Circular No. 3192 — Regulates the provision of independent audit services for consortium administrators and their respective groups

CIRCULAR NO. 003192

Dispenses on the provision of independent audit services for consortium administrators and their respective groups.

The Collegiate Board of the Central Bank of Brazil, in a session held on June 4, 2003, based on Article 33 of Law No. 8,177, of March 1, 1991,

D E C I D E D:

Art. 1. Regulate, in accordance with the attached regulation, the provision of independent audit services for consortium administrators and their respective groups.

Sole Paragraph. The provisions of this circular do not apply to associations and non-profit civil entities authorized to administer consortium groups.

Art. 2. This circular enters into force on the date of its publication.

Art. 3. Articles 17 and 18 of Circular No. 2,381, of November 18, 1993, Article 4 of Circular No. 2,990, of June 28, 2000, Article 7 of Circular No. 3,182, of March 6, 2003, and Circular No. 3,184, of March 27, 2003, are hereby repealed.

Brasília, June 5, 2003.

Sérgio Darcy da Silva Alves
Director
--------------------------------------------------------------------- Attached Regulation to Circular No. 3,192, of June 5, 2003, which regulates the provision of independent audit services for consortium administrators and their respective groups

Chapter I

ON MANDATORINESS

Art. 1. The financial statements, including explanatory notes, of consortium administrators and their respective groups must be audited by independent auditors registered with the Securities and Exchange Commission (CVM).

Art. 2. The independent auditor may be an individual or a legal entity.

Chapter II

ON THE RESPONSIBILITY OF MANAGEMENT

Art. 3. Consortium administrators must provide the independent auditor with all data, information, and conditions necessary for the effective performance of their services, as well as the management letter, in accordance with the standards of the Federal Accounting Council (CFC).

Sole Paragraph. The responsibility of administrators for the information contained in the financial statements or other provided does not exempt the independent auditor from the responsibility related to the preparation of the reports required by this regulation or the audit opinion, nor does it relieve them of the adoption of adequate audit procedures.

Art. 4. Administrators of consortium administrators will be held responsible for hiring an independent auditor that does not meet the requirements provided for in this regulation.

Sole Paragraph. If non-compliance with the requirements established in this regulation is found, the audit services will be considered ineffective for compliance with the norms issued by the Central Bank of Brazil.

Art. 5. Consortium administrators must designate a technically qualified director or managing partner to answer, before the Central Bank of Brazil, for the monitoring, supervision, and compliance with the accounting and audit norms and procedures provided for in current legislation.

Sole Paragraph. The designated administrator will be held responsible, vis-à-vis third parties, for the information provided and, primarily, before the Central Bank of Brazil, for situations indicating fraud, negligence, imprudence, or incompetence in the exercise of their functions, without prejudice to the application of penalties provided for in current legislation.

Art. 6. The following are duties of management:

I - review, prior to publication, the semi-annual financial statements, including explanatory notes and the opinion of the independent auditor;

II - evaluate the effectiveness of independent and internal audits, including regarding the verification of compliance with legal and regulatory provisions applicable to the consortium administrator, as well as internal regulations and codes.

Chapter III

ON THE INDEPENDENCE OF THE AUDITOR

Art. 7. The hiring and maintenance of an independent auditor by consortium administrators are prohibited if any of the following situations are configured:

I - occurrence of any hypotheses of impediment or incompatibility for the provision of independent audit services provided for in norms and regulations of the Securities and Exchange Commission (CVM), the CFC, or the Institute of Independent Auditors of Brazil (Ibracon);

II - direct or indirect shareholding by the independent auditor, technical manager, director, manager, supervisor, or any other member with a management function in the team involved in the audit work, in the audited entity or its affiliates;

III - existence of an active or passive operation with the consortium administrator or its affiliates, including through consortium groups administered by them, for which the independent auditor, technical manager, director, manager, supervisor, or any other member with a management function in the team involved in the audit work at the consortium administrator is responsible or provides a guarantee;

IV - participation of the technical manager, director, manager, supervisor, or any other member with a management function of the independent auditor replaced under Article 10, in the independent audit work performed by their successor for the same entity, within a period of less than one year from the replacement;

V - payment of fees and reimbursement of expenses of the independent auditor, related to the base year of the financial statements subject to audit, by the audited entity, alone or together with its affiliates, with representativeness equal to or greater than 25% (twenty-five percent) of the total revenue of the independent auditor in that year.

§ 1. The configuration of the situations described, relative to an affiliate of the independent auditor, also implies a prohibition on hiring and maintaining this auditor.

§ 2. The provisions of this article do not dispense with the verification, by consortium administrators and independent auditors, of other situations that may affect independence.

§ 3. If, at any time, the existence of a situation that may affect the independence of the auditor is found, consortium administrators must provide for its regularization, which may imply the replacement of the independent auditor, without prejudice to the provisions of Article 10.

§ 4. In the event of verification of any of the situations referred to in this article on the date of entry into force of this regulation, the consortium administrator must provide for regularization, which may imply the replacement of the independent auditor, by January 1, 2004.

Art. 8. It is prohibited for consortium administrators to hire, for positions related to services that constitute an impediment or incompatibility for the provision of independent audit services, or that may allow influence on the administration of the consortium administrator, the technical manager, director, manager, supervisor, or any other member with a management function in the team involved in audit work in the last twelve months.

