lapses) and not as adjustments to the consideration transferred in the business combination. Similarly, the effects of other events that occur after the acquisition date of control, such as modifications or the final outcome of plans with performance conditions, must be accounted for in the periods in which such events occur, in the determination of remuneration expense in accordance with the provisions of Technical Pronouncement CPC 10 – Share-Based Payment.

B61. The same requirements for determining which part of the replacement plans is attributable to pre- and post-combination services must be applied, regardless of whether the replacement plans are classified as liability or as a component of equity, in accordance with the provisions of Technical Pronouncement CPC 10 – Share-Based Payment. After the acquisition date, all changes in the market-based measurement of plans classified as liability and the resulting tax effects (income taxes) must be recognized in the acquirer’s post-combination financial statements, in the periods in which such changes occur.

B62. The tax effects (income tax) of share-based payment replacement plans must be recognized in accordance with the provisions of Technical Pronouncement CPC 32 – Income Taxes.

Acquired entity’s share-based payment transactions, settled in equity instruments

B62A. The acquired entity may have outstanding share-based payment transactions that the acquirer does not wish to replace with its own share-based payment transactions. If the vesting conditions are met, such share-based payment transactions of the acquired entity must be included in the non-controlling interest in the acquired entity and must be measured at their market-based value. If the vesting conditions are not met, such transactions must be measured at their market-based value, considering the acquisition date as the grant date of the plan, in accordance with paragraphs 19 and 30.

B62B. The market-based measurement of share-based payment transactions, for which vesting conditions are not met, must be allocated to the non-controlling interest based on the ratio between the completed portion of the vesting period and the greater of the following periods: the total vesting period or the original vesting period of the share-based payment transactions. The remaining balance must be allocated to post-combination services.

Other CPC Pronouncements, Interpretations, and Guidance that guide on subsequent measurement and accounting – application of paragraph 54

B63. Other CPC Pronouncements, Interpretations, and Guidance provide guidance on subsequent measurement and accounting for assets acquired and liabilities assumed or incurred in a business combination, such as:
(a) Technical Pronouncement CPC 04 – Intangible Assets guides how to account for identified intangible assets acquired in a business combination. The acquirer must measure goodwill by the recognized value at the acquisition date less accumulated impairment losses. Technical Pronouncement CPC 01 – Impairment of Assets establishes how to account for impairment losses of assets. (b) Technical Pronouncement CPC 11 – Insurance Contracts provides guidance on the subsequent accounting of insurance contracts acquired in a business combination. (c) Technical Pronouncement CPC 32 – Income Taxes determines the subsequent accounting of deferred tax assets (including unrecognized deferred tax assets) and deferred tax liabilities acquired in a business combination. (d) Technical Pronouncement CPC 10 – Share-Based Payment provides guidance for the measurement and subsequent accounting of the part of replacement plans for share-based payments issued by the acquirer and attributed to future employee services. (e) Technical Pronouncement CPC 36 – Consolidated Financial Statements provides guidance on accounting for changes in the parent’s interest in its subsidiaries after obtaining control.

Disclosure – application of paragraphs 59 and 61

B64. To meet the objectives of paragraph 59, the acquirer must disclose the following information for each business combination that occurs during the reporting period:
(a) name and description of the acquired entity; (b) acquisition date; (c) percentage of voting capital acquired, as well as the percentage of total interest acquired; (d) main reasons for the business combination and description of how control of the acquired entity was obtained by the acquirer; (e) qualitative description of the factors comprising the recognized goodwill, such as expected synergies from combining the operations of the acquired entity with those of the acquirer, intangible assets that do not qualify for separate recognition, or other factors; (f) fair value, on the acquisition date, of the total consideration transferred, as well as the fair value, on the acquisition date, of the most relevant types of consideration, such as:
(i) cash;
(ii) other tangible or intangible assets, including a business or a subsidiary of the acquirer; (iii) liabilities incurred, such as, for example, liability for contingent consideration; and (iv) equity interests of the acquirer, including the number of shares or instruments issued or that may be issued, and the method adopted in determining the fair value of these shares or instruments; (v) equity interests of the acquirer, including the number of shares or instruments issued or that may be issued, and the method adopted in measuring the fair value of these shares or instruments; (g) for agreements for contingent consideration and for indemnification assets:
(i) recognized value on the acquisition date;
(ii) description of the agreement and the bases for determining the payment value; and (iii) estimate of the range of values of the results (undiscounted) or, if the range of values cannot be estimated, the indication of this fact and the reasons why it was not possible to estimate it. When there is no maximum value determined for the payment (i.e., there is no value limit established), this fact must be disclosed by the acquirer; (h) for acquired receivables:
(i) fair value of the receivables;
(ii) gross contractual value of the receivables; and (iii) the best estimate, on the acquisition date, of the contractual cash flows for which there is an expectation of loss from non-realization.
Disclosures must be made for the main classes of receivables, such as loans, direct finance leases, and any other classes of receivables.
(i) amounts recognized, on the acquisition date, for each of the main classes of assets acquired and liabilities assumed; (j) for each contingent liability recognized in accordance with paragraph 23, the information required by paragraph 85 of Technical Pronouncement CPC 25 - Provisions, Contingent Liabilities and Contingent Assets. When a contingent liability has not been recognized because it was not possible to measure its fair value reliably, the acquirer must disclose:
(i) the information required by paragraph 86 of Technical Pronouncement CPC 25 - Provisions, Contingent Liabilities and Contingent Assets; and (ii) the reasons why the liability could not be measured reliably.
(k) the total amount of goodwill expected to be deductible for tax purposes; (l) for transactions recognized separately from the acquisition of assets and assumption of liabilities in the business combination, in accordance with paragraph 51:
(i) description of each transaction;
(ii) how the acquirer accounted for each transaction; (iii) the value recognized for each transaction and the line item in the financial statements in which it is recognized (for each transaction); and (iv) the method used to determine the value of this settlement, if the transaction is an effective settlement of a pre-existing relationship; (m) the disclosure of separately recognized transactions, required by item (l), must include the value of acquisition-related costs and, separately, the value of the part of these costs that was recognized as expense, as well as the line item (or items) of the income statement in which such expenses were recognized. The value of any unrecognized debt issuance costs must also be disclosed, along with information on how they were recognized; (n) in the case of a bargain purchase (see paragraphs 34 to 36):
(i) the value of the gain recognized in accordance with paragraph 34 and the line item of the income statement in which the gain was recognized; and (ii) the description of the reasons why the transaction resulted in a gain; (o) for each business combination in which the acquirer, on the acquisition date, holds less than 100% of the equity interest in the acquired entity:
(i) the value of the non-controlling interest in the acquired entity, recognized on the acquisition date and the bases of measurement of this value; and (ii) for each non-controlling interest in the acquired entity measured at fair value, the valuation techniques and significant information used in measuring this fair value; (p) in a business combination achieved in stages:
(i) the fair value, on the acquisition date, of the equity interest in the acquired entity that the acquirer held immediately before the acquisition date; and (ii) the value of any gain or loss recognized as a result of remeasuring to fair value the acquirer’s interest in the acquired entity before the business combination (see paragraph 42) and the line item in the income statement in which this gain or loss was recognized; (q) the following information:
(i) the amounts of revenue and period result of the acquired entity from the acquisition date that were included in the consolidated income statement of the reporting period; and (ii) the revenue and period result of the combined entity for the current reporting period, as if the acquisition date, for all combinations occurring during the year, were the beginning of the annual reporting period. In the case where it is impracticable to disclose any of the information required by item (q), the acquirer must disclose this fact and explain why its disclosure is impracticable. This Pronouncement uses the term “impracticable” with the same meaning used in Technical Pronouncement CPC 23 - Accounting Policies, Change in Accounting Estimates and Errors.

