| 4. |
Summary of significant
accounting policies
|
| 4.1. |
Basis of
consolidation
|
The consolidated financial statements include the
financial information of Petrobras and the entities it controls
(subsidiaries), joint operations and consolidated structured
entities.
Control is achieved when Petrobras: i) has power
over the investee; ii) is exposed, or has rights, to variable
returns from involvement with the investee; and iii) has the
ability to use its power to affect its returns.
Subsidiaries are consolidated from the date on
which control is obtained until the date that such control no
longer exists, by using accounting policies consistent with those
adopted by Petrobras. Note 11 sets out the consolidated entities
and other direct investees.
Investments structured through a separate vehicle
are conceived so that the voting rights, or similar rights, are not
the dominant factor to determine who controls the entity. At
December 31, 2018, Petrobras controls and consolidates the
following structured entities: Charter Development LLC - CDC
(U.S.A., E&P); Companhia de Desenvolvimento e
Modernização de Plantas Industriais - CDMPI (Brazil,
RT&M) and, Fundo de Investimento em Direitos Creditórios
Não-padronizados do
Sistema Petrobras (Brazil, Corporate).
The consolidation procedures involve combining
assets, liabilities, income and expenses, according to their
function and eliminating all intragroup balances and transactions,
including unrealized profits arising from intragroup
transactions.
The information related to the Company’s
operating segments is prepared based on available financial
information directly attributable to each segment, or items that
can be allocated to each segment on a reasonable basis. This
information is presented by business activity, as used by the
Company’s Board of Executive Officers (Chief Operating
Decision Maker – CODM) on the decision-making process of
resource allocation and performance evaluation.
The measurement of segment results includes
transactions carried out with third parties, including associates
and joint ventures, as well as transactions between operating
segments. Transfers between operating segments are recognized at
internal transfer prices derived from methodologies that take into
account market parameters and are eliminated only to provide
reconciliations to the consolidated financial statements.
The Company’s operating segments comprises
the following business areas:
Exploration and Production (E&P): this
segment covers the activities of exploration, development and
production of crude oil, NGL (natural gas liquid) and natural gas
in Brazil and abroad, for the primary purpose of supplying its
domestic refineries. The E&P segment also operates through
partnerships with other companies and includes holding interest in
foreign entities operating in this segment.
As an integrated energy company with a focus on oil
and gas, intersegment sales revenue refers mainly to oil transfers
to the Refining, Transportation and Marketing segment, aiming to
supply the Company’s refineries and meet the domestic demand
for oil products. These transactions are measured by internal
transfer prices based on international oil prices and their
respective exchange rate impacts, taking into account the specific
characteristics of the transferred oil stream.
In addition, the E&P segment revenues include
transfers of natural gas to the natural gas processing plants
within Gas and Power segment. These transactions are measured at
internal transfer prices based on the international prices of this
commodity.
Revenue from sales to third parties mainly reflects
the oil and natural gas operations carried out by subsidiaries
abroad, as well as services rendered under exploration and
production operations.
Refining, Transportation and Marketing
(RT&M): this segment covers the refining, logistics,
transport and trading of crude oil and oil products activities in
Brazil and abroad, as well as exports of ethanol. This segment also
includes the petrochemical operations, such as extraction and
processing of shale and holding interests in petrochemical
companies in Brazil.
This segment carries out the acquisition of crude
oil from the E&P segment, imports oil for refinery slate, and
acquires oil products in international markets taking advantage of
the existing price differentials between the cost of processing
domestic oil and that of importing oil products.
Intersegment revenues primarily reflect the sale of
derivatives for the distribution segment at market prices and the
operations for the Gas and Power and E&P segments at internal
transfer price.
Revenues from sales to third parties primarily
reflect the trading of oil products in Brazil and the export and
trade of oil and oil products by foreign subsidiaries.
Gas and Power: this segment covers the
activities of logistic and trading of natural gas and electricity,
transportation and trading of LNG (liquefied natural gas),
generation and electricity by means of thermoelectric power plants,
as well as holding interests in transporters and distributors of
natural gas in Brazil and abroad. It also includes fertilizer
operations.
Intersegment revenues primarily reflect the
transfers of natural gas processed, liquefied petroleum gas (LPG)
and NGL to RT&M. These transactions are measured at internal
transfer prices.
Revenues from sales to third parties primarily
reflect natural gas processed to distributors, as well as
generation and trading of electricity.
