Issued by the Accounting Pronouncements Committee, the technical statement CPC 27 - Fixed assets , is the main technical statement dedicated to establishing accounting negotiations related to corporate assets.
Because this is the first of a series of articles that we will dedicate to accounting pronouncements applicable to fixed assets (and because of the very breadth of topics and negotiations addressed by CPC 27), in this article we will provide a comprehensive overview of this important statement, talking about its organization, highlights, and its relevance to the work of Controllers , accountants, asset managers, auditors, and consultants.
However, before we stick to CPC 27, I thought it important to make a brief digression to answer a very common question among professionals who are entering the field: “- After all, what is CPC?”
With you, the CPC The CPC (Accounting Pronouncements Committee) was conceived based on the combined efforts and alignment of objectives of seven leading accounting and financial entities, namely: ABRASCA, APIMEC, B3, CFC, FIPECAFI, IBRACON, and representatives of capital market investors. The main objectives of this working group were to meet the needs of convergence with international accounting standards and the centralization of standard issuance procedures, in addition to creating a more collaborative environment for the production of this information, inviting representatives of accounting data producers, auditors, users, academics and the Federal Government itself to the discussion table.
It is worth mentioning that the CPC is an institution that is completely autonomous from the entities represented, and was established by Resolution CFC 1.055/2005 with the purpose of studying, preparing and editing technical statements and their interpretations and guidelines on corporate accounting procedures, allowing the issuance of standards by regulatory entities - always with an eye to the convergence of Brazilian accounting with international standards. Mandatorily, technical pronouncements are submitted for consideration at public hearings before publication.
Physically, the Committee consists of two members from each of the seven original entities - mostly accountants. Representatives of bodies such as BACEN, CVM, Federal Revenue Service, SUSEP, FEBRABAN, CNI, and PREVIC are commonly invited to attend CPC sessions. In addition to producing technical pronouncements, interpretations, guidelines, and communications, the Committee may also, whenever necessary, form committees and working groups to address specific issues.
The process of convergence of Brazilian Standards with International Standards published by the IASB (International Accounting Standards Board ) was concluded in 2010, with the publication of the technical statements issued by the CPC. After this important milestone, the CPC became even more active, sending contributions from Brazil dedicated to the revision and drafting of international standards.
Altogether, there are 53 technical pronouncements issued by the CPC. They range from CPC 00 to CPC 50, including CPC Liquidation - which deals with entities in liquidation; and CPC PME - without connection with international standards, defines simplified guidelines for the accounting of small and medium-sized Brazilian companies, including a glossary of terms. End of tour.
CPC 27: Overview Now that we understand the role of the CPC as the entity responsible for issuing technical pronouncements in Brazil, let's learn a little more about CPC 27 - Fixed Asset and understand the importance of this document for the transparency and consistency of companies' financial statements.
Widely applicable to the most diverse asset classes, CPC 27 establishes well-defined criteria for the recognition, measurement, and registration of fixed assets in the financial statements. Guided by ensuring the homogeneity of the accounting format and negotiations dedicated to the registration of fixed assets, the importance of CPC 27 is based on four key points:
Uniformity and comparability : ensure that financial statements are prepared and presented uniformly, allowing comparisons between different companies and periods. This is essential for investors, analysts, and stakeholders that rely on accurate and consistent financial information for decision-making.Transparency : promote greater transparency in accounting information, helping companies to disclose relevant and materially complete information about their operations, financial situation, and results.Harmonization with international standards : alignment with international accounting standards, such as International Financial Reporting Standards (IFRS), developed by International Accounting Standards Board (IASB). This facilitates the integration and comparison of Brazilian financial information with that of companies from other countries, and is especially important for companies that operate globally or that seek to attract international investments.Compliance and regulation : complying with the guidelines of CPC 27 is essential for companies to comply with legal and regulatory accounting standards, since technical pronouncements are part of the Brazilian accounting regulatory framework.Regarding its applicability and range , except for small and medium-sized companies that may choose to adopt the CPC PME, all others must follow the guidelines of CPC 27. In this regard, it is important to note that regardless of the size of the company, CPC 27 is not applicable to assets that fall under the following conditions:
Assets classified in the category of assets held for sale (see CPC 31 - Non-current assets held for sale and discontinued operation ). Biological assets related to agricultural activity that are not carrier plants (see CPC 29 - Biological asset and agricultural product ). Assets intended for exploration and valuation (their recognition and measurement are addressed by CPC 34 - Exploration and assessment of mineral resources ). Rights to mineral deposits and reserves, such as oil, natural gas, mineral coal, and similar non-renewable resources. Despite the existence of these coverage limitations on certain assets, the statement applies to assets used in their development or maintenance - with the exception of assets held for sale.