B65. For business combinations carried out during the reporting period that are individually immaterial but collectively material, the acquirer may disclose the information required in paragraphs B64(e) to B64(q) in an aggregated manner.

B66. When the acquisition date of a business combination is after the end of the reporting period, but before the date the financial statements are authorized for issue, the acquirer must disclose the information required in paragraph B64, unless the initial accounting of the combination is incomplete at the time the financial statements are authorized for issue. In this situation, the acquirer must describe which disclosures could not be made and the respective reasons for such.

B67. To meet the objectives of paragraph 61, the acquirer must disclose the following information for each material business combination, or in an aggregated manner for those business combinations that are individually immaterial but collectively material:
(a) when the initial accounting of a business combination is incomplete (see paragraph 45) and, consequently, certain assets, liabilities, non-controlling interests, or items of consideration transferred, as well as their respective recognized amounts in the financial statements for the combination, have been determined only provisionally, the following must be disclosed:
(i) the reasons why the initial accounting of the business combination is incomplete; (ii) the assets, liabilities, equity interests, or items of consideration transferred for which the initial accounting is incomplete; and (iii) the nature and amount of any adjustment in the measurement period recognized during the reporting period, in accordance with the provisions of paragraph 49;

6 This type of transaction does not confuse with reverse mergers, widely practiced in the Brazilian market.

7 An intuitive and logical way to visualize the fair value of the transferred consideration would be to reason in terms of wealth. How much wealth did the former "A" partners retain. Thus, considering the outcome of the combined entity's capital distribution, the former "A" partners are entitled to 40% of the involved wealth, which comprises 40% of the 60 "B" shares at fair value per share or quota of $ 40 (0.460$ 40=$ 960) plus 40% of the 100 "A" shares or quotas at fair value per share or quota of $ 16 (0.4100$ 16 = $ 640), resulting in $ 1,600 ($ 960 + $ 640).

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 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. 71, OF MARCH 22, 2022

Current assets [$ 700 + $ 500] 1,200
Non-current assets [$ 3,000 + $ 1,500] 4,500
Goodwill 300
Total assets 6,000
Current liabilities [$ 600 + $ 300] 900
Non-current liabilities [$ 1,100 + $ 400] 1,500 Total liabilities 2,400 Equity Retained earnings [$ 1,400 x 93.3%] 1,306 Issued capital: 240 ordinary shares [$ 600 x 93.3%

$ 1,600] 2,160
Non-controlling interests [$ 1,400 x 6.7% +
$ 600 x 6.7%] 134
Total equity 3,600
Total liabilities and equity 6,000

C15. The non-controlling interests' share of $ 134 has two components. The first component is the reclassification of the non-controlling interests' share in the retained earnings of the acquiring entity immediately before the acquisition ($ 1,400 x 6.7% or $ 93.80). The second component represents the reclassification of the non-controlling interests' share in the capital of the acquiring entity before the combination ($ 600 x 6.7% or $ 40.20).

Identifiable intangible assets
Examples of the effects of applying items 10 to 14 and B31 to B40 of Technical Pronouncement CPC 15 - Business Combinations

C16. The following are examples of identifiable intangible assets acquired in a business combination. Some of the examples may have characteristics of other assets that are not intangible assets, which the acquirer must account for according to their respective nature.
It was not intended to include all possible examples.

C17. Intangible assets identified on a contractual basis are those that arise from contractual rights or other legal rights. Those designated as having a non-contractual basis do not arise from contractual rights or other legal rights, however, they are separable. Identifiable intangible assets as having a contractual basis may also be separated, however separability is not a necessary condition for an asset to meet the contractual-legal criterion.

