Explanatory Note to CVM Instruction 97

EXPLANATORY NOTE TO CVM INSTRUCTION 97/89.
Ref.: CVM Instruction No. 97, of April 27, 1989, which alters provisions of CVM Instruction No. 64, of May 19, 1987.

Financial statements play a predominant role in the communication process between the investor and the companies. The information obtained by reading the financial statements significantly guides investment decisions. In this context, it is essential that the information contained in these statements be of quality and quantity.

Thus, from 1987, with the advent of CVM Instruction No. 64/87, the market moved to address one of the main problems afflicting the accounting process, namely, the inflationary impact on financial statements. In this way, during the fiscal years of 1987 and 1988, supplementary accounting statements were produced in currency of constant purchasing power capacity (full adjustment).

However, with Article 29 of Law No. 7,730, of January 31, 1989, Article 185 of Law No. 6,404/76 was extinguished, which determined that financial statements, prepared in accordance with corporate legislation, should consider the effects of the modification in the purchasing power of the national currency on the value of the elements of equity and the results of the fiscal year. In addition, Article 15 of the same Law No. 7,730/89 extinguished the OTN - National Treasury Obligation, the monetary standard also used in the full adjustment methodology.

More recently, on March 9, 1989, Law No. 7,738, in its Article 27, re-established the corporate mandatory nature of monetary balance sheet adjustment according to criteria to be fixed by decree, which is currently being prepared by the competent authorities.

In this context, it was necessary for the Securities and Exchange Commission (CVM) to determine the new monetary standard that would replace the extinct OTN, for the exclusive purpose of preparing supplementary accounting statements in currency of constant purchasing power capacity, i.e., information to be prepared and recorded off-book.

The new monetary standard, thus instituted by CVM Instruction No. 97/89, in accordance with all recent economic guidelines, became the Consumer Price Index - IPC. The following variations of the indices to be used in the manner of § 2 of Article 1 of the aforementioned CVM Instruction No. 97/89 have already been published:

• March/89 - 3.60% (three whole and six tenths percent).
• April/89 - 6.09% (six whole and nine hundredths percent)

EXPLANATORY NOTE TO CVM INSTRUCTION 97/89.
2
It is worth highlighting that the quarters that include the month of January 1989 must include the variation of the OTN of January 1989 (NCz$ 6.17) to the fiscal OTN of 16.01.89 (NCz$ 6.92), as provided for in CVM Deliberation No. 72, of 02.02.89.

Original signed by
MARTIN WIMMER
President