CIRCULAR LETTER CVM/SNC/SEP No. 02/2005.

Rio de Janeiro, August 24, 2005.

Subject: Disclosure of Information Regarding the Provision of Other Services by Independent Auditors – CVM Instruction 381/03.

Dear Director of Investor Relations,

This circular letter aims to alert public companies and their respective independent auditors to the mandatory disclosure, in the Management Report, of information related to the provision of other services beyond external audit, as determined in CVM Instruction No. 381/03.

The aforementioned regulation is based on the principles of transparency and disclosure of relevant information of public companies directed to other participants in the Capital Markets, especially the investing public. In this sense, this Commission recognizes the relevance of information pertinent to the relationship between the audited entity and its independent auditors, particularly in the event of the provision of other services beyond those related to the external audit of financial statements.

Furthermore, the suspension, by virtue of a judicial decision1, of the effectiveness of item II and the sole paragraph of Article 23 of CVM Instruction No. 308/99, regarding the prohibition of the simultaneous provision of audit and consulting services for the same audited entity, reinforces the need for disclosure of the information required by CVM Instruction No. 381/03, aiming to provide elements for the interested public to assess the aspects of objectivity and independence of independent auditors.

Thus, CVM Instruction No. 381/03 determines that the following be disclosed in the Management Report: information regarding the characteristics of the contract for the provision of other services beyond audit (date of hiring, term, and nature of the service); the total value of fees contracted for other services and their percentage in relation to audit fees; policy or procedures adopted by the company to avoid conflict of interest, loss of independence, or objectivity of its auditors; and a summary of the exposure made by the auditors to the management of the audited entity that, in their understanding, the other services provided did not affect the independence and objectivity in the performance of external audit services.

It should be noted that CVM Instruction No. 381/03 exempts public companies from disclosing the value of fees and their percentage in relation to audit services (art. 2, II) only when the fees contracted for other services are less than 5% of the fees contracted for external audit services. However, the provision of other services below the aforementioned percentage does not exempt the company from presenting the other information required in article 2, items I and III. Thus, it is recommended that, in all cases, the information be disclosed as to whether independent auditors provided or did not provide other services to the audited entity.

MONITORING OF DISCLOSED INFORMATION

Fiscal Year 2002

With the publication of Instruction No. 381, on 01/14/2003, considering the wording given by article 6 of the aforementioned norm, the technical area of CVM began monitoring the disclosure of information based on the standardized financial statements of 2002 (DFP 2002).

It was verified that part of the public companies presented their accounting statements, without however proceeding to the correct disclosure of information regarding their relationships with the hired independent auditors.

As a result of such fact, the technical area of this Autarchy issued Circular Letter CVM/SEP/SNC No. 02/2003, of 03/20/2003, emphasizing the necessity and obligation of disclosure and detailing of information regarding the other services provided by independent auditors to the audited public companies, as well as alerting regarding the penalties provided for in the current legislation2.

Regarding the fiscal year ended on 12/31/2002, the technical area of this CVM analyzed the management reports of 110 public companies, with the following results:

N°	%
Companies with complete disclosure	64	58
Companies with incomplete/incorrect disclosure or no disclosure	46	42
TOTAL	110	100

The companies that proceeded with incomplete or incorrect disclosure or with no information were notified by SEP (Superintendence of Corporate Relations), which consequently determined that the information be disclosed through the IPE system (System for Sending Periodic and Occasional Information), in the "market communication" field.

It should also be noted that in that fiscal year, SESCON – SP (Union of Accounting Services Companies of the State of São Paulo) obtained a preliminary judicial injunction suspending the effects of CVM Instruction No. 381/03. However, still in 2003, a decision by the 6th Chamber of the Regional Federal Court – 3rd Region canceled the effects of the aforementioned injunction, thus reestablishing the obligation to present the information required by the Instruction.

Fiscal Year 2003

In the 2nd year of obligation of the determinations contained in CVM Instruction No. 381/03, the technical area of this CVM intensified the task of monitoring and verifying the information disclosed by public companies.

Regarding the fiscal year ended on 12/31/2003, the management reports of 313 public companies were analyzed, with the following results:

N°	%
Companies with complete disclosure	209	67
Companies with incomplete/incorrect disclosure or no disclosure	104	33
TOTAL	313	100

In the same way as occurred in the previous year, the companies that proceeded with incomplete or incorrect disclosure or with no information were notified by SEP (Superintendence of Corporate Relations), which determined that the information be redone or complemented and disclosed through the IPE system (System for Sending Periodic and Occasional Information), in the "market communication" field.