Biofuels: this segment covers the activities
of production of biodiesel and its co-products, as well as the
ethanol-related activities through interest in entities producing
and trading ethanol, sugar and surplus electric power generated
from sugarcane bagasse.
Distribution: this segment covers the
activities of BR Distribuidora, which sells oil products, including
gasoline and diesel, ethanol and vehicle natural gas in Brazil.
This segment also includes distribution of oil products operations
abroad (South America). Following the sale by Petrobras of a
portion of its common shares of BR Distribuidora in July 2019,
Petrobras owns a 37.5% interest in BR Distribuidora.
Revenues from sales to third parties primarily
reflect sales of oil products in Brazil.
The corporate segment comprises the items
that cannot be attributed to the other segments, notably those
related to corporate financial management, corporate overhead and
other expenses, including actuarial expenses related to the pension
and medical benefits for retired employees and their
dependents.
| 4.3. |
Financial
instruments
|
A financial instrument is a contract that gives
rise to a financial asset of one entity and a financial liability
or equity instrument of another entity.
a) Initial recognition and measurement
A financial asset is initially recognized when the
entity becomes party to the contractual provisions of the
instrument. Except for the trade receivables that do not contain a
significant financing component, financial assets are initially
measured at their fair value and, if not classified as measured at
fair value through profit or loss, transaction costs that are
directly attributable to the acquisition or issue of the financial
asset add or reduce the amount of initial recognition.
b) Classification and subsequent measurement
Based on the business model in which assets are
managed and on their contractual cash flow characteristics,
financial assets are generally classified as follows:
| ● |
|
Amortized cost: when the contractual terms of the
financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount
outstanding, and the business model’s objective is to hold
financial assets in order to collect contractual cash flows;
|
| ● |
|
Fair value through other comprehensive income: i)
when the contractual terms of a debt instrument give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding and the business
model’s objective is to collect contractual cash flows and
sell financial assets; and ii) equity instruments not held for
trading purposes for which the Company has made an irrevocable
election in their initial recognition to present changes in fair
value in other comprehensive income rather than within profit or
loss; and
|
| ● |
|
Fair value through profit or loss: if the financial
asset does not meet the criteria for the two aforementioned
categories. Derivative financial instruments are generally
classified in this category.
|
c) Impairment of financial assets
An allowance for expected credit losses is
recognized on a financial asset that is measured at amortized cost,
including lease receivables, and on financial assets measured at
fair value through other comprehensive income.
The Company measures expected credit losses for
short-term trade receivables using a provision matrix based on
historical observed default rates adjusted by current and
forward-looking information when applicable and available without
undue cost or effort.
The Company measures the allowance for expected
credit losses of other financial assets based on their 12-month expected credit losses unless
their credit risk has increased significantly since their initial
recognition, in which case the allowance for expected credit losses
is based on their lifetime expected credit losses.
Significant increase in credit risk since initial
recognition
When determining whether there has been a
significant increase in credit risk, the Company compares the risk
of default on initial recognition and at the reporting date by
using certain indicators, such as the actual or expected change in
the financial instrument’s external credit rating and
information on payment delays.
Regardless of the assessment of significant
increase in credit risk, a delinquency period of 30 days past due
triggers the definition of significant increase in credit risk on a
financial asset, unless otherwise demonstrated by reasonable and
supportable information.
The Company assumes that the credit risk on a
financial instrument has not increased significantly since initial
recognition if the financial instrument is considered to have low
credit risk at the reporting date. Low credit risk is determined
based on external credit ratings or internal methodologies.
Definition of default
The Company assumes that a default occurs whenever
the counterparty does not comply with the legal obligation to pay
its debts when due or, depending on the financial instrument, when
it is at least 90 days past due.
Measurement of expected credit losses
The measurement of credit loss comprises the
difference between all contractual cash flows that are due to the
Company and all the cash flows that the Company expects to receive,
discounted at the original effective interest rate weighted by the
probability of default.
| 4.3.2. |
Financial
liabilities
|
a) Initial recognition and measurement
A financial liability is recognized when the entity
becomes party to the contractual provisions of the instrument and
initially measured at fair value. If it is not classified as fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial liability
add or reduce the amount of its initial measurement.
b) Classification and subsequent measurement
Financial liabilities are classified as
subsequently measured at amortized cost, except for certain
financial liabilities , including those classified as fair value
through profit or loss.
