Circular Letter CVM/SNC/SEP 02/2009

CIRCULAR LETTER CVM/SNC/SEP No. 02/2009
Rio de Janeiro, May 5, 2009

To the
Directors of Investor Relations and
Independent Auditors

SUBJECT: Guidance on Quarterly Information – ITRs during the year 2009.

Dear Sirs,

The promulgation of Law No. 11,638, of December 28, 2007, effective from January 1, 2008, and the issuance of Provisional Measure No. 449/08, made it possible for Brazilian accounting standards and practices applicable to open companies to become convergent with international accounting standards and practices.

Throughout 2008, the CVM, together with the Accounting Pronouncements Committee – CPC, initiated a new cycle that required and will continue to require great efforts from companies, auditors, and various accounting and finance organizations and professionals, as well as from the CVM itself in the process of regulation, dissemination, guidance, and learning regarding the modifications produced by the new law and its consequences.

Considering that some of the specific changes introduced required the issuance of more detailed complementary standards, the CVM and the CPC established and carried out during 2008 a work program aimed primarily at meeting the regulatory needs arising from the accounting reform of corporate legislation.

However, given the aforementioned efforts for convergence, the narrow time frame between the promulgation and the start of the effectiveness of Law No. 11,638/07 and, consequently, the brief vacatio legis in some cases, as well as the high complexity of the changes produced, the CVM, since the Market Communication made on January 14, 2008, expressed the understanding (still preliminary at that time) that said changes would be applicable to financial statements closed on December 31, 2008, or on a later date, as well as to statements specially prepared during 2008 to comply with the provisions of art. 45, §2º, and art. 204, § 1º of Law No. 6,404/76.

Thus, the CVM understood the application of the changes to the Quarterly Information forms – ITRs of 2008 and to the statements specially prepared for registration purposes with the CVM, in accordance with art. 7, item X, of CVM Instruction No. 202/93, to be optional.

This understanding, now definitive, was reaffirmed and formalized through art. 2 of CVM Instruction No. 469, of May 2, 2008. This article made the application of the changes introduced by Law No. 11,638/07 optional for the ITRs of 2008 and for the statements specially prepared for registration purposes with the CVM (art. 7, item X, of CVM Instruction No. 202, of 1993).

Thus, an open company that did not choose to adapt immediately should comply with the command of the sole paragraph of art. 1 of said Instruction, which provided for the mandatory disclosure, in an explanatory note to the 2008 ITRs, of a description of the changes that could have an impact on its financial statements for the closing of the fiscal year, as well as an estimate of their possible effects on equity and the result of the period or, if applicable, clarifications of the reasons that prevented the presentation of this estimate.

Alternatively, if the company opted for the application of the changes introduced by Law No. 11,638/07 in the ITRs of 2008, art. 2 of said Instruction imposed, among other conditions, the disclosure, in an explanatory note, of the effects on the result and net equity resulting from these changes.

Such disclosure requirements aimed to enable, in this transition phase, the preservation, at least in part, of the qualitative characteristic of Comparability.

More recently and in the same line, the CVM approved, through CVM Deliberation No. 565, Technical Pronouncement CPC 13, which deals with the Initial Adoption of Law No. 11,638/07 and provides:

"Intermediate information provided by entities for the purpose of complying with regulatory body standards, such as, for example, Quarterly Information – ITR or Quarterly Financial Information – IFT, are outside the scope of this Pronouncement, since regulatory bodies have already issued or may issue specific standards and guidelines." (item 5).

It is indisputable that the preservation of the attribute of Comparability is desirable and required.

In effect, the appropriate procedure to be followed and which fully meets the principles of the Conceptual Framework and other applicable standards, would be to present the Quarterly Information – ITRs for 2009, compared with the same period of the previous fiscal year, adjusted according to the same accounting practices in effect in the quarter of the current fiscal year.

However, given the transition phase of accounting practices adopted in Brazil, as well as the great efforts undertaken by all agents involved in the convergence process, still ongoing, and to maintain consistency with the statements issued thus far, the CVM, based on the competence conferred by art. 22 of Law No. 6,385/76, expresses the understanding that in the 2009 ITRs, the comparative information of the previous fiscal year (referring to the year 2008) may be presented with the same practices adopted previously, that is, without adjustments for the accounting practices in effect in the quarter of the current fiscal year, if applicable. However, the open company must, at a minimum, include, in the quarterly information, an explanatory note that includes an estimate of the effects on the result and net equity that would be obtained had they been adjusted by the accounting practices in effect in the current fiscal year.

On the other hand, the CVM, by establishing its joint regulatory agenda with the CPC, decided, and gave wide publicity to this, that standards issued in 2009, due to the convergence process, would only be applicable from the 2010 fiscal year, retroactively applying to the 2009 fiscal year only for comparability purposes. Thus, in order to preserve this comparability throughout the 2010 fiscal year, the Quarterly Information of 2009, presented for comparison purposes in the following year, must be adjusted to include the effects of said standards.

Sincerely,

Signed Original
Alexandre Lopes de Almeida
Superintendent of Corporate Relations
In office

Signed Original
Antonio Carlos de Santana
Superintendent of Accounting Standards and Auditing