Marketing-related intangible assets

C18. Marketing-related intangible assets are used mainly in the marketing or promotion of products and services. Examples of marketing-related intangible assets include:

Class	Basis
Brands and trade names (including service and collective marks) and
trademark certification	Contractual
Trade dress (exclusive color, shape or packaging design)	Contractual
---	---
Newspaper mastheads	Contractual
Internet domain names	Contractual
Non-compete agreements	Contractual

Brands and trade names (including service and collective marks) and trademark certification

C19. Trademarks are words, names, symbols or other devices used in commerce to indicate the origin of a product and distinguish it from the products of other companies. A service mark identifies and distinguishes the origin of a service rather than a product. Collective marks identify the products and services of members of a group. Certification marks are marks that possess certification regarding their geographical origin or other characteristics of a product or service.

C20. Brands and trade names, service marks, collective marks and certification marks may be legally protected through registration with government agencies, continuous use in commerce or by other means. If there is legal protection through registration or other means, a trademark or other mark acquired in a business combination is an intangible asset that meets the contractual-legal criterion. Otherwise, a trademark or other mark acquired in a business combination may be recognized separately from goodwill if the separability criterion is met, which usually can occur.

C21. Brand or brand name are terms often used as synonyms for trademarks and other marks and constitute general marketing designations that typically refer to a group of complementary assets such as a trademark (or a service mark) and which relate to trade names, formulas, recipes and technological specialties. Technical Pronouncement CPC 15 - Business Combinations does not prevent the entity from recognizing as a single asset, separately from goodwill, a group of complementary intangible assets, normally referred to as a brand, if the assets that constitute such group have similar useful lives.

Internet domain names

C22. An internet domain name is an exclusive alphanumeric name that is used to identify a specific internet address. The registration of a domain name creates an association between the name and a specific computer on the internet for the period specified in the registration.
These registrations are renewable. A registered domain name acquired in a business combination meets the contractual-legal criterion.

Customer-related intangible assets

C23. Examples of customer-related intangible assets include:

Class	Basis
Customer lists	Non-contractual
Orders or production backlog	Contractual
Customer contracts and related relationships	Contractual
Non-contractual customer relationships	Non-contractual

Customer lists

C24. A customer list consists of information about customers, such as their names and other contractual information. A customer list may take the form of a database that includes other information about customers, such as order history and demographic information.
A customer list usually does not arise from legal or contractual rights. However, customer lists are often leased or exchanged. Therefore, a customer list acquired in a business combination usually meets the separability criterion.

Orders or production backlog

C25. Orders or production orders pending (or simply order or production backlog) arise from commitments made such as purchase or sales orders. The order or production backlog acquired in a business combination meets the contractual-legal criterion, even if the purchase or sales orders may be cancelled.

Customer contracts and related relationships

C26. If an entity establishes relationships with its customers through contracts, these relationships arise, then, from contractual rights. Therefore, customer contracts and related relationships acquired in a business combination meet the contractual-legal criterion, even if there are contractual confidentiality conditions or other conditions prohibiting the sale or transfer of the contract separately from the acquirer.

C27. A customer contract and the relationship with that customer may represent two distinct intangible assets. Both may have different useful lives, as well as different patterns in which the economic benefits of the two assets are consumed.

C28. A customer relationship exists between an entity and its customers when: (a) the entity has information about the customer and has a regular contract with that customer; and (b) the customer has the capacity to make direct contact with the entity. Customer relationships meet the contractual-legal criterion if an entity has as a practice establishing contracts with its customers, regardless of whether there is a contract on the acquisition date. The customer relationship may also arise by other means than a contract, such as through regular contacts through sales or service representatives.

C29. As mentioned in item C25, an order or production backlog arises from commitments made such as purchase or sales orders and, therefore, it is considered a contractual right. As a result, if the entity has a relationship with its customers through these types of commitments, this relationship also arises from contractual rights and, therefore, meets the contractual-legal criterion.

Examples

C30. The following examples illustrate the recognition of intangible assets by contracts and by customer relationships acquired in a business combination:

(a) Acquiring Company (AC) acquires Target Company (TC) in a business combination on 12/31/20X5. TC has a five-year agreement to supply products to Customer X. Both entities, AC and TC, believe that the customer will renew the agreement at the end of the current contract. The agreement is not separable.

The agreement, whether cancellable or not, meets the contractual-legal criterion. Additionally, because TC establishes a relationship with the customer through a contract, both the agreement and the entire customer relationship of TC meet the contractual-legal criterion.

(b) AC acquires TC in a business combination on 12/31/20X5. TC manufactures products in two distinct business lines: sports products and electronics. Customer X purchases both (sports products and electronics). TC has a contract with the customer to be its exclusive supplier of sports products, but does not have a contract for the supply of electronics. Both entities, AC and TC, believe that between TC and the Customer there is only one of several types of relationships.

The contract to be the exclusive supplier of sports products, whether cancellable or not, meets the contractual-legal criterion. Additionally, because TC has established its relationship with the customer through a contract, this relationship meets the contractual-legal criterion. Given that TC has only one relationship with the respective customer, the fair value of this relationship incorporates the assumptions about the relationship of TC with the customer regarding both businesses (sports products and electronics). However, if AC determines that the customer relationship for sports products and electronics is separable from each other, AC should assess whether the customer relationship for electronics meets the separability criterion to be identified as an intangible asset.

(c) AC acquires TC in a business combination on 12/31/20X5. TC does business with its customers only through purchase and sales orders. On 12/31/20X5, TC has a backlog of customer purchase orders involving 60% of its customers, who are all recurring customers. The remaining 40% of TC's customers are also recurring customers. However, TC does not have open orders or other contracts with such customers on 12/31/20X5.