Fiscal Year 2004

For the period ended on 12/31/2004, the technical area of this CVM analyzed the information disclosed by 400 public companies, regarding the relationship with their respective independent auditors, obtaining the following configuration regarding compliance with the requirements of CVM Instruction No. 381/03:

N°	%
Companies with complete disclosure	289	72
Companies with incomplete/incorrect disclosure or no disclosure	111	28
TOTAL	400	100

Again, repeating the procedure adopted in previous years, the companies that proceeded with incomplete or incorrect disclosure or with no information were notified by SEP (Superintendence of Corporate Relations) for the appropriate notifications and disclosure of the required information.

Additionally, due to the still high number of companies that did not fully comply with the determinations of CVM Instruction No. 381/03, the technical area of this Autarchy identified a total of 37 public companies that violated CVM Instruction No. 381/03 for the 2nd consecutive year, failing to reveal in their DFPs relative to the social years ended on 12/31/2003 and 12/31/2004, their relationship with their independent auditors (attached, follows the list of the aforementioned public companies).

MONITORING PROCEDURES FOR DISCLOSED INFORMATION FOR DFP 2005

Although we can perceive a relative improvement in the quality of the disclosure of the information required by CVM Instruction No. 381/03, the number of companies that are not adequately complying with the provisions contained in that Instruction is still quite significant. The main deviations observed can be grouped as follows:

1. absence of information regarding the date of hiring and term of duration of contracted services (violation of item I of article 2);
2. reports the value of contracted fees in reais (R$), without specifying its percentage in relation to fees related to external audit services (violation of item II of article 2);
3. reports the percentage of fees for other services in relation to fees related to external audit services, without specifying the value of contracted fees in reais R$ (violation of item II of article 2) and
4. reports that the value of fees for other services was higher than 5% of the value of fees for external audit services, but does not report how much they actually represented (e.g., 10%, 20%, or 50%) (violation of item II of article 2).

Thus, having passed these 3 fiscal years in which the CVM's action, with emphasis on the educational character, was limited to determining only the redoing of information in the IPE, and considering the still significant level of non-compliance with CVM Instruction No. 381/03, it becomes necessary, in the view of the Superintendencies that subscribe this document, the implementation of a more punitive action for those starting from the closing of this current social year of 2005, especially for repeat companies.

Therefore, it is worth alerting that in the analysis of the information that will be disclosed, regarding the end of the current social year (DFP 2005), public companies that do not fully comply with the requirements of CVM Instruction No. 381/03, in addition to the obligation to correct the identified flaws and omissions, by re-presenting the DFP form and republishing their financial statements in the newspaper in which they were originally published, may be subject to the application of the sanctions provided for in article 11 of Law No. 6,385/76, as it constitutes a serious nature infraction according to the provision of article 5 of the aforementioned Instruction.

Sincerely,

ELIZABETH LOPEZ RIOS MACHADO
Superintendent of Corporate Relations and Auditing

ANTONIO CARLOS DE SANTANA
Superintendent of Accounting Standards

1 (i) Writ of Mandamus filed by the Union of Accounting Services Companies of the State of São Paulo – SESCONSP (Process No. 1999.61.00.0373056), pending in the 1st Federal Court of São Paulo; (ii) Writ of Mandamus filed by the independent audit company Ernst & Young (Process No. 1999.61.00.0299646), pending in the 9th Federal Court of São Paulo; (iii) CVM filed the appropriate appeals in both processes before the Regional Federal Court of the 3rd Region, which are pending judgment.

2 Art. 9, items V and VI and art. 11 of Law No. 6,385/76, with wording given by Law No. 10,303/01 and Decree 3,995/01, in addition to the coercive fine provided for in art. 1, § 3 of CVM Instruction No. 273/98.