Art. 9. The independent auditor must elaborate and adequately document their independence policy, which must be made available to the Central Bank of Brazil, evidencing, in addition to the situations provided for in this regulation, others that, at their discretion, may affect their independence, as well as the internal control procedures adopted to monitor, identify, and avoid their occurrence.

Chapter IV

ON THE PERIODIC SUBSTITUTION OF THE AUDITOR

Art. 10. Consortium administrators must proceed to the replacement of the hired independent auditor, at the latest, after opinions have been issued regarding five complete fiscal years.

§ 1. For the purpose of counting the period provided for in the main text, opinions related to complete fiscal years are those referring to the financial statements with a base date of December 31.

§ 2. The re-hiring of an independent auditor can only be carried out after three years have elapsed, counted from the date of its replacement.

Chapter V

ON THE CERTIFICATION EXAM

Art. 11. The hiring or maintenance of an independent auditor by consortium administrators is conditioned on the approval of the technical manager, director, manager, supervisor, or any other member with a management function in the team involved in audit work, in a certification exam organized by the CFC together with Ibracon.

§ 1. The compliance with the formality provided for in this article must be provided for within a maximum period of two years, counted from the entry into force of this circular.

§ 2. The formality provided for in the main text must be renewed with a frequency not exceeding five years, counted from the date of the last qualification.

§ 3. In the case of an auditor who has ceased to exercise the activities provided for in the main text for a period equal to or greater than one year, the maintenance of their qualification is subject to the renewal of the formality provided for in this article with a frequency not exceeding two years, counted from the return to said activities, observing the limit provided for in § 2.

Chapter VI

ON THE PROVISION OF SERVICES BY THE AUDITOR

Art. 12. The independent auditor must observe, in the provision of their services, the norms and procedures for audits established by the Central Bank of Brazil and, insofar as not conflicting with these, those determined by the Securities and Exchange Commission (CVM), the CFC, and Ibracon.

Art. 13. The independent auditor must elaborate, as a result of the audit work performed on consortium administrators and the respective groups administered by them, the following reports:

I - audit report, expressing their opinion on the financial statements and respective explanatory notes, including regarding compliance with accounting norms issued by the Central Bank of Brazil;

II - report on the evaluation of the quality and adequacy of the internal control system, including electronic data processing systems and risk management systems, evidencing identified deficiencies;

III - report on non-compliance with legal and regulatory provisions, which have, or may have, relevant impacts on the financial statements or on the operations of the audited entity;

IV - others required by the Central Bank of Brazil.

§ 1. The independent auditor's reports must be elaborated considering the same period and base date as the financial statements to which they refer.

§ 2. Consortium administrators, as well as their respective independent auditors, must keep available to the Central Bank of Brazil, for a minimum period of five years, or for a longer period due to express determination by that Autarchy, the reports referred to in this article, as well as working papers, correspondence, service provision contracts, and other documents related to the audit work.

Chapter VII

ON GENERAL PROVISIONS

Art. 14. For the purposes of this regulation, affiliates are understood as entities directly or indirectly linked, by shareholding or by effective operational control, characterized by common administration or management, or by acting in the market under the same brand or trade name.

Art. 15. The independent auditor must formally communicate to the Central Bank of Brazil, within a maximum period of three business days from identification, the existence or evidence of error or fraud represented by:

I - non-compliance with legal and regulatory norms, which place the continuity of the audited entity at risk;

II - frauds of any value perpetrated by the administration of the consortium administrator;

III - relevant frauds perpetrated by employees of the entity or third parties;

IV - errors that result in relevant misstatements in the financial statements of the entity.

§ 1. For the purposes of this regulation, the concepts of error and fraud established in norms and regulations of the CFC or Ibracon must be observed.

§ 2. The independent auditor and internal audit must maintain, between themselves, immediate communication upon the identification of the events provided for in this article.

Art. 16. The board of directors of the consortium administrator must formally communicate to the independent auditor, within a maximum period of 24 hours from identification, the occurrence of the events referred to in Article 15.

Art. 17. The performance of independent audit on consortium administrators does not exclude or limit the supervisory action exercised by the Central Bank of Brazil.

Art. 18. The consortium administrator must register, in the respective minutes of the group's constitution, the name, address, and professional registration of those responsible for the hired independent audit and, in case of change, note in the minutes of the next assembly after the event the name of the new auditor.

Art. 19. A specific clause must appear in the contracts entered into between consortium administrators and their respective independent auditors, authorizing the Central Bank of Brazil, at any time, access to the working papers of the independent auditor, as well as to any other documents that have served as a basis or evidence for the issuance of the reports elaborated under Article 13, upon formal request, within the scope of the duties of said Autarchy, observing the limits provided for in current legislation.

Art. 20. In addition to the provisions of this regulation, the independent auditor must observe the norms, regulations, and procedures of the Securities and Exchange Commission (CVM), the CFC, and Ibracon regarding:

I - duties and responsibilities of independent auditors;

II - examination of technical qualification;

III - internal quality control;

IV - external quality control;

V - continuing education program, including provision of specific activities related to independent audit in financial institutions.

Sole Paragraph. Activities related to external quality control may also be performed by the Central Bank of Brazil, without prejudice to the guidelines issued by the organizations referred to in the main text.