The purchase orders of the 60% of TC's customers meet the contractual-legal criterion, whether cancellable or not. Additionally, since TC establishes a relationship with these customers (60%) through contract, both the purchase orders and the relationships with such customers meet the contractual-legal criterion. Due to TC having as a practice establishing contracts with the rest of its customers (40%), the relationship with these customers also arises from contractual rights and, therefore, meets the contractual-legal criterion, regardless of TC not having contracts with such customers on 12/31/20X5.

(d) AC acquires TC, an insurer, in a business combination on 12/31/20X5. TC has a one-year portfolio of automobile insurance contracts that are cancellable by the policyholders.

Because TC establishes its relationship with policyholders through insurance contracts, the customer relationship regarding policyholders meets the contractual-legal criterion. Technical Pronouncement CPC 01 – Asset Impairment and Technical Pronouncement CPC 04 – Intangible Assets are applicable to the intangible asset relating to the customer relationship.

Non-contractual customer relationships

C31. A customer relationship acquired in a business combination that does not arise from a contract may, however, be identifiable because the relationship is separable. Exchange transactions for this type of asset, or for similar assets, which indicate that other entities have sold or otherwise transferred a particular type of non-contractual customer relationship constitute evidence that the relationship is separable.

Artistic intangible assets

C32. Examples of artistic intangible assets include:

Class	Basis
Theatrical pieces, operas and ballets	Contractual
Books, magazines, newspapers and other literary works	Contractual
Musical works, such as compositions, lyrical songs and advertising songs	Contractual
Paintings, canvases and photographs	Contractual
Audiovisual and video material, including cinematographic recordings or
films, music videos and television programs	Contractual

C33. Artistic assets acquired in a business combination are identifiable if they arise from contractual or legal rights, such as those established by copyrights. The copyright holder may transfer them in full (through assignment of use) or in part (through a license of use). An acquirer has no impediments to recognizing as a single intangible asset, the copyrights and any related rights, that were obtained by assignment or use licenses, provided they have similar useful lives.

Contract-based intangible assets

C34. Contract-based intangible assets represent the value of rights that arise from contractual agreements. Customer contracts constitute a type of contract-based intangible asset. If the terms and conditions of a contract give rise to a liability (for example, if the terms of an operating lease contract or a customer contract are unfavorable compared to market conditions), the acquirer must recognize this contract as an assumed liability in the business combination. Examples of contract-based intangible assets include:

Class	Basis
Royalty agreements, licensing agreements and stop-work agreements	Contractual
Advertising, construction, management, service or supply contracts	Contractual
Lease contracts (whether the acquirer is the lessor or lessee)	Contractual
Construction permits	Contractual
Franchise agreements	Contractual
Operation or transmission rights (such as radio or television broadcasting)	Contractual
Specific service contracts (servicing contracts), such as mortgage servicing contracts	Contractual
Employee contracts	Contractual
Natural resource exploitation rights, such as land drilling and
exploration of water, air, routes, forest resources and mineral resources	Contractual

Specific service contracts, such as mortgage servicing contracts

C35. Service contracts involving financial assets (collecting payments, transferring resources, collecting, etc.) constitute a type of contract-based intangible asset. Although the service provision is inherent to all financial assets, it becomes a distinct asset (or liability) through one of the following conditions:

(a) when it can be contractually separated from the underlying financial asset by sale or securitization of the assets with the service provision retained;

(b) through the separate purchase and assumption of the service provision.

C36. When mortgage loans, credit card receivables or other financial assets are acquired in a business combination with the service provision retained, the rights inherent to the service provision (servicing rights) do not constitute a separable intangible asset because the fair value of the respective servicing rights is included in the measurement of the fair value of the acquired financial assets.

Employee contracts

C37. Employee contracts constitute a type of contract-based intangible asset when they are beneficial from the employer's perspective, due to their prices being favorable compared to market conditions.

Use rights

C38. Use rights include rights or authorization to explore resources such as water, air, soil, forest and route. Some use rights are contract-based intangible assets and must be accounted for separately from goodwill.
Other use rights may have characteristics of tangible assets rather than intangible assets. The acquirer must account for use rights based on their nature.

Technology-based intangible assets

C39. Examples of technology-based intangible assets include:

Class	Basis
Patented technology	Contractual
Computer software and read-only memory chips
(mask works)	Contractual
Unpatented technology	Non-contractual
---	---
Databases, including their historical records (title plants)	Non-contractual
Trade secrets, such as formulas, processes and secret recipes	Contractual

Computer software and read-only memory chips (mask works)

C40. Computer software and programs acquired in a business combination that are legally protected, such as through patent or copyright, meet the contractual-legal criterion for their identification as an intangible asset.

C41. Some software is permanently stored in a read-only memory chip, such as a series of instructions or an integrated circuit (mask works). This type of software may have legal protection, and in this case, when acquired in a business combination, they meet the contractual-legal criterion for their identification as an intangible asset.

Databases, including their historical records (title plants)

C42. Databases are collections of information, often stored electronically (in files or computer disks). A database that includes original works may be protected by copyright. A database acquired in a business combination, whose copyright is protected, meets the contractual-legal criterion. However, a database typically includes information generated as a result of the normal operations of an entity, such as customer lists or specialized information (scientific data or credit information, for example). Databases whose copyright is not protected may be, and often are, exchanged, licensed or leased to third parties (in whole or in part). Therefore, even if the future economic benefits of a database do not originate from legal rights, it meets the separability criterion when acquired in a business combination.

C43. Some databases constitute a historical record of all matters affecting the ownership of plots in a specific geographic area (title plants). Such databases may be bought and sold (in whole or in part) in exchange transactions or may be licensed. Therefore, a title plant meets the separability criterion when acquired in a business combination.

