4 . Main Accounting Practices a) Investments

Fixed Income

Pursuant to CGPC Resolution # 5, of 01/30/2002, amended by # 10, of 07/05/2002, and CGPC Resolutions # 4 and 15, of 01/30/2002 and 08/23/2005, respectively, the Fixed Income securities are entered at their acquisition cost, added of income calculated pro rata day through the balance date and adjusted pursuant to the probable realization value. The premiums and discounts in the acquisition are amortized pro rata day in the term between the security’s acquisition and maturity date. They are classified in the following categories:

  • (i) Securities for trade - acquired to be traded regardless of the term to elapse after the acquisition date. The accounting appraisal is calculated based on the market value.

  • (ii) Securities maintained through the due date – these are kept in the portfolio through their due dates, considering an opinion issued in a report that attests to the Entity’s financial capacity. The accounting appraisal criteria is that of marking based on the income curve proportionally (pro rata) through the due date.

Variable Income

Stock acquired in the spot market is entered based on their acquisition cost, added of brokerage expenses and other fees, and based on their market value on the closing date closest to that of the balance in the Stock Exchange where the stock has reached the most liquidity. Income, such as bonuses, dividends and interest on equity are calculated on the accrual basis.

Stock that was not traded in stock exchanges or in an organized over-the-counter market in a period of more than six months are appraised based on their latest equity value or based on their cost, whichever lower. CGPC Resolution #22, of 09/25/2006, also calls for the appraisal of these assets based on the own portfolio’s economic value. The investment fund totals are represented by the value of their quotas on the balance date. Relevant assets allocated to these funds have been being appraised based on their economic value, as provided by under CGPC Resolution # 4, dated 01/30/2002, and CVM Instruction # 438, of 07/12/2006.

Investments in Real Estate

Investments in Real Estate are entered at their acquisition or construction cost and are periodically adjusted based on reappraisals. They are depreciated (except for plots of land) based on the linear method at a rate of 2% per year or at rates corresponding to the remaining useful life set in the reappraisal reports. Facilities are depreciated based on the linear method at a rate of 10% per year.

Real Estate is reappraised periodically pursuant to the legislation in effect. The reappraisal adjustments, positive or negative, are accounted based on specific accounts as balancing entries with the result.

Operations with Participants

Operations with Participants correspond to Simple Loans and Mortgages and their balances include the principal, interest and monetary updating through the balance date.

b) Forecast for Loss and for Non-Performing Loans

Provisions were set for losses in investments, considering the risks and uncertainties, and for non-performing loans, pursuant to the criteria set forth in CGPC Resolution # 5, of 01/30/2002. The provisions are accounted for in a result account, as a balancing entry with the reducer account for the respective asset’s segment. Therefore, the investments appear based on their net value.

c) Fixed Assets

Goods that compose the Fixed Assets are depreciated based on the linear method at rates set based on the useful life time determined per type. Expenses with software are amortized at a rate of 20% per year. They are entered in the differed assets spent with organizational restructuring projects in the Information Technology and Social Security areas. These expenses are amortized at a rate of 20% per year, when the Entity starts taking advantage of the benefits derived from these investments.

d) Operating Liabilities

Known or calculable amounts are shown, added, when applicable, of charges and monetary variations represented by liabilities that derive from agreements signed with the Banco do Brasil sponsor, from the participants’ right to benefits and fiscal liabilities.

e) Contingent Liability

Represented by provisions constituted based on legal opinions that rate contingencies that are likely to be lost.

If rated as likely losses, they are shown in an Explanatory Note. When the likelihood of loss is remote, no treatment is given in the Accounting Statements.

PREVI’S management believes the constituted provisions suffice to meet possible losses resulting from administrative and/or legal suits.

Mathematical Provisions

The Benefit Plans’ Mathematical Provisions are calculated based on actuarial calculations, based on an opinion issued by Social Security Department professionals, and represent, at the end of each period, the accumulated commitments relative to the benefits that have been and will be granted to the assisted parties and to the participants.

Benefits Granted – the Entity’s future commitments to retired participants and dependent pensions.

Benefits to be Granted – the Entity’s future commitments to active participants.

Mathematical Provisions to be Constituted – this is the part of the provision to be constituted relative to Banco do Brasil employees hired up to 04/14/1967, which has been being complemented in the form of the Agreement signed in 1997 and amended in 1998.

g) Technical Surplus

Calculated based on the difference between the net Assets (Total Assets deducted of Operating and Contingent Liabilities and funds) and the Mathematical Provisions. This is entered as a Contingent Reserve up to the limit of 25% relative to the Mathematical Provisions. Whatever surpasses this limit is entered in a Reserve for Plan Revision in each fiscal year, as determined by article 20 of Complementary Law # 109, of 05/29/2001.

h) Funds

This registers constituted funds, as follows:

Pension Program – funds created based on the actuarial appraisal with specific destination. The exceptions are the Savings Portfolio, Contribution, and Certain Income Funds.
Administrative Program – The purpose of the Administrative Fund is to ensure the future resources that are required to maintain the Entity’s administrative structure. The Fund is composed of the balance of the revenues, equivalent to 5% of the normal social security contributions of Plano 1 and PREVI Futuro, and 2.5% of the Capec contributions, among others.

Investment Plan – Funds aimed at liquidating simple loans and mortgages in the event of the borrower’s death, and of residues that exist after the contractual term in the event of financing. It is constituted based on the contractual fees charged of the borrowers.

i) Result Calculation

The result of the fiscal year is calculated on the accrual basis.

The Fiscal Year Result Statement is presented at the level of detail that is required to compose the result and calculate the technical surplus (or deficit) in the fiscal year, and
to constitute mathematical provisions, contingencies and funds, separate per program.

j) Financial Flow Statement

The Financial Flow Statement indicates, on the cash basis, the asset variations that took place in the period and resource migrations between the Social Security, Administrative and Investment Programs.

I) Inter-program Transfers

These are used to identify resource movement among the programs by means of resource transfers, collections, and resources being transferred among the different expense natures of the mentioned programs, with the usage of standardized criteria:

Pension Program – receives amounts from the Investment Program relative to the result of Benefit Plan resource investments and transfers amounts to the Administrative Program. In this Program, surplus or deficit is calculated after the respective transfers.

Administrative Program – receives amounts from the Investment Program relative to Administrative Fund investments, in addition to the amounts transferred from the Pension Program to cover administrative expenses. Leftover amounts, if any, constitute the Administrative Fund.

Investment Program – The monthly investment revenue (gains with sales, monetary updates, interest, discounts, premiums, dividends, positive appraisal and reappraisal adjustments) is transferred to the Social Security and Administrative programs, according to each program’s resources, deduced of expenses (taxes, premiums, negative appraisal and reappraisal adjustments, losses in sales and provisions).

m) Administrative Costing

The net amount of the values transferred to the Administrative Program to cover the expenses with the social security management and of the investments made in the respective Benefit Plan.

The Administrative Costing originates in the following sources:

Social Security Administrative Costing – 5% of the ordinary social security resources collected per month in the Plano 1 and PREVI Futuro Benefit Plans and 2.5% of the contributions made to Capec. Expenses in excess of these percentages will be covered by the Administrative Fund.

Administrative Costing of Investments – Based on the monthly transfer of resources from the Investment Program corresponding to the administrative expenses incurred in this program’s management.