Circular Letter CVM/SNC/SEP No. 003/2011

CIRCULAR LETTER CVM/SNC/SEP No. 003/2011
Rio de Janeiro, April 28, 2011.
SUBJECT: Guidance on relevant aspects to be observed in the preparation of interim accounting statements that will serve as the basis for completing the ITR Forms

Dear Investor Relations Directors and Independent Auditors,

This Circular Letter aims to guide issuers of securities admitted to trading on regulated markets, as well as their respective independent auditors, regarding the relevant aspects that must be observed when preparing and disclosing the quarterly information form – ITR, as provided for in article 29 of CVM Instruction No. 480/09.

2. Article 29, item I, of CVM Instruction No. 480/09 determines that the ITR must be filled out with data from quarterly accounting information prepared in accordance with the accounting rules applicable to the issuer, pursuant to articles 25 to 27 of the aforementioned Instruction.

3. Therefore, regarding the accounting rules applicable to the issuer, it should be noted that Technical Pronouncement CPC 21 (CPC 21) defines interim accounting statement as "an accounting statement containing a complete set of accounting statements (as described in Technical Pronouncement CPC 26 – Presentation of Financial Statements) or a set of condensed accounting statements (as described in this Pronouncement) for an interim period."

4. If the entity discloses or publishes the complete set of accounting statements in its interim report, the form and content of these statements must be in compliance with the requirements of Technical Pronouncement CPC 26 – Presentation of Financial Statements for the complete set of accounting statements (item 9 of CPC 21).

5. CPC 21 defines the minimum content of a condensed interim accounting statement as follows:
   a. condensed balance sheet; condensed statement of income; condensed statement of comprehensive income; condensed statement of changes in equity; condensed statement of cash flows. These condensed statements must include, at a minimum, each of the headings (line items) and subtotals that were included in the most recent annual accounting statements; and b. selected explanatory notes, whose minimum content, pursuant to item 16 of the aforementioned Pronouncement, could be restricted to the following information, if material:
   i. a declaration that accounting policies and calculation methods are the same in the interim accounting statements, when compared to the most recent annual accounting statement; or, if such policies and methods have been altered, a description of the nature and effects of that change;
   ii. explanatory comments on seasonal or cyclical interim operations;
   iii. the nature and amounts of unusual items due to their nature [...];
   iv. the nature and values of changes in estimates [...], if such changes have a material effect in the current interim period;
   v. issuance, repurchases, and repayments of debt instruments and equity instruments;
   vi. dividends paid (aggregated or per share) [...];
   vii. segment information specified, in cases where the entity is required to disclose them in the annual accounting statements;
   viii. relevant subsequent events [...];
   ix. effect of changes in the composition of the entity [...]. In the case of business combinations, the entity must disclose the information required by Technical Pronouncement CPC 15 – Business Combinations; and
   x. changes in contingent liabilities or contingent assets.
   c. it is clarified, furthermore, in item 18, that, "except as required in item 16(i) [CPC 15 Business Combinations], disclosures required by [...] other Pronouncements are not required if the entity's interim accounting statements contain only condensed accounting statements";
   d. it is defined, furthermore, in item 14 that "the interim accounting statement is prepared on a consolidated basis if the entity's most recent annual accounting statements are consolidated. [...] This Pronouncement does not require or prohibit the inclusion of the parent company's separate or individual accounting statements in its interim report".

6. The aforementioned pronouncement also provides that additional line items must be included in the statements, if their omission causes the interim accounting statement to be misleading.

7. Nevertheless, it is understood that adopting the minimum content of condensed interim statements, as defined in CPC 21 (§ 6 retro), would represent a significant reduction in the quality of information disclosed to the market, given that, until 2010, quarterly information from Brazilian public companies was prepared and presented in a more expanded manner with more complete and comprehensive content.

8. In this sense, CIRCULAR LETTER CVM/SEP No. 02/2011 was issued, guiding that the quarterly information form – ITR must be filled out with data from quarterly information prepared in compliance with the rules applicable to the complete set of individual and consolidated financial statements.

9. The concept contained in article 29 of CVM Instruction No. 480/09, reiterating again the provision in § 3 retro, is that the ITR Form must be a complete document with all its tables duly filled out, regardless of the definition of the minimum content of condensed statements.

10. Thus, it is not admitted, in the presentation of the Electronic ITR Form, to omit including data from the statement of added value, as it is not a statement provided for in item 8 of CPC 21. Similarly, it is not permissible to omit disclosure of data from individual statements, based on what item 14 of CPC 21 provides.

11. In other words, the ITR Form must include all financial statements presented in the annual statements. The tables regarding these individual and consolidated financial statements, provided for in the ITR Forms, must be filled out with the same level of detail as the annual financial statements, in accordance with article 29 of Instruction 480/09 and the content provided for in the form. In this regard, one must observe what Technical Pronouncement CPC 26 provides, which determines, in its item 29, that "each relevant class of similar items must be presented separately. Items of distinct nature or function must be presented separately, unless immaterial."

12. Regarding the content of the explanatory notes, it should be highlighted that the ITR Form must contain all information that is relevant to understanding the entity's financial position and performance during the interim period.

13. It is the responsibility of the company's management, observing materiality, established regarding the interim period information, and having possession of broader information about performance, to exercise judgment regarding the information to be disclosed in explanatory notes.

14. The understanding set forth above does not imply the conclusion that these explanatory notes must necessarily, in all their aspects, contain the same degree of detail as the notes included in the financial statements closing the fiscal year.

15. In view of this, considering (i) the objective sought of timely disclosure of information, (ii) the necessary evaluation of the costs of generating them in light of the benefit of disclosure, and, especially, (iii) the need to avoid repetition of information previously disclosed, companies may, as an alternative to disclosing notes with the inclusion of all information provided for in CPC 26 (items 112 to 138), present the explanatory notes included in the ITR Forms, observing the following criteria:
    a. include all titles contained in the explanatory notes presented in the most recent annual financial statements. If there is no alteration regarding the information contained in these last explanatory notes, there is no need to repeat the same information in the ITR. In the case of material alterations, regarding the content of the annual financial statements, of the elements contained in the explanatory notes, highlight the modifications that occurred and their respective impact on the company's equity situation; b. in these cases where there is no complete filling of the explanatory note due to redundancy with respect to what was presented in the annual statements, indicate the exact location of the complete explanatory note in the annual statement;
    c. include all analytical tables that detail or explain the composition of elements contained in the financial statements or that meet specific regulation (e.g., sensitivity analysis table) and that were presented in the annual financial statements, unless immaterial;
    d. without prejudice to the provisions of the previous items, considering the comments contained in CIRCULAR LETTER CVM/SEP No. 02/2011, special attention must be given to information regarding: (i) related parties, including remuneration of key management personnel (CPC 05); (ii) disclosures regarding financial instruments, considering, in addition, the provisions of CVM Instruction 475 (CPC 40); (iii) Asset Impairment (CPC 01); (iv) Provisions, Contingent Liabilities, and Contingent Assets (CPC 25); (v) Present Value Adjustment (CPC 12), in addition to (vi) the points mentioned in item 6, "b" above; and e. include any other information of an economic-financial nature deemed relevant by the company's management, observing the provisions of item 24 of CPC 21.

16. If the above requirements are met, it is understood that the provisions of article 29 of CVM Instruction No. 480/09 are fulfilled.

Sincerely,

FERNANDO SOARES VIEIRA
Superintendent of Corporate Relations

JOSÉ CARLOS BEZERRA DA SILVA
Superintendent of Accounting Standards and Audit Acting