Trade secrets, such as formulas, processes and secret recipes

C44. A trade secret is “information, including formula, pattern, recipe, compilation, program, device, method, technique or process that (a) generates specific economic value, actual or potential, from knowledge not yet generalized; and (b) is subject to reasonable efforts, under certain circumstances, to keep it confidential”. If the future economic benefits of a trade secret acquired in a business combination are legally protected, then this asset meets the contractual-legal criterion. Otherwise, trade secrets acquired in a business combination will be identifiable only if they meet the separability criterion.

[End of provided text]

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

CVM RESOLUTION NO. 71, OF MARCH 22, 2022

separability, which is likely to be the case.

Measurement of non-controlling interests
Examples of the effects of applying item 19 of Technical Pronouncement CPC 15 – Business Combinations.

C44A. The following examples illustrate the measurement of components of non-controlling interests, at the acquisition date, in a business combination.

Measurement of non-controlling interests containing preferred shares

C44B. Meta Company (CM) issued 100 preferred shares, which were classified as components of equity. The preferred shares have a par value of $1 each. The preferred shares confer upon their holders the right to a priority dividend with respect to the payment of any dividend due to holders of ordinary shares. In the event of the liquidation of CM, holders of preferred shares are entitled to receive the amount of $1 per share in priority to holders of ordinary shares, not reaching the assets available for distribution (they are not entitled to these). Holders of preferred shares do not enjoy any other rights in liquidation.

C44C. Acquirer Company (CA) holds all ordinary shares of CM. The acquisition gives CA control of CM. The fair value, at the acquisition date, of the preferred shares is $120.

C44D. Item 19 of Technical Pronouncement CPC 15 determines that, for each business combination, the acquirer must measure, at the acquisition date, the components of non-controlling interests in the acquiree that represent ownership interests and confer upon their holders the proportional participation in the net assets of the acquired entity, in the event of its liquidation, at their fair value or at the present value of the proportionate interest in the equity instruments held proportionally to the amount recognized by the acquiree of identifiable net assets. All other components of non-controlling interests must be measured at their fair value at the acquisition date, unless another measurement basis is required by another Pronouncement, Interpretation or Guidance of CPC.

C44E. The non-controlling interest related to the preferred shares of CM does not qualify for the alternative measurement of item 19 of Technical Pronouncement CPC 15, due to not conferring upon their holders the proportional participation in the net assets of the acquired entity, in the event of its liquidation. The acquirer must measure the preferred shares at their fair value at the acquisition date of $120.

First variation of the example

C44F. Suppose that, in the event of the liquidation of CM, the preferred shares confer upon their holders the right to proportional receipt of the assets available for distribution. Holders of preferred shares enjoy equal rights and compete on equal terms with holders of ordinary shares for the assets available for distribution, in the event of a liquidation. Suppose that the fair value, at the acquisition date, of the preferred shares is now $160 and that the proportional participation in the amounts recognized by CM in terms of identifiable net assets, attributable to the preferred shares, is $140.

C44G. The preferred shares qualify for the measurement alternative of item 19 of Technical Pronouncement CPC 15. CA may choose to measure the preferred shares at their fair value, at the acquisition date, of $160 or at their proportional value in the identifiable net assets recognized by the acquiree of $140.

Second variation of the example

C44H. Also suppose that CM has issued share options as remuneration for its employees. The share options are classified as an item of equity and meet the vesting conditions at the acquisition date of the business combination. They do not represent present ownership interests nor do they confer upon their holders the proportional participation in the net assets of CM, in the event of its liquidation. The measurement based on market value of the share options, according to Technical Pronouncement CPC 10 – Share-Based Payment, at the acquisition date, is $200. The share options do not expire at the acquisition date and CM will not replace them.

C44I. Item 19 of Technical Pronouncement CPC 15 requires that these share options be measured at their fair value at the acquisition date, unless another measurement basis is required by another Pronouncement, Interpretation or Guidance of CPC. Item 30 of Technical Pronouncement CPC 15 determines that the acquirer must measure an equity instrument related to share-based payment transactions of the acquiree in accordance with the method of Technical Pronouncement CPC 10 – Share-Based Payment.

C44J. The acquirer must measure the non-controlling interest related to the share options by its market-based measurement value of $200.

Gain on a bargain purchase
Examples of the effects of recognizing and measuring a gain on a bargain purchase by applying items 32 to 36 of Technical Pronouncement CPC 15 - Business Combinations.

C45. The following example illustrates the accounting of a business combination in which the gain on a bargain purchase is recognized.

C46. On 01/01/20X5, CA acquires an 80% equity interest in CM, a private entity, for which payment was made in cash – $150. Because the former owners of CM needed to sell their investments in CM by a specific date, they did not have enough time to offer CM to other potential buyers. The management of CA initially measures, separately, the identifiable assets acquired and the liabilities assumed, at the acquisition date, in accordance with the requirements of Technical Pronouncement CPC 15 - Business Combinations. The identifiable assets are measured at $250 and the liabilities assumed are measured at $50. CA hires an independent consultant, who determines that the fair value of the 20% non-controlling interest in CM is $42.

