CVM Circular Letter CVM/SIN 06/2012

CVM CIRCULAR LETTER/CVM/SIN/NO. 6/2012
Rio de Janeiro, December 11, 2012

To the Administrators of Investment Funds Regulated by CVM Instruction No. 409/04

Subject: Valuation of Level 1 Unsponsored BDRs in Investment Fund Portfolios

Dear Sirs/Madams,

We refer to the possibility of investment funds adopting an accounting valuation practice for Level 1 Unsponsored BDRs ("BDRs") different from that provided in the Accounting Plan for Investment Funds – COFI, so that such assets can be valued as close as possible to their fair value, using for marking to market the reference values of BDRs published daily by BM&FBOVESPA.

In this regard, based on a statement from the Superintendence of Accounting Standards and Auditing of this CVM – SNC, this Technical Area holds a favorable understanding regarding the use of the reference values published by BM&FBOVESPA, considering that such practice complies with item 1.1.1.1 of the COFI, provided that the qualitative characteristics of financial accounting information are preserved.

We highlight, however, always based on the SNC's statement, that in the effective use of reference values, it is essential that the measurement methodology be documented and disclosed precisely and clearly by BM&FBOVESPA, as well as that it be verifiable and consistent, so that the information resulting from its application results in a faithful representation of the economic phenomenon to be represented. By faithful representation, a fundamental qualitative characteristic of financial accounting information, we mean that which portrays the reality of an economic phenomenon in a complete, neutral, and error-free manner:

"Faithful representation does not mean accuracy in all respects. A depiction of economic reality free from error means that there are no errors or omissions in the phenomenon depicted, and that the process used to produce the reported information was selected and applied free from error. (...)". i

In due course, we emphasize that this statement does not exempt the administrator from analyzing specific cases, in order to ensure that the measurement based on reference values represents, under the measurement circumstances, the best estimate of the fair value of the BDRs.

In this sense, we remind you that BDRs may be considered as quoted in an active market if the quoted prices are readily and regularly available from transactions, dealers, brokers, industrial groups, price services, or regulatory agencies, and if these prices represent real market transactions that occur regularly and between independent parties:

"Fair value is defined in terms of prices agreed upon by a willing buyer and a willing seller in a transaction where there is no relationship between the parties.
The objective of determining the fair value of a financial instrument that is traded in an active market is to arrive at a price at which the transaction could occur on the date of the financial statements with respect to that instrument (i.e., without modifying or renegotiating the instrument) in the most advantageous active market to which the entity has immediate access. The existence of published price quotations in an active market is the best evidence of fair value and when they exist they must be used to value the financial asset". ii

We also alert that the accounting practice for the valuation of BDRs must be disclosed in explanatory notes, as established in item 1.3.2.1.(III) of the COFI, as well as the adoption of the methodology described above for the measurement of assets – based on the reference values of BDRs published daily by BM&FBOVESPA – must appear in the marking-to-market manual used by the administrator.

Finally, we emphasize that this statement does not necessarily represent the understanding of the Board of this Commission on the matter.

Sincerely,

Signed original by

FRANCISCO JOSÉ BASTOS SANTOS
Superintendent of Institutional Investor Relations

i QC15 of CPC 00 ii AG71 of CPC 38