Loans and finance debt are measured at amortized
cost using the effective interest method.
When the contractual cash flows of a financial
liability measured at amortized cost are renegotiated or modified
and this change is not substantial, its gross carrying amount will
reflect the discounted present value of its cash flows under the
new terms using the original effective interest rate. The
difference between the book value immediately prior to such
modification and the new gross carrying amount is recognized as
gain or loss in statement of income.
Derivative financial instruments are subsequently
measured at fair value through profit or loss, except when
designated as hedging instruments.
| 4.3.3. |
Cash flow hedge
accounting
|
At inception of the hedge relationship, the Company
documents its objective and strategy, including identification of
the hedging instrument, the hedged item, the nature of the hedged
risk and evaluation of hedge effectiveness requirements. The hedge
relationship meets all of the hedge effectiveness requirements
when:
| ● |
|
An economic relationship exists between the hedged
item and the hedging instrument;
|
| ● |
|
The effect of credit risk does not dominate the
value changes that result from the economic relationship; and
|
| ● |
|
The hedge ratio is the same as that resulting from
the quantity of the hedged item that the Company actually hedges
and the quantity of the hedging instrument that the Company uses to
hedge that quantity of hedged item.
|
The Company applies cash flow hedge accounting for
certain transactions. Hedging relationships qualify for cash flow
hedges when they involve the hedging of exposure to variability in
cash flows that is attributable to a particular risk associated
with a recognized asset or liability or a highly probable
forecasted transaction that may impact the statement of income.
Gains or losses relating to the effective portion
of such hedges are recognized in other comprehensive income and
reclassified to the statement of income in finance income (expense)
in the periods when the hedged item affects the statement of
income. The gains or losses relating to the ineffective portion are
immediately recognized in finance income (expense).
When the hedging instrument expires or is settled
in advance or no longer meets the criteria for hedge accounting,
the cumulative gain or loss on the hedging instrument that has been
recognized in other comprehensive income is recorded separately in
equity until the forecast transaction occurs. When the forecast
transaction is no longer expected to occur, the cumulative gain or
loss on the hedging instrument that has been recognized in other
comprehensive income is immediately reclassified from equity to the
statement of income.
In addition, when a financial instrument designated
as a hedging instrument expires or is settled, the Company may
replace it with another financial instrument in a manner such that
the hedge relationship continues to occur. Likewise, whenever a
hedged transaction effectively occurs, its financial instrument
previously designated as a hedging instrument may be designated for
a new hedge relationship.
Inventories are determined by the weighted average
cost method and mainly comprise crude oil, intermediate products
and oil products, as well as natural gas, LNG, fertilizers and
biofuels, adjusted to the net realizable value when it is lower
than its carrying amount.
Net realizable value is the estimated selling price
of inventory in the ordinary course of business, less estimated
cost of completion and estimated expenses to complete its sale.
Crude oil and LNG inventories can be traded or used
for production of oil products and/or electricity generation,
respectively.
Intermediate products are those product streams
that have been through at least one of the refining processes, but
still need further treatment, processing or converting to be
available for sale.
Biofuels mainly include ethanol and biodiesel
inventories.
Materials, supplies and others mainly comprise
production supplies and operating materials used in the operations
of the Company, stated at the average purchase cost, not exceeding
replacement cost.
| 4.5. |
Investments in other
companies
|
An associate is an entity over which the Company
has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the
investee but not the ability to exercise control or joint control
over those polices. The definition of control is set out in note
4.1.
A joint arrangement is an arrangement over which
two or more parties have joint control (pursuant to contractual
provisions). A joint arrangement is classified either as a joint
operation or as a joint venture depending on the rights and
obligations of the parties to the arrangement.
In a joint operation, the parties have rights to
the assets and obligations for the liabilities related to the
arrangement, while in a joint venture the parties have rights to
the net assets of the arrangement. Some of the Company’s
activities in the E&P segment are conducted through joint
operations.
Profit or loss, assets and liabilities related to
joint ventures and associates are accounted for by the equity
method. In a joint operation the Company recognizes the amount of
its assets, liabilities and related income and expenses.
