Circular-Office CVM/SNC GNA 01/2010

CIRCULAR-OFFICE CVM/SNC/GNA NO. 01/2010
Rio de Janeiro, August 2, 2010.

Dear Independent Auditor,

Recently, following communication from the Federal Council of Accounting (CFC), the CVM requested clarifications regarding the non-compliance by Independent Auditors with the Continuing Professional Education Program established by CVM Instruction No. 308/99 and regulated by that Institution.

2. Based on the content of the responses and justifications received, it was possible to detect some occurrences common to non-compliant auditors. In this regard, this Superintendence opted to group the justifications presented, with a brief analysis, in which we express our understanding of the points listed.

Justification No. 1: Partners who do not perform audit activities, despite participating in audit firms, would not be obligated to meet the minimum score required by the Continuing Professional Education Program.

Comments from the SNC:
The regulation on the Continuing Professional Education Program establishes that all auditors registered with the CVM and other accountants who comprise the registered audit firm at this Commission must comply with the said Program, regardless of whether they are or are not performing independent audit activities. It is necessary to keep in mind that audit firms are regulated profession societies, composed exclusively of qualified accountants with active registration in the respective Regional Council of Accounting (CRC), who thus form part of the firm's technical staff. The fact of not participating in audit work relates to an internal decision of the firm, which does not restrict the partners' responsibility to maintain a continuing education policy, nor does it eliminate their qualification as accountants eligible to participate in audit work, even if occasional and under the responsibility of another partner (technical manager). Thus, regardless of the percentage of participation in the firm or whether or not they perform audit activities within the firm, all partners must comply with the Continuing Professional Education Program. It is therefore emphasized that the determining factor for the need to comply with the said Program is the fact that the accountant is part of the technical staff of the audit firm registered with this CVM, whether they are a partner or employee, whether they are a technical manager or not.

Justification No. 2: The counting of points regarding the Continuing Professional Education Program, performed by each accountant, is inconsistent with the actual count attributed by the CFC.

Comments from the SNC:
During the compilation of data and justifications presented, we detected that in many cases the point count performed by the Independent Auditor and delivered to the Regional Council of Accounting did not find support in the score attributed by the Federal Council of Accounting (CFC). Courses not homologated by the CFC were used by the accountant as valid courses, which caused problems in the scoring. Regarding this aspect, the CVM recommends that the accountant observe the subject matter, the point count, and, primarily, the homologation of the intended course, avoiding problems of this nature.

Another important point presented as a justification for non-compliance with the program concerns the exercise of activities or functions with a limit on valid points each year. For example, the exercise of teaching in higher education institutions is permitted in the count for program compliance; however, there is a maximum limit for the acceptance of this score, with no points being computed above what is allowed by CFC Resolution No. 1.146/08. It is important to highlight that, when controlling the minimum annual score personally, the auditor must pay attention to the limits imposed by the Resolution; exercising functions above the established limits is of no avail, as this excess will not be validated.

Justification No. 3: Non-participation in courses for the purpose of meeting the Continuing Education Program due to not possessing clients under CVM supervision.

Comments from the SNC:
Many Independent Auditors, both Natural Persons and Legal Entities, alleged, as a justification for non-compliance with the Program, the lack of clients within the securities market scope. We clarify that the triggering event for the obligations imposed by current regulation is the registration as an independent auditor with this Securities and Exchange Commission (CVM), and not the fact that the said auditors are or are not providing audit services to clients under the supervision of this Autarchy. This justification cannot be accepted, as the independent auditor who maintains their registration with the CVM must be fully qualified and updated to serve a future client, or even to serve other clients outside the scope of this Autarchy's operation. Accepting clients without due preparation constitutes non-compliance with the professional standards governing the audit activity. Furthermore, it is relevant to highlight that registration with this CVM is voluntary, although required by other bodies for operation in markets they regulate. Thus, by opting to make and maintain registration with this Commission, the independent auditor becomes subject to all norms related to the maintenance of this registration, including the professional update norm.

