Explanatory notes
05. Main Accounting Procedures
a) Investments
Fixed Income
In accordance to Resolutions GCPC numbers 4 and 15, of January 30th 2002 and August 23rd, respectively, Fixed Income securities are recorded at acquisition cost plus the income yielded pro rata diem until the date of the balance sheet, adjusted to the probable value of their negotiation. The premium and discount at the acquisition are amortized pro rata diem for the period that runs from the acquisition until the maturity of the security. They are classified as follows:
i) Securities for negotiation - acquired with the purpose of being negotiated independently of the time that has elapsed since the date of purchase. The accounting evaluation corresponds to the market value. ii) Securities kept in portfolio until maturity, considering the financial capacity of the issuing entity by means of an Actuarial Opinion. The criterion of bookkeeping evaluation is that of marking through the income curve a pro rata proportion until maturity.
Variable Income
Stock Shares bought spot are recorded at cost of acquisition plus brokerage and other expenses and evaluated at the average market value in the stock exchange where such stock has obtained its highest~liquidity, on the nearest day prior to closing the balance sheet. The income produced, such as share bonus, dividends and interests upon each company's capital are determined through the competence system.
The stock shares that had not been negotiated in the stock exchange or in an organized over-the-counter system during a period in excess of six months, are evaluated according to the last asset value of by their cost, whichever is the lowest. Resolution CGPC n° 4 of September 25, 2006, allows also the evaluation of those assets by its economic value in the fund's portfolio.
The sums relative to the investment funds are represented by the value of their quotas at the day of balance sheet. Relevant assets allocated in those funds are being evaluated according to their economic value, as provided for in Resolution CGPC n° 4 of January 30th 2002, and in the CVM Instruction n° 438, of July 12th 2006.
Real Estate Investments
Real Estate investments are recorded at cost of acquisition or construction and periodically restated through evaluations. They are depreciated (except the land) according to the linear method at the rate of 2% per year, or at rates corresponding to their remaining useful life as stated in evaluation appraisals. Installations are depreciated according to the linear method at the rate of 10% per year.
Real Estate is revaluated periodically, according to current legislation. The evaluation adjustments, positives or negatives, are registered in specific accounts, which have result accounts as contra entries.
Operations with Participants
The operations with participants correspond to Simple Loans and Real Estate Financing,, and their balances include principal, interest and monetary updating until the date of the balance sheet.
b) Provision for Losses with Doubtful Receivables
Provisions for losses referring to investments taking into consideration risks and uncertainties and the credit rights of doubtful liquidation, according to criteria defined by Resolution CGPC n° 5 of January 30th 2002. The provisions are recorded in an income account, its contra entry going to the account which reduces the respective segment in the Assets side. Therefore, the investments are represented by their net value.
c) Fixed Assets
The assets that constitute fixed permanent assets are depreciated by the linear method at rates established according to the period of useful life estimated for each kind of asset. Expenses with software are depreciated at the rate of 20 % per year.
d) Operational Liabilities
Under this caption are amounts known or computable to which are added, whenever applicable, monetary charges and monetary variation, which represent obligations resulting from agreements signed with the sponsor Banco do Brasil, rights and benefits to participants, and fiscal duties.
e) Contingent Liabilities
Contingent Liabilities are represented by Provisions set up based on legal opinions which classify those contingencies that present a situation of potential loss. If any of them are classified as presenting a risk of probable loss those are highlighted in an explanatory note. When the risk of a potential loss is only remote, they are not referred to in the Accounting Statements. PREVI's administration believes that the provisions set up are sufficient to cover eventual losses resulting from administrative and / or judicial suits.
f) Mathematical Provisions
The mathematical provisions of Benefit Plans are established based on actuarial calculations, according to the opinions of experts from the Security Board, and represent at the end of each period the accumulated commitments to benefits granted and to be granted to the beneficiaries and participants. Benefits Granted represent future commitments of this entity with the retired participants and pensions of dependents. Benefits to be Granted - represent the future commitment of this entity with the active participants. Mathematical Provisions to Set Up - represent the share of Provision to be Set Up relative to employees who joined Banco do Brasil before April, 14th 1967, and that is being paid in accordance to the Agreement celebrated in 1997 and amended in 1998.
g) Technical Surplus
Calculated by the difference between Net Assets (Total Assets less Operational, and Contingent Liabilities and Funds) and the Mathematical Reserves. It is recorded under Contingency reserve up to limit of 25 % in relation to the Mathematical Reserves. The amount that exceeds that limit will be recorded every year under Reserve for Plan Revision, according to article 20 of Complementary Law 109.
h) Funds
This caption registers the Funds established, as follows: Pension Plan Program - Funds created after an actuarial evaluation, for a specific purpose. The exceptions are the Savings Plan (Pecúlio) Portfolio Funds, Contribution, and Assured Income Funds. Administrative Program - the purpose of the Administrative Fund is to guarantee the means necessary for the future maintenance of the administrative structure of that entity. The Fund is set up with the income balance equivalent to 5 % of the normal contributions to the pension plans Plano I and PREVI Futuro and 2,5 % of the contributions to Capec, among others.
Investment Program - the purpose of the funds under this program is to provide means to liquidate simple and real estate loans in case of death of the borrower, and of existing residues after the contractual tenor, in the case of financing. Their constitution is made possible due to contractual fees charged to borrowers.
i) Determination of Results
The results of each accounting period are computed through the competence system. The Income Statement of the accounting period is presented with the details necessary for the composition of results and the finding of technical surplus (or deficit) of the accounting period, constitution of the mathematical and contingent provisions and funds, separated by programs.
j) Financial Flow Statement
Financial Flow Statement indicates, through the cash system, the variations in assets occurred during the accounting period, as well as the migrations of funds among the Pension Plan, Administrative and Investment Programs.
k) Inter-program transfers
Are used to identify the moving of funds among programs, by means of fund transfers, collection and reversions among the different kinds of expenditures of the below mentioned programs, following standard criteria: Pension Plan Program - receives funds from the Investment Program relative to results from investments made by the Benefit Plans and transfers funds to the Administrative Program. The surplus (or deficit) in this program is computed only after the respective transfers. Administrative Program - receives funds from the Investment Program relative to results from investments made by the Administrative Fund, in addition to the amounts transferred from the Pension Plan Program to cover administrative expenses. The surplus, if any, will constitute the Administrative Fund. Investment Program - the income resulting from the monthly investments (profits in sales, monetary adjustments, interests, discounts, premiums, dividends, positive adjustments resulting from evaluations or reevaluations) after deducting expenses (taxes, premiums, negative adjustments in evaluations and reevaluations, losses on sales and provisions), are transferred to the Pension Plans and Administrative Programs according to the financial resources of each program.i) Administrative Cost
Represents the net value of the amounts transferred to the Administrative Program to cover expenses with the administration of Pension Plans and of investments in the respective Benefit Plans. The administrative cost originates from:
Pension Plans Administrative Cost - corresponds to 5 % of the regular contributions collected in Plano 1 and PREVI Futuro pension plans, and to 2,5 % of contributions to Capec. Expenses eventually exceeding those percentages will be covered by the Administrative Fund.
Administrative Cost of Investments - is based upon the monthly transfers of funds from the Investment Program relative to the administrative expenses incurred in the management of that program.