C47. The value of the identifiable net assets of CM ($200, calculated as $250 – $50), exceeds the fair value of the consideration transferred plus the fair value of the non-controlling interest in CM. Therefore, CA must review the procedures used to identify and measure the assets acquired and the liabilities assumed, as well as to measure the fair value of the non-controlling interest in CM and of the consideration transferred in exchange for control of CM. After this review, CA concludes that the procedures and measurements were adequate. CA must measure the gain obtained in the acquisition of the 80% interest as follows:

$ $
Value of identifiable net assets acquired ($250 – $50) 200 (-) Fair value of consideration transferred by CA in exchange for 80% of interest in CM, plus 150 Fair value of non-controlling interest in CM 42 (192) Gain on acquisition of 80% interest in CM 8

C48. CA must record the acquisition of CM in its consolidated financial statements as follows:

$ $
Debit: Identifiable assets acquired 250
Credit: Cash 150
Credit: Liabilities assumed 50
Credit: Gain on bargain purchase 8
Credit: Non-controlling interest in CM 42

C49. If the acquirer chooses to measure the non-controlling interest in CM based on their share of the fair value of the net assets of the acquiree, the value recognized for the non-controlling interest would be $40 ($200 x 0.20). In this case, the gain on bargain purchase would have been $10 [$200 – ($150 + $40)].

Measurement period
Examples of the effects of applying items 45 to 50 of Technical Pronouncement CPC 15 - Business Combinations

C50. If the initial accounting for a business combination is not complete when the end of the social year in which the combination occurred closes, item 45 of Technical Pronouncement CPC 15 - Business Combinations requires the acquirer to recognize in its financial statements provisional values for items whose accounting is not complete. During the measurement period, the acquirer must recognize adjustments to provisional values as necessary to reflect new information obtained about facts and circumstances that existed at the acquisition date and, if known at that date, would have affected the measurement of the values that were recognized. Item 49 of Technical Pronouncement CPC 15 - Business Combinations requires the acquirer to recognize such adjustments as if the accounting of the business combination had been completed at the acquisition date. Adjustments occurring during the measurement period are therefore not included in the period's result.

C51. Assume that CA acquires CM on 30/09/20X7. CA hired an independent valuation for an item of fixed assets acquired in the combination, which was not completed in time for CA to approve the issuance of its financial statements for the period ending on 31/12/20X7. In its 20X7 annual financial statements, CA recognized a provisional fair value of $30,000 for the asset in question. At the acquisition date, the item of fixed assets had a remaining useful life of five years. Five months after the acquisition date, CA received the independent valuation, which revealed that the estimated fair value of the asset at the acquisition date was $40,000.

C52. In its financial statements for the period ending on 31/12/20X8, CA must retrospectively adjust the 20X7 comparative information as follows:
(a) the book value of fixed assets on 31/12/20X7 is increased by $9,500. The value of this adjustment was calculated based on the additional fair value of $10,000 ($30,000 – $40,000), deducting the additional depreciation that would have been recognized if the fair value of the asset at the acquisition date had been recognized from the beginning at the definitive value ($10,000 ÷ 60 months x 3 months = $500 for three months of depreciation); (b) the book value of goodwill at the date of 31/12/20X7 is decreased by $10,000; (c) the depreciation expense for 20X7 is increased by $500.

C53. According to item B67 of Technical Pronouncement CPC 15 - Business Combinations, CA must disclose in the explanatory notes:
(a) in its 20X7 financial statements: explanations that the initial accounting of the business combination was not completed because the result of the fixed asset valuation had not yet been received; (b) in its 20X8 financial statements: the values and explanations regarding the adjustments recognized during the current period in the provisional values. Therefore, CA must highlight that the 20X7 comparative information was retrospectively adjusted with the increase of $9,500 in the fair value of the net fixed assets acquired in the combination, in exchange for the decrease of $10,000 in goodwill and the increase of $500 in depreciation expense.

Determination of what is part of the business combination operation Liquidation of a preexisting relationship Examples of the effects of applying items 51, 52 and B50 to B53 of Technical Pronouncement CPC 15 - Business Combinations.

C54. CA buys electronic components from CM under a five-year supply contract at fixed prices. Currently, the fixed prices are higher than those at which CA could buy similar electronic components from another supplier. The supply contract allows CA to terminate it before the end of the five-year term, however conditioned to the payment of a fine of $6 million. With three years remaining until the end of the contract term, CA pays $50 million to acquire CM, according to the fair value of CM based on the value that other market participants would have paid for this acquisition.

C55. Included in the total fair value of CM are $8 million related to the fair value of the supply contract with CA. The $8 million corresponds to $3 million related to components that are in market conditions, given that their prices are comparable to current market prices for identical or similar items (selling effort, customer relationship, etc.), and to $5 million related to components whose price is unfavorable to CA because they are higher than current market prices for similar items. CM has no other identifiable asset or liability arising from the supply contract, nor did CA recognize any assets or liabilities related to the supply contract before the business combination.

C56. In this example, CA must calculate separately from the business combination the loss of $5 million (the lower value between the $6 million to terminate the contract and the value by which the contract is unfavorable to the acquirer). The $3 million related to the components of the contract that are in market conditions are part of goodwill.

C57. If CA had previously recognized in its financial statements any value related to the preexisting relationship, this would affect the amount recognized as gain or loss regarding the effective liquidation of that relationship. Suppose that other Technical Pronouncements, Interpretations or Guidance of CPC had required CA, before the combination, to recognize the liability of $6 million for the supply contract. In such a situation, CA would recognize in the period's result a gain of $1 million arising from the liquidation of the contract, at the acquisition date (the loss of the contract, measured at $5 million, minus the previously recognized loss of $6 million). In other words, CA effectively would have liquidated for $5 million the recognized liability of $6 million, which would result in a gain of $1 million.

Contingent payments to employees
Examples of the effects of applying items 51, 52 and B50, B54 and B55 of Technical Pronouncement CPC 15 - Business Combinations.

C58. CM indicated a candidate as its new president through a ten-year contract. The contract requires CM to pay the candidate $5 million in case CM is acquired before the end of the contract term. CA acquires CM eight years later. The president remains employed at the acquisition date and must receive the additional payment due to the contract in force.