Justification No. 4: Non-existence of courses offered in the region where the Auditor exercises their activities.

Comments from the SNC:
Many professionals allege that non-compliance with the Continuing Professional Education Program is due to the non-existence of courses offered in the locality where they are established, which would cause high costs for travel, lodging, and registration, making participation in courses outside their region unviable. The CVM considers that the cost of participation in events of this nature represents, solely, one of the costs associated with the maintenance of their activities. The CVM recognizes that, given the immense territorial extension of the country, occasional difficulties in locomotion may exist. However, we highlight that the CFC Resolution dealing with the subject itself establishes various ways to comply with the Program, whether in in-person courses as a student or as a teacher, or in distance learning courses, which are increasingly frequent, mainly via the internet, which can minimize the problem.

On the other hand, the CVM verified that many of the professionals who presented this justification also do not have clients operating in the securities market. Thus, these auditors should evaluate the cost-benefit relationship of maintaining their registration with the CVM, as distance, cost, non-existence of dates, or other elements of this kind cannot be accepted as justification for non-compliance with the Program, since professional updating is an essential condition for the performance of independent audit activity within adequate quality standards.

Justification No. 5: Non-compliance with the Program due to illness and absence of the professional themselves, or due to the need to accompany family members.

Comments from the SNC:
The CVM recognizes that everyone is subject to occurrences related to illnesses, whether of the professionals themselves or their family members, which may hinder compliance with the Continuing Education Program. However, these situations tend to be transient and occasional. Thus, we understand that in most cases, once these difficulties are overcome, the auditor who intends to maintain their registration with the CVM has the duty to complement the minimum score required, even if outside the period to which it refers, and evidently, provided it is justified within the CFC/CRC system.

These compensations of an effectively circumstantial and exceptional nature, and when duly authorized, may eventually be considered in the monitoring process by this Superintendence regarding compliance with the Continuing Education Program established by CVM norms.

3. It is important to emphasize that these considerations represent the view of this Superintendence for events occurring in this first triennium of the Continuing Education cycle (2006 – 2008), and therefore attempt to resolve existing doubts and direct auditors towards compliance with the Continuing Professional Education Program. Thus, notwithstanding the clarifications presented, the CVM ratifies the need for full compliance with the Continuing Professional Education Program, regulated by the Federal Council of Accounting, reminding that non-compliance characterizes non-compliance with art. 20, combined with art. 34, both of CVM Instruction No. 308/99, constituting a serious violation, in terms of art. 37, of the same Instruction.

4. In this regard, it is important to stress that the Federal Council of Accounting will enable accountants who did not comply with the said Continuing Professional Education Program in the 2006-2008 triennium to do so, on an exceptional and complementary basis, in the current 2009-2011 triennium, so that the score required in the two triennia is fulfilled. Therefore, we emphasize the importance of compliance with the said Program, whether in complement to the 2006-2008 triennium, or in compliance with the ongoing 2009-2011 triennium. In this sense, we warn that non-compliance with the Continuing Professional Education Program will lead to the adoption of administrative sanctions by this CVM against the Independent Auditors registered here.

5. Last, but not least, we highlight that part of the score of the Continuing Professional Education Program to be obtained in the 2009 to 2011 triennium must comply with the established in CVM Deliberation No. 570/09 (CONTINUING EDUCATION IN IFRS), with the even need to present proof to this Autarchy, for which it suffices to provide a copy of the Certificate of Regularity issued by the respective Regional Council of Accounting, for the purpose of "Compliance with CFC RES. No. 1.146/08 (Prof. Cont. Educ.)", where a summary table with proof regarding qualification in "IFRS – CVM Deliberation No. 570/09" is stated.

Sincerely,

RONALDO CÂNDIDO DA SILVA
Manager of Audit Standards

ANTÔNIO CARLOS DE SANTANA
Superintendent of Accounting and Audit Standards