Accounting policies of joint ventures and
associates have been adjusted, where necessary, to ensure
consistency with the policies adopted by Petrobras. Distributions
received from an investee reduce the carrying amount of the
investment.
| 4.6. |
Business combinations and
goodwill
|
A business combination is a transaction in which
the acquirer obtains control of another business, regardless it
legal form. Acquisitions of businesses are accounted for using the
acquisition method when control is obtained. Combinations of
entities under common control are accounted for at cost. The
acquisition method requires that the identifiable assets acquired
and the liabilities assumed be measured at the acquisition-date
fair value, with limited exceptions.
Goodwill is measured as the excess of the aggregate
amount of: (i) the consideration transferred; (ii) the
amount of any non-controlling interest in the
acquiree; and (iii) in a business combination achieved in
stages, the fair value of the acquirer’s previously held
equity interest in the acquiree at the acquisition-date; over the
net of the amounts of the identifiable assets acquired and the
liabilities assumed. When this aggregate amount is lower than the
net of the amounts of the identifiable assets acquired and the
liabilities assumed, a gain on a bargain purchase is recognized in
the statement of income.
Changes in ownership interest in subsidiaries that
do not result in loss of control of the subsidiary are equity
transactions. Any excess of the amounts paid/received, including
directly attributable costs, over the carrying value of the
ownership interest acquired/disposed of is recognized in
shareholders’ equity as changes in interest in
subsidiaries.
| 4.7. |
Oil and Gas exploration
and development expenditures
|
The costs incurred in connection with the
exploration, appraisal and development of crude oil and natural gas
production are accounted for using the successful efforts method of
accounting, as set out below:
| ● |
|
Geological and geophysical costs related to
exploration and appraisal activities incurred until economic and
technical feasibility can be demonstrated are expensed.
|
| ● |
|
Amounts paid for obtaining concessions for
exploration of crude oil and natural gas (capitalized acquisition
costs) are initially capitalized as intangible assets and are
transferred to property, plant and equipment once the technical and
commercial feasibility can be demonstrated.
|
| ● |
|
Costs directly attributable to exploratory wells,
including their equipment and installations, pending determination
of proved reserves are capitalized within property, plant and
equipment. In some cases, exploratory wells have discovered oil and
gas reserves, but at the moment the drilling is completed they are
not yet able to be classified as proved. In such cases, the
expenses continue to be capitalized if the well has found a
sufficient quantity of reserves to justify its completion as a
producing well and progress on assessing the reserves and the
economic and operating viability of the project is under way. An
internal commission of technical executives of the Company reviews
these conditions monthly for each well, by analysis of geoscience
and engineering data, existing economic conditions, operating
methods and government regulations. For additional information on
proved reserves estimates, see note 5.1.
|
| ● |
|
Costs related to exploratory wells drilled in areas
of unproved reserves are charged to expense when determined to be
dry or uneconomic by the aforementioned internal commission.
|
| ● |
|
Costs related to the construction, installation and
completion of infrastructure facilities, such as drilling of
development wells, construction of platforms and natural gas
processing units, construction of equipment and facilities for the
extraction, handling, storing, processing or treating crude oil and
natural gas, pipelines, storage facilities, waste disposal
facilities and other related costs incurred in connection with the
development of proved reserve areas are capitalized within
property, plant and equipment.
|
| 4.8. |
Property, plant and
equipment
|
Property, plant and equipment are measured at the
cost to acquire or construct, including all costs necessary to
bring the asset to working condition for its intended use and the
estimated cost of dismantling and removing the asset and restoring
the site, reduced by accumulated depreciation and impairment
losses.
A condition for continuing to operate certain items
of property, plant and equipment, such as industrial plants,
offshore plants and vessels is the performance of regular major
inspections and maintenance. Those expenditures are capitalized if
a maintenance campaign is expected to occur, at least, 12 months
later. Otherwise, they are expensed when incurred. The capitalized
costs are depreciated over the period through the next major
maintenance date.
Spare parts are capitalized when they are expected
to be used during more than one period and can only be used in
connection with an item of property, plant and equipment. These are
depreciated over the useful life of the item of property, plant and
equipment to which they relate.
Borrowing costs directly attributable to the
acquisition or construction of qualifying assets are capitalized as
part of the costs of these assets. General borrowing costs are
capitalized based on the Company’s weighted average cost of
borrowings outstanding applied over the balance of assets under
construction. In general, the Company suspends capitalization of
borrowing to the extent investments in a qualifying asset
hibernates during a period greater than one year or whenever the
asset is prepared for its intended use.