Company	Observation	SNC Dispersion % (1)	Index (2)
		ON	PN	Total
ALL América Latina Logística	In DFPs 2002, 2003 and 2004 the company did not disclose the information required by Inst. CVM 381/03	47,35	78,98	67,83	Itag/IVBx2/IBRx
Aracruz Celulose S/A	In DFPs 2003 and 2004 the company did not disclose	3,40	87,50	50,4	Ibovespa/IGC/IVBx2/IBrX/IBRx 50
Banco do Est do Para BANPARA	In DFPs 2003 and 2004 the company did not disclose	0,02	0,00	0,02
BIOMM S/A	In DFPs 2003 and 2004 the company did not disclose	14,47	79,41	51,78
Blue Tree Hotels e Resorts do Brasil S/A	In DFPs 2003 and 2004 the company did not disclose	0,00
Café Solúvel Brasilia	In DFPs 2003 and 2004 the company did not disclose	30,65	100,00	76,88
Caixa de Adm. da Dív. Pub. Estadual	In DFPs 2003 and 2004 the company did not disclose	0,01	0,00	0,01
CELESC	In DFPs 2003 and 2004 the company did not disclose	2,63	73,16	44,78	Ibovespa/ITAG/IGC/IVBx2/IBrX/IBRx 50/IEE
Centrais Elétricas Brasileiras Eletrobrás	In DFPs 2002, 2003 and 2004 the company did not disclose	21,63	84,00	34,02	Ibovespa / IBrX/ IBrX/IEE
Cia Fabril Mascarenhas	In DFPs 2003 and 2004 the company did not disclose	26,22	64,81	44,19
Cia Nova Sul América	In DFPs 2003 and 2004 the company did not disclose	0,00
Cimob Participações	In DFPs 2003 and 2004 the company did not disclose	13,75	28,3	21,09
Cia Eldorado de Hoteis	In DFPs 2003 and 2004 the company did not disclose	10,14	12,60	10,23
CAGECE Cia Aguas e Esgoto CE	In DFPs 2003 and 2004 the company did not disclose	0,00
Cia de Gás de São Paulo COMGAS	In DFPs 2003 and 2004 the company did not disclose	4,04	85,92	21,75	Ibovespa/ IBrX/ IVBx2
Cia Habitasul de Participações	In DFPs 2003 and 2004 the company did not disclose	0,00	70,52	46,18
Cobrasma S/A	In DFPs 2003 and 2004 the company did not disclose	19,00	99,49	68,00
Company Tecnologia de Construções	In DFPs 2003 and 2004 the company did not disclose	0,00
Correa Ribeiro S/A Com e Industr	In DFPs 2003 and 2004 the company did not disclose	9,58	82,57	57,93
DTCOM Direct to Company S/A	In DFPs 2003 and 2004 the company did not disclose	15,12	54,54	21,78
GAFISA S/A	In DFPs 2003 and 2004 the company did not disclose	1,75	5,64	4,44
Gazola S/A	In DFPs 2003 and 2004 the company did not disclose	10,95	41,54	31,35
Hoteis OTHON S/A	In DFPs 2003 and 2004 the company did not disclose	61,00	48,00	55,00
João Fortes Engenharia S/A	In DFPs 2003 and 2004 the company did not disclose	54,84	0,00	54,84
MCOM Wirelles S/A	In DFPs 2003 and 2004 the company did not disclose	0,00
METISA Metal. Timboense S/A	In DFPs 2003 and 2004 the company did not disclose	5,43	78,19	47,53
MinasMáquinas S/A	In DFPs 2003 and 2004 the company did not disclose	8,36	52,64	30,49
Monteiro Aranha S/A	In DFPs 2003 and 2004 the company did not disclose	22,34	0,00	22,34
Petrobrás Química S/A	In DFPs 2003 and 2004 the company did not disclose	0,00
Polipropileno Participações S/A	In DFPs 2003 and 2004 the company did not disclose	12,75	23,63	16,43
Polpar S/A	In DFPs 2003 and 2004 the company did not disclose	0,25	0,00	0,25
Rail Sul S/A	In DFPs 2003 and 2004 the company did not disclose	0,00
Sergen Serv Gerais de Eng S/A	In DFPs 2003 and 2004 the company did not disclose	2,04	27,66	10,97
Siderúrgica JLAliperti S/A	In DFPs 2003 and 2004 the company did not disclose	3,68	27,81	19,70
Sondotécnica Eng Solos S/A	In DFPs 2003 and 2004 the company did not disclose	2,75	64,00	43,58
TECBLU Tecelagem Blumenau S/A	In DFPs 2003 and 2004 the company did not disclose	0,04	60,29	39,73
Wiest S/A	In DFPs 2003 and 2004 the company did not disclose	0,92	95,65	52,73

(1) Percentage of Ordinary Shares (ON) and Preferred Shares (PN) of the public company, in circulation in the market (free float) (2) Market Indices:
IBOVESPA BOVESPA Index
IBrX Brazil Index
IBrX 50 Brazil 50 Index
IVBx2 Bovespa Value Index
IGC Index of Shares with Differentiated Corporate Governance ITAG Index of Shares with Differentiated Tag Along IEE Index of Electrical Energy

OBS: the company TREVO INVESTIMENTOS S/A, now TREVISA INVESTIMENTOS S/A, although it did not comply in DFP 2003, proceeded with correct disclosure in DFP 2004, reason for the correction of the original table.

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