C59. In this example, before the negotiations for the combination were initiated, CM entered into an agreement with the employee with the objective of maintaining the president's service provision. In this case, there is no evidence that the agreement was entered into fundamentally to provide benefits for CA or for the combined entity. Therefore, the liability corresponding to the payment of $5 million must be included in the application of the acquisition method.

C60. Under other circumstances, CM could have entered into a similar agreement with its president at the suggestion of CA during the negotiations for the business combination. In this case, the main objective of the agreement may be the dismissal of the president, and the agreement may fundamentally benefit CA or the combined entity instead of CM or its former owners. In such a situation, CA must account for the liability corresponding to the payment to the president in its post-combination financial statements, separately from the application of the acquisition method.

Replacement awards
Examples of the effects of applying items 51, 52 and B56 to B62 of Technical Pronouncement CPC 15 - Business Combinations.

C61. The following examples illustrate replacement awards that the acquirer was required to issue, under the following circumstances:

Acquiree plans
Was the vesting period completed before the business combination?
Completed Not completed
Replacement awards
Are additional services required from employees after the acquisition date?
Not required Example 1 Example 3
Required Example 2 Example 4

C62. The examples assume that all benefit plans are classified as items of equity.

Example 1
Acquiree plan Vesting period was completed before the business combination.
Replacement awards
Additional services from employees after the acquisition date are not required.

C63. CA issues replacement awards of $110 (market-based measurement) at the acquisition date to exchange for CM's plans of $100 (market-based measurement). No post-combination service was required for the replacement awards and the employees of CM provided all the services required by the acquiree's plans up to the acquisition date.

C64. The amount attributable to pre-combination services is the market-based measurement of CM's plans ($100) at the acquisition date, the value of which must be included in the consideration transferred of the business combination. The amount attributable to post-combination services is $10, which is the difference between the total value of the replacement awards ($110) and the portion attributable to pre-combination services ($100). Since no additional post-combination services are required for the replacement awards, CA immediately recognizes $10 as remuneration cost in its post-combination financial statements.

Example 2
Acquiree plan Vesting period was completed before the business combination.
Replacement awards Additional services from employees after the acquisition date are required.

C65. CA must exchange replacement awards, which require one year of additional service after the combination, for the share-based payment plans of CM, held by employees who had already completed the vesting period before the business combination. The market-based measurement of both plans, at the acquisition date, is $100. When originally granted, CM's plans required a vesting period of 4 (four) years. The employees of CM, holders of plans not yet exercised up to the acquisition date, had already provided services for seven years since the grant date of the plans.

C66. Regardless of whether the employees of CM had already provided all services, CA attributes a portion of the replacement awards as post-combination remuneration cost, in accordance with item B59 of Technical Pronouncement CPC 15 - Business Combinations, because the replacement awards require one year of services after the combination. Thus, the total vesting period is 5 (five) years – the original vesting period required by the acquiree's plan, already completed before the acquisition date (four years), plus the vesting period required for the replacement plan (one year).

C67. The portion attributable to pre-combination services is equal to the market-based measurement value of the acquiree's plan ($100) multiplied by the ratio between the pre-combination vesting period (4 years) and the total vesting period (5 years). Thus, the $80 ($100 x 4/5 years) must be attributed to the pre-combination vesting period and must therefore be included in the consideration transferred in the business combination. The remaining $20 must be attributed to the post-combination vesting period and must therefore be recognized as remuneration cost in CA's post-combination financial statements, in accordance with Technical Pronouncement CPC 10 – Share-Based Payment.

Example 3
Acquiree plan Vesting period was not completed before the business combination.
Replacement awards Additional services from employees after the acquisition date are required.

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. 71, OF MARCH 22, 2022

C68. Company CA exchanges the replacement awards, which require one year of service after the combination, for the share-based payment plans of Company CM held by employees who have not yet rendered all services up to the acquisition date. The market-based measurement of both plans is $100 at the acquisition date. When originally granted, the CM plans required a vesting period of 4 (four) years. Up to the acquisition date, CM employees had already rendered 2 (two) years of services, and they would have to render an additional two years of services after the acquisition date to meet the vesting condition of the plan. Thus, only a portion of the CM plans is attributable to pre-combination services.

C69. The replacement awards require only one year of post-combination services. Therefore, since the employees have already rendered two years of services, the total vesting period will be three years. The portion attributable to pre-combination services is equal to the market-based measurement value of the acquired company's plans ($100), multiplied by the ratio between the pre-combination vesting period (two years) and the greater of the following total vesting periods: (a) three years considering the replacement awards; and (b) four years considering the original grant of the acquired company's plans. Thus, $50 ($100 x 2/4 years) must be attributed to pre-combination services and must, therefore, be included in the consideration transferred by the acquirer in the business combination. The remaining $50 must be attributed to post-combination services and must, therefore, be recognized as compensation cost in CA's post-combination financial statements.

Example 4
Acquired company's plan: Vesting period was not completed before the business combination.
Replacement awards: Additional employee services after the acquisition date are not required.

C70. Assume the same facts as in Example 3, except that Company CA exchanges the replacement awards, which do not require additional post-combination services, for the share-based payment plans of Company CM held by employees who have not yet rendered all services up to the acquisition date. The conditions for the replacement of the CM plans do not eliminate any remaining vesting period in the event of a change in control (If the CM plans had a clause stating that the remaining vesting period would be eliminated in the event of a change in control, the guidance in Example 1 should be applied). The market-based measurement of both plans is $100. Because the employees have already rendered two years of services and the replacement awards do not require any post-combination service, the total vesting period is 2 years.