Assets directly associated to oil and gas
production of a contract area without useful life lower than the
estimated length of reserves depletion, such as signature bonuses,
are depreciated or amortized based on the unit-of-production method.
The unit-of-production method of
depreciation (amortization) is computed based on a unit of
production basis (monthly production) over the proved developed oil
and gas reserves, except for signature bonuses for which unit of
production method takes into account the monthly production over
the total proved oil and gas reserves on a field-by-field basis.
Assets related to oil and gas production with
useful lives shorter than the life of the field; floating platforms
and other assets unrelated to oil and gas production are
depreciated on a straight-line basis over their useful lives, which
are reviewed annually. Note 12.2 provides further information on
the estimated useful life by class of assets. Lands are not
depreciated.
Intangible assets are measured at the acquisition
cost, less accumulated amortization and impairment losses and
comprise rights and concessions, including the signature bonus paid
for concessions and production sharing agreements for exploration
and production of oil and natural gas (capitalized acquisition
costs), public service concessions, trademarks, patents, software
and goodwill.
Internally-generated intangible assets are not
capitalized and are expensed as incurred, except for development
costs that meet the recognition criteria related to the completion
and use of assets, probable future economic benefits, and
others.
Signature bonuses paid for obtaining concessions
for exploration of crude oil and natural gas are initially
capitalized within intangible assets and are transferred to
property, plant and equipment when the technical and commercial
feasibility can be demonstrated. They are not amortized before
their transference to property, plant and equipment. Intangible
assets with a finite useful life, other than amounts paid for
obtaining concessions for exploration of oil and natural gas of
producing properties, are amortized over the useful life of the
asset on a straight-line basis. In the event of a signature bonus
encompassing an area in which exploration activities occur in
different locations, a portion of the signature bonus is
transferred to property, plant and equipment whenever the technical
and commercial feasibility can be demonstrated for a specific
location, based on the ratio between the oil in place at this
location and total reservoir volume of the area.
Intangible assets with an indefinite useful life
are not amortized but are tested annually for impairment. Their
useful lives are reviewed annually.
| 4.10. |
Impairment of property,
plant and equipment and intangible assets
|
Property, plant and equipment and intangible assets
with definitive lives are tested for impairment when there is an
indication that the carrying amount may not be recoverable. Assets
are assessed for impairment at the smallest identifiable group that
generates largely independent cash inflows from other assets or
groups of assets (the cash-generating unit - CGU). Note 5.3
presents detailed information about the Company’s CGUs.
Assets related to development and production of oil
and gas assets (fields or group of fields) that have indefinite
useful lives, such as goodwill, are tested for impairment annually,
irrespective of whether there is any indication of impairment.
The impairment test is performed through the
comparison of the carrying amount of an individual asset or a
cash-generating unit (CGU) with its recoverable amount. Whenever
the recoverable amount is less than the carrying amount, an
impairment loss is recognized to reduce the carrying amount to the
recoverable amount. The recoverable amount of an asset or a
cash-generating unit is the higher of its fair value less costs of
disposal and its value in use. Considering the existing synergies
between the Company’s assets and businesses, as well as the
expectation of the use of its assets for their remaining useful
lives, value in use is generally used by the Company for impairment
testing purposes. When specifically indicated, the Company assesses
differences between its assumptions and assumptions that would be
used by market participants in the determination of the fair value
of an asset or CGU.
Value in use is estimated based on the present
value of the risk-adjusted (for specific risks) future cash flows
expected to arise from the continuing use of an asset or
cash-generating unit, discounted at a pre-tax discount rate. This rate is
obtained from the Company’s post-tax weighted average cost of
capital (WACC). Cash flow projections are mainly based on the
following assumptions: foreign exchange rates and prices based on
the Company’s most recent business and management plan and
strategic plan; production curves associated with existing projects
in the Company’s portfolio, operating costs reflecting
current market conditions, and investments required for carrying
out the projects.
Reversal of previously recognized impairment losses
is permitted for assets other than goodwill.
| 4.11. |
Impairment of associates
and joint ventures (equity-accounted investments)
|
The Company assesses its investments in associates
and joint ventures (equity-accounted investments) for impairment
whenever there is an indication that their carrying amounts may not
be recoverable.
When performing impairment testing of an
equity-accounted investment, goodwill, if it exists, is also
considered part of the carrying amount to be compared to the
recoverable amount.