Right from the start, CPC 27 includes a series of settings about the aspects that permeate fixed assets throughout their entire life cycle and that are fundamental for their correct recognition and measurement, such as the concepts of book value, depreciable value, cost, depreciation, fair value, loss due to reduction to recoverable value (subject addressed by CPC 01 - Reduction in the recoverable value of assets ), lifespan, and others.
Still on this topic, CPC 27 defines Fixed assets How”tangible asset held for use in the production or provision of services, for rental to third parties or for administrative purposes, and which is expected to be used for more than one accounting period ”. Thus, to be recognized as fixed assets, an asset must meet these three fundamental criteria: i. the company or entity must own or control rights over the asset; ii. the asset must have expected utility for more than one accounting period; and iii. the asset must have an economic value that can be reliably measured.
In this context, CPC 27 defines the criteria necessary for reconnaissance of an item of fixed assets, taking as a starting point the recognition of its cost only if it is likely that the future economic benefits associated with that item will flow to the entity; and that this cost can be reliably measured, according to the definitions of initial and subsequent costs.
Therefore, it addresses Measuring the cost and the definition of cost elements , clearly indicating which of these elements may or may not be directly attributable to the appropriation of value in the accounting record of an asset in fixed assets.
According to CPC 27, the first measurement milestone for an asset occurs at the time of its accounting activation (reconnaissance ), comprising the following cost elements:
Purchase amount: amount paid for the purchase of a good, including import and other non-recoverable taxes levied on the purchase price, deducting, if applicable, commercial discounts and rebates. Pre-operating installation costs: costs directly necessary to place an asset at its place of operation and to ensure the necessary conditions for it to function properly. Dismantling and removal costs: initial estimate of the costs of dismantling and removing the asset, and of restoring its place of operation after uninstallation. It is important to mention that the initial costs attributable to the accounting recognition of assets must cease as soon as the asset is made available for operation. Thus, even if there is an incidence of interest payments on a loan contracted for the construction of an asset, for example; while that asset is under construction, the costs of the loan must be incorporated into the value of the asset. However, if there are loan costs to be incurred after the asset is ready for use, these amounts must be recognized as expenses and can no longer be recorded as part of the value of the asset in fixed assets. Therefore, as soon as this asset is available and ready to operate, you should start your process of depreciation accounting, which will last until the end of the asset's useful life.
Making an addendum to the example of an asset built internally, it is worth noting that the cost of a fixed asset built by the company must follow the same principles as an asset purchased in the market. In built assets, abnormal value costs with materials, labor, or any resource wasted during the construction of that asset must be recorded as an expense in the Income Statement for the Year (DRE).
Defined by the pronouncement as”systematic allocation of the depreciable value of an asset over its useful life ” and thus characterizing the loss of value of fixed assets over their life cycle, accounting depreciation is calculated based on the estimated technical useful life of the assets - remembering that the estimate of the useful life of the assets must be made by the company, which may be based on factors such as a history of write-offs, aspects of technological obsolescence or physical wear and tear, for example.
Since the calculation of depreciation can take place by different methods, companies can choose to adopt the depreciation method that best reflects the reduction in value of their assets over time, such as the linear method (in which assets lose an equal proportion of value each year of their useful life); or the method of the number of units produced (estimated by the number of units expected to be produced during the useful life of the asset), for example.
Commonly called asset compounding , the CPC also advises the segregation of items that are components of fixed assets with a significant cost in relation to the total value of the asset, so that their depreciation can be applied separately. Also regarding components, according to CPC 27, spare parts, spare items, special tools and equipment for internal use may be classified as fixed assets if the entity expects to use them for more than one accounting period. Likewise, if these components and ancillary assets can only be used in connection with fixed assets, they can also be counted as fixed assets.
Regarding the subsequent maintenance costs of the assets, these are separated into two types, receiving different negotiations: periodic routine maintenance; and the important maintenance required for the asset to continue operating. While periodic maintenance must be treated as expenses and posted in the DRE, important maintenance must be recorded on fixed assets, as a cost component of the asset.
Mandatory for adoption by publicly traded companies and all those that adopt Brazilian accounting standards, CPC 27 must be applied to the accounting of fixed assets (except when another statement requires or allows different accounting treatment), playing a crucial role in the standardization and clarity of companies' accounting information. Therefore, your knowledge is fundamental for making effective decisions and for the trust of investors and other agents, whether they are producers or users of accounting information.
Jackson Martins - Asset and Materials Assessment and Control Solutions Partner
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