Identifier | Created | Classification | Origin |
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06SAOPAULO970 | 2006-09-06 19:15:00 | UNCLASSIFIED | Consulate Sao Paulo |
VZCZCXRO2952 RR RUEHRG DE RUEHSO #0970/01 2491915 ZNR UUUUU ZZH R 061915Z SEP 06 FM AMCONSUL SAO PAULO TO RUEHC/SECSTATE WASHDC 5736 INFO RUEHBR/AMEMBASSY BRASILIA 6799 RHEHNSC/NSC WASHDC RUCPDOC/USDOC WASHDC 2563 RUEHMN/AMEMBASSY MONTEVIDEO 2151 RUEHBU/AMEMBASSY BUENOS AIRES 2449 RUEHSG/AMEMBASSY SANTIAGO 1866 RUEHLP/AMEMBASSY LA PAZ 3012 RUEHRG/AMCONSUL RECIFE 3124 RUEHRI/AMCONSUL RIO DE JANEIRO 7416 RUEHAC/AMEMBASSY ASUNCION 2764 RUEATRS/DEPT OF TREASURY WASHDC RUEHC/DEPT OF LABOR WASHDC |
UNCLAS SECTION 01 OF 02 SAO PAULO 000970 |
1. Summary. PCAOB Member Charles D. Niemeier, sponsored by the Public Affairs Section, was the guest speaker at the August 15 meeting of Cafe com Finanzas (Coffee with Finances), a national group of financial organizations who meet on a bimonthly basis to discuss finance-related matters. Mr. Niemeier spoke on the Rotation of External Auditors in Financial Institutions, which generated spirited debate on the merits of mandatory audit rotation. He subsequently met representatives of various financial, futures, and regulatory institutions, and observed firsthand the Sao Paulo Stock Exchange's (BOVESPA) Novo Mercado (New Market), Brazil's impressive new transparent stock exchange listing. End Summary. Debate on Mandatory Rotation of Auditing Companies -------------------------- -------------------------- 2. At the August 15 bimonthly meeting of the financial discussion group Cafe com Finanzas, PCAOB Board Member Charles Niemeier discussed the factors that led to the 2002 Sarbanes-Oxley Act, which created an independent auditing committee, which should guarantee greater oversight of the auditing process and greater independence for auditors from management control. In Brazil, mandatory rotation of auditors every five years has been