C71. The portion of the market-based measurement of the replacement awards attributable to pre-combination services must be equal to the market-based measurement of the acquired company's plans ($100) multiplied by the ratio between the pre-combination vesting period (two years) and the greater of the following total vesting periods: (a) two years considering the replacement awards; and (b) four years considering the original grant of the acquired company's plans. Thus, $50 ($100 x 2/4 years) must be attributed to pre-combination services and must, therefore, be included in the consideration transferred to obtain control of the acquired company. The remaining $50 must be attributed to post-combination services. However, as no post-combination service was required for the vesting of the replacement awards, CA must recognize all remaining $50 immediately as compensation cost in its post-combination financial statements.

Disclosure Requirements
Examples of the effects of applying paragraphs 59 to 63 and B64 to B67 of Technical Pronouncement CPC 15 - Business Combinations.

C72. The following examples illustrate some of the disclosure requirements of Technical Pronouncement CPC 15 - Business Combinations and are not based on a real transaction. The example assumes that CA is a publicly held company and that CM is a privately held company. The disclosures are presented in table format and refer to the specific requirements illustrated in the example. A real note to the financial statements may present many of the disclosures illustrated in the example in simple narrative format.

Note X: Acquisitions

Reference Item	Disclosure Content
B64(a) to (d)	On 06/30/20X0, CA acquired 15% of the ordinary shares of CM outstanding. On 06/30/20X2, CA acquired 60% of the ordinary shares of CM outstanding and obtained control of CM. CM is a provider of data network products and services in Canada and Mexico. As a result of the acquisition, CA expects to be the leading provider in those markets. Cost reductions are also expected through economies of scale.
B64(e)	The goodwill of $2,500 arising from the acquisition consists mainly of synergies and economies of scale expected from the combination of CA's transactions with CM.
B64(k)	Goodwill is not expected to be tax deductible. The following data details the composition of the consideration paid in exchange for control of CM and the values of the acquired assets and assumed liabilities recognized at the acquisition date, as well as the fair value at the acquisition date of the non-controlling interest in CM.
	On 06/30/20X2:
B64(f)(i)	Cash $5,000
B64(f)(iv)	Equity instruments (100,000 ordinary shares of CA) $4,000
B64(f)(iii); B64(g)(i)	Contingent consideration agreements $1,000
B64(f)	Total consideration transferred$10,000
B64(p)(i)	Fair value of CA's equity interests in CM held before the business combination $2,000
	$12,000
B64(m)	Acquisition-related costs (including selling, general and administrative expenses in CA's income statement for the year ended 12/31/20X2) $1,250
B64(i)	Values recognized for identifiable acquired assets and assumed liabilities:
	Financial assets $3,500
	Inventories $1,000
	Property, plant and equipment $10,000
	Identifiable intangible assets $3,300
	Financial liabilities ($4,000)
	Contingent liability ($1,000)
	Total identifiable net assets$12,800
B64(o)(i)	Non-controlling interest in CM ($3,300)
	Goodwill $2,500
	$12,000
B64(f)(iv)	The fair value of the 100,000 ordinary shares issued as part of the consideration transferred in exchange for control of CM ($4,000) was determined based on the market price (closing quote) of CA's ordinary shares on the acquisition date.
B64(f)(iii) B64(g) B67(b)	The contingent consideration agreements require CA to pay the former owners of CM 5% of CX's revenues (equity investment in another unconsolidated company that CM owns) that exceed $7,500 in 20X3 up to a maximum of $2,500 (undiscounted).
	The undiscounted potential value of all future payments that CA would be obligated to make to settle the contingent consideration agreements is between $0 and $2,500.
	The fair value of the contingent consideration agreement is $1,000 and was estimated by applying the income approach method.
	The fair value estimate is based on a discount rate assumed between 20% and 25% and on the revenue estimate of CX, adjusted for probability of occurrence, between $10,000 and $20,000.
	On 12/31/20X2, there were no changes in the values recognized for the contingent consideration agreement, nor in the possible outcomes and assumptions assumed to develop the estimate.
B64(h)	The fair value of the acquired financial assets includes receivables under finance lease contracts for data processing network equipment with a fair value of $2,375. The gross contractual amount expected is $3,100, of which a loss of $450 is expected.
B67(a)	The fair value of the identifiable intangible assets, $3,300, is provisional, as the final appraisal report for these assets has not yet been received.
B64(j) B67(c) IAS 37.84	The contingent liability of $1,000 was recognized due to expected warranty rights on products and services sold by CM during the last three years. It is expected that most of this expense will be incurred in 20X3 and that by the end of 20X4 it will be fully settled. The undiscounted potential value of all future payments that CA would have to make due to warranty agreements was estimated between $500 and $1,500. On 12/31/20X2, there was no change in the values recognized since 06/30/20X2 for the liability or in the expected value ranges or in the assumptions used to develop the estimate.
B64(o)	The fair value of the non-controlling interest in CM, a privately held company, was estimated by applying market and income approaches. The fair value estimate was based on: (a) range of discount rates between 20% and 25%; (b) residual value assumed based on ranges of EBITDA multiples between 3 and 5 times (or if appropriate, based on sustainable long-term growth rates of 3% to 6%); (c) financial multiples of companies considered similar to CM; and (d) adjustments due to lack of control or liquidity that market participants would have considered when estimating the fair value of the non-controlling interest in CM.
B64(p)(ii)	CA recognized a gain of $500 as a result of the fair value measurement of its 15% equity interest in CM that CA held before the business combination. The gain is included in "other comprehensive income" in CA's income statement on 12/31/20X2.
B64(q)(i)	CM's revenue earned from 06/30/20X2 was $4,090 and is included in the consolidated income statement. CM also contributed profit of $1,710 in the same period.
B64(q)(ii)	If CM had been consolidated from 01/01/20X2, the income statement would have included revenue of $27,670 and profit of $12,870.

Lineage: No known changes

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