Except when specifically indicated, value in use is
generally used by the Company for impairment testing purposes in
proportion to the Company’s interests in the present value of
future cash flow projections via dividends and other
distributions.
Reversals of previously recognized impairment
losses are permitted.
Leases that transfer substantially all the risks
and rewards incidental to ownership of the leased item are
recognized as finance leases.
For finance leases, when the Company is the lessee,
assets and liabilities are recognized at the lower of the fair
value of the underlying asset or the present value of the minimum
lease payments, both determined at the inception of the lease.
Capitalized lease assets are depreciated on a
systematic basis consistent with the depreciation policy the
Company adopts for property, plant and equipment that are owned.
Where there is no reasonable certainty that the Company will obtain
ownership by the end of the lease term, capitalized lease assets
are depreciated over the shorter of the lease term or the estimated
useful life of the asset.
When the Company is the lessor, a receivable is
recognized at the amount of the net investment in the lease.
If a lease does not transfer substantially all the
risks and rewards incidental to ownership of the leased item, it is
classified as an operating lease. Operating leases are recognized
as expenses over the period of the lease.
Contingent rents are recognized as expenses when
incurred.
As discussed in note 6.1, the IFRS 16 provisions
have governed the accounting treatment for leases from
January 1, 2019.
| 4.13. |
Assets classified as held
for sale
|
Non-current assets, disposal groups
and liabilities directly associated with those assets are
classified as held for sale if their carrying amounts will,
principally, be recovered through the sale transaction rather than
through continuing use.
The condition for classification as held for sale
is met only when the sale is approved by the Company’s Board
of Directors and the asset or disposal group is available for
immediate sale in its present condition and there is the
expectation that the sale will occur within 12 months after its
classification as held for sale. However, an extended period
required to complete a sale does not preclude an asset (or disposal
group) from being classified as held for sale if the delay is
caused by events or circumstances beyond the Company’s
control and there is sufficient evidence that the Company remains
committed to its plan to sell the assets (or disposal groups).
Assets (or disposal groups) classified as held for
sale and the associated liabilities are measured at the lower of
their carrying amount and fair value less costs to sell. Assets and
liabilities are presented separately in the statement of financial
position.
| 4.14. |
Decommissioning
costs
|
Decommissioning costs are future obligations to
perform environmental restoration, dismantle and remove a facility
when the Company terminates its operations due to the exhaustion of
the area or economic feasibility.
When a future legal obligation exists and can be
reliably measured, costs related to the abandonment and dismantling
of areas are recognized as part of the cost of an asset (with a
corresponding liability) based on the present value of the expected
future cash outflows, discounted at a rate reflecting market
assessments in terms of time value of money and liability specific
risk.
Unwinding of the discount on the corresponding
liability is recognized as a finance expense, when incurred.
Decommissioning costs estimates are revised annually, at least.
| 4.15. |
Provisions, contingent
assets and contingent liabilities
|
Provisions are recognized when there is a present
obligation that arises from past events and for which it is
probable that an outflow of resources embodying economic benefits
will be required to settle the obligation, which must be reasonably
estimable.
Contingent assets and liabilities are not
recognized. Contingent liabilities are disclosed whenever the
likelihood of loss is considered possible, including those for
which the amount outflow of resources is not reasonably estimable.
Contingent assets are disclosed whenever an inflow of economic
benefits is probable. However, when such inflow is virtually
certain, the related asset is not a contingent asset and it is
recognized.
Income tax expense for the period includes current
and deferred taxes. They are recognized in the statement of income
of the period, except when the tax arises from a transaction or
event which is recognized directly in equity.
Current income taxes are computed based on taxable
profit for the year, determined in accordance with the rules
established by the taxation authorities, using tax rates that have
been enacted or substantively enacted at the end of the reporting
period.
Current income taxes are offset when they relate to
income taxes levied on the same taxable entity and by the same tax
authority, when there is a legal right and the entity has the
intention to set off current tax assets and current tax
liabilities, simultaneously.
Deferred income taxes are recognized on temporary
differences between the tax base of an asset or liability and its
carrying amount. They are measured at the tax rates that are
expected to apply to the period when the asset is realized or the
liability is settled, based on tax rates (and tax laws) that have
been enacted or substantively enacted by the end of the reporting
period.
