| 3.2 | Foreign currency |
| a) | Foreign currency transactions |
Transactions in foreign currencies are translated to the respective functional currencies of each subsidiary using the exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency using the exchange rate at the reporting date.
| b) | Foreign operations |
The assets and liabilities derived from foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to Brazilian Reais using the exchange rates at the reporting date. Income and expenses of foreign operations are translated to Brazilian Reais using the exchange rates at the dates of the transactions.
Foreign currency differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve (translation reserve) in equity. However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportion of the translation difference is allocated to non-controllinginterests. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.
| c) | Translation of subsidiaries and associates’ financial statements |
These consolidated financial statements have been translated to the Brazilian Real using the following criteria:
| (a) | assets and liabilities have been translated using the exchange rate at the balance sheet date; |
| (b) | statement of profit or loss, comprehensive income and statement of cash flows have been translated using the monthly average exchange rate; and |
| (c) | shareholders’ equity has been translated using the historical exchange rate. |
Translation effects have been recognized in shareholders’ equity in “Cumulative translation adjustment.”
The consolidated financial statements of each subsidiary included in these consolidated financial statements and equity method investments are prepared based on their respective functional currencies. For subsidiaries whose functional currency is a currency other than the Brazilian Real, asset and liability accounts are translated into the Company’s reporting currency using exchange rates in effect at the date of the statement of financial position, and income and expense items are translated using monthly average exchange rates and shareholders’ equity has been translated using the historical exchange rate. The resulting translation adjustments are reported in a separate component of shareholders’ equity, as cumulative translation adjustment.
The exchange rate of the Brazilian Real (R$) to the U.S. Dollar (U.S.$) was R$ 3.3080 at December 31, 2017, R$ 3.2591 at December 31, 2016 and R$ 3.9048 at December 31, 2015.