CVM/SNC Circular Letter 07/2008

CVM/SNC CIRCULAR LETTER NO. 07/2008.
Rio de Janeiro, April 3, 2008.
Subject: Duties and Obligations of Independent Auditors with respect to Investment Funds.

Dear Auditors,

This circular letter aims to alert Independent Auditors registered with this CVM about the obligations inherent to audit work in Investment Funds, required by the regulations governing the activity within the Securities Market, especially those specific to Instruction CVM No. 308, of 05/14/1999, which apply both in the performance of open companies and in all members integrated into the Securities Market.

2. In this regard, we inform that the issuance of a Detailed Report (Long-Form Report) is mandatory when carrying out audit work, as prescribed by Item II of Article 25 of Instruction CVM No. 308, of 05/14/1999, as we highlight:

“II – prepare and send to the administration and, when requested, to the Fiscal Council, a detailed report containing your observations regarding deficiencies or ineffectiveness of the internal controls and accounting procedures of the audited entity.”

3. Similarly, it is mandatory for independent auditors to communicate to the CVM possible non-compliance with regulatory standards, whether regarding accounting aspects or administrative acts, such as the disqualification of portfolios, under letter d) of Item I and the sole paragraph of Article 25 of Instruction CVM No. 308/99, which we highlight below:

“Art. 25. In the exercise of their activities within the securities market, the independent auditor must, additionally:
I – verify
....
d) the eventual non-compliance with legal and regulatory provisions applicable to the activities of the audited entity and/or relating to its status as an entity integrated into the securities market, which have, or may have, relevant impacts on the accounting statements or on the operations of the audited entity. ...

CVM/SNC CIRCULAR LETTER NO. 07/2008 p. 2/2.
Sole Paragraph. Upon finding any relevant irregularity regarding what is established in Items I and II, the independent auditor must communicate the fact to the CVM, in writing, within a maximum period of twenty days, counted from the date of its occurrence.”

4. Under the same principle, it was corroborated by COFI that irregularities detected by independent auditors must be reported to the CVM, under Chapter I, Section 6, Item 3 of Instruction CVM No. 438, of 07/15/2006, which we highlight below:

“3 - Upon finding any relevant irregularity regarding what is established by the standards of this Accounting Plan, the specific standards, and the fund's regulations, the independent auditor must communicate the fact to the CVM, in writing, within a maximum period of 20 (twenty) days, counted from the date of its occurrence.”

5. Additionally, we wish to alert that, as provided in Articles 19 and 20 of Instruction CVM No. 308, of 05/14/1999, which we highlight below, the specific standards issued by the CVM and the professional standards issued by CFC and IBRACON apply to any and all exercise of the audit activity within the securities market, including open companies, funds, and other entities subject to the regulation of this agency:

“Art. 19. The independent auditor, in the exercise of their activity within the securities market, must comply and ensure compliance by their employees and agents with the specific standards emanating from the Securities and Exchange Commission.
Art. 20. The Independent Auditor - Natural Person and the Independent Auditor - Legal Entity, all their partners and members of the technical staff must also observe, the standards emanating from the Federal Council of Accounting - CFC and the technical pronouncements of the Brazilian Institute of Accountants - IBRACON, with respect to professional conduct, the exercise of the activity, and the issuance of opinions and audit reports.”

6. Finally, we remind that the non-compliance with the respective provisions constitutes a serious offense for the purposes of Article 11, § 3º of Law No. 6385/76, being subject to the initiation of an Administrative Sanctioning Process.

Sincerely,

MADSON DE GUSMÃO VASCONCELOS
Manager of Audit Standards
In exercise

ANTONIO CARLOS DE SANTANA
Superintendent of Accounting and Audit Standards