Deferred tax assets are generally recognized for
all deductible temporary differences and carryforward of unused tax
losses or credits to the extent that it is probable that taxable
profit will be available against which those deductible temporary
differences can be utilized. When there are insufficient taxable
temporary differences relating to the same taxation authority and
the same taxable entity, a deferred tax is recognized to the extent
that it is probable that the entity will have sufficient taxable
profit in future periods, based on projections approved by
management and supported by the Company’s Business and
Management Plan.
Deferred tax assets and deferred tax liabilities
are offset when they relate to income taxes levied on the same
taxable entity, when a legally enforceable right to set off current
tax assets and current tax liabilities exists and when the deferred
tax assets and deferred tax liabilities relate to taxes levied by
the same tax authority on the same taxable entity.
| 4.17. |
Employee benefits
(Post-Employment)
|
Actuarial commitments related to post-employment
defined benefit plans and health-care plans are recognized as
liabilities in the statement of financial position based on
actuarial calculations which are revised annually by an independent
qualified actuary (updating for material changes in actuarial
assumptions and estimates of expected future benefits), using the
projected unit credit method, net of the fair value of plan assets,
when applicable, from which the obligations are to be directly
settled. Under the projected credit unit method, each period of
service gives rise to an additional unit of benefit entitlement and
each unit is measured separately to determine the final obligation.
Actuarial assumptions include demographic assumptions, financial
assumptions, medical costs estimates, historical data related to
benefits paid and employee contributions.
Service cost are accounted for within results and
comprises: (i) current service cost, which is the increase in
the present value of the defined benefit obligation resulting from
employee service in the current period; (ii) past service
cost, which is the change in the present value of the defined
benefit obligation for employee service in prior periods, resulting
from a plan amendment (the introduction, modification, or
withdrawal of a defined benefit plan) or a curtailment (a
significant reduction by the entity in the number of employees
covered by a plan); and (iii) any gain or loss on
settlement.
Net interest on the net defined benefit liability
(asset) is the change during the period in the net defined benefit
liability (asset) that arises from the passage of time. Such
interest is accounted for in results.
Remeasurement of the net defined benefit liability
(asset) is recognized in shareholders’ equity, in other
comprehensive income, and comprises: (i) actuarial gains and
losses and; (ii) the return on plan assets, excluding amounts
included in net interest on the net defined benefit liability
(asset).
The Company also contributes amounts to defined
contribution plans, that are expensed when incurred and are
computed based on a percentage of salaries.
| 4.18. |
Share capital and
distributions to shareholders
|
Share capital comprises common shares and preferred
shares. Incremental costs directly attributable to the issue of new
shares (share issuance costs) are presented (net of tax) in
shareholders’ equity as a deduction from the proceeds.
To the extent the Company proposes distributions to
shareholders, such dividends and interest on capital are determined
in accordance with the limits defined in the Brazilian Corporation
Law and in the Company’s bylaws.
Interest on capital is a form of dividend
distribution, which is deductible for tax purposes in Brazil to the
entity distributing interest on capital. Tax benefits from the
deduction of interest on capital are recognized in the statement of
income.
| 4.19. |
Other comprehensive
income
|
Other comprehensive income includes: i) changes in
fair value of financial assets classified as subsequently measured
at fair value through other comprehensive income; ii) effective
portion of cash flow hedge; iii) remeasurement of defined benefit
plans; and iv) cumulative translation adjustment.
A government grant is recognized when there is
reasonable assurance that the grant will be received and the
Company will comply with the conditions attached to the grant.
The main contracts with customers involve oil
exports and the sale of oil products, natural gas, biofuels and
electricity in the domestic market. The Company evaluates contracts
with customers that will be subject to revenue recognition and
identifies the distinct goods and services promised in each of
them.
Performance obligations are promises to transfer to
the customer goods or services (or a bundle of goods or services)
that are distinct, or series of distinct goods or services that are
substantially the same and that have the same pattern of transfer
to the customer.
Revenues are measured based on the amount of
consideration to which an entity expects to be entitled in exchange
for transferring promised goods or services to a customer,
excluding amounts collected on behalf of third parties. Transaction
prices are based on contractually stated prices, reflecting the
Company’s pricing methodologies and policies based on market
parameters.
When transferring a good, that is, when the
customer obtains its control, the company satisfies the performance
obligation and recognizes the respective revenue, which usually
occurs at a point in time upon delivery.
