Circular Letter CVM/SIN/SNC 01/2011

CIRCULAR LETTER CVM/SNC/SIN No. 01/2011
Rio de Janeiro, September 1, 2011
Subject: Implementation of CVM Instruction No. 489/11 – Accounting Standards for FIDC

Dear Sirs,

This Circular Letter aims to guide administrators of Credit Rights Investment Funds – FIDC and their respective independent auditors regarding doubts arising from the implementation of CVM Instruction No. 489/11.

Following the publication of the aforementioned Instruction, the technical area of this Commission, represented by the Superintendency of Accounting Standards and Auditing – SNC and the Superintendency of Relations with Institutional Investors – SIN, maintained contact with the industry, represented by the Brazilian Association of Financial and Capital Markets Entities – ANBIMA, with a view to aligning understandings and resolving doubts regarding the application of certain provisions of CVM Instruction No. 489/11.

After clarifications were provided and the aforementioned doubts resolved, three issues remained, which, according to the Board's deliberation, it was deemed necessary to elucidate: (i) the validity of the standard regarding monthly reports; (ii) the valuation of performable credit rights of FIDCNP and FIDCs that invest in these assets; and (iii) the accounting classification of senior shares.

1. Monthly Reports

There were two interpretations regarding the temporal validity of the standard concerning the forwarding of monthly information:

i. For information of a monthly nature, each month is a distinct fiscal year, so that from the information of August onwards, all FIDCs, regardless of their fiscal years, would forward the new Monthly Report, as provided for in Instruction 489; and

ii. FIDCs must forward the new Monthly Report only when they enter their new fiscal years, in a manner analogous to the other financial statements provided for in the standard.

Based on the provisions of Article 26 of the standard in question, we clarify that the second interpretation is the one that should prevail. Thus, FIDCs must forward the new Monthly Report as they enter their new fiscal years. For example, an FIDC that closes its fiscal year in December 2011 will begin forwarding the new monthly statement from January 2012.

1. Valuation of Performable Credit Rights

The issues raised here concern how to evaluate performable or non-standard credit rights. Examples mentioned include credit rights that do not have a maturity date and those "performable" during the pre-liquidation period.

Upon acquisition of the asset, the fund administrator will certainly make an estimate of the realization period of these assets and, together with other estimated premises, calculate the price considered reasonable to pay for the acquisition of the credit right.

Although redundant, it is necessary to remember that at the moment of acquiring the asset, the administrator would not be able to calculate the price paid without knowledge or estimation of three variables: (a) value (face, notional, etc.); (b) discount rate; and (c) a date or estimate of the realization date (expected receipt flow).

Thus, whenever there is a change in at least one of these three variables, the value of the asset must be adjusted against the result.

It should be warned that, if the fund paid a price for the acquisition of the asset, it is expected that there was an adequate analysis of the premises used to establish this price.

This base is what must be taken for the measurement of the asset.

It is worth remembering that these transactions must be measured taking into consideration the amount that an independent third party would be willing to pay for this asset in a transaction on an equitable basis and free from any pressures that characterize it as compulsory. This Postulate is referenced in international accounting standards as arm's length.

2. Accounting Classification of Senior Shares

As provided in the Explanatory Note to CVM Instruction No. 502, of September 1, 2011, based on the provisions of CVM Instruction No. 356/01 and the special characteristics of FIDCs not covered or addressed directly in international accounting standards, the CVM Board deliberated to improve the understanding regarding the accounting classification of senior shares.

In this sense, it altered Annexes A, B, C, and D of CVM Instruction No. 489, of January 14, 2011, exclusively to accommodate the understanding that senior shares can and must be classified as items of the net assets of Credit Rights Investment Funds.

Sincerely,

Francisco José Bastos Santos
Superintendent of Accounting Standards and
Institutional Relations

José Carlos Bezerra da Silva
Superintendent of Accounting Standards and
Auditing