Statute No. 1163807 - Value Reduction – 35742

Document: Statute No. 11638/07 - Value Reduction

The Accounting Pronouncements Committee reiterates technical pronouncement CPC 01 on the Reduction to the Recoverable Value of Assets

According to Article 3, "Sole Paragraph: For the exclusive purposes of this law, a large company is considered to be the company or group of companies under common control that has, in the previous fiscal year, total assets greater than BRL 240,000,000.00 or annual gross revenue greater than BRL 300,000,000.00". "In this way, the concept of Large Corporations was instituted, guaranteeing some rights to them.

Such a change is of total relevance for effective asset management, as it guarantees great benefits to the enterprises that adhere to the specifications mentioned in it. For more information about the changes in this law, visit the Federal government's official website: Statute No. 11,638/07

Law 11.638/07 brought the addition, to the S/A Law, of the mention that the depreciation and amortizations must be made based on the economic useful life of the assets. This was not necessarily the practice in Brazil. Therefore, the modification in these procedures is mandatory, but an appraisal report (life cycle report) is required.

General Aspects of Technical Pronouncement CPC 01:

Its primary objective is to define certain procedures to ensure that assets are not recorded in the books at a value higher than that which can be recovered over time through use in the entity's operations or eventual sale. However, if there is evidence that the assets are recorded at a non-recoverable value in the future, it will be the entity's responsibility to immediately recognize the impairment, which is done by setting up a provision for losses.

This pronouncement is relevant to all assets or sets of assets related to industrial, commercial, farming and livestock, minerals, financial services, and other activities. In relation to a specific pronouncement addressing the matter for a particular asset class, such specific determination will prevail.

To highlight the existence of devalued assets, it is necessary that the entity, at least in the process for annual financial statements, has verified a relevant loss of economic representation in its set of assets. If the fact is verified through the impairment test or recoverability test, the entity must then make an assessment and account for the eventual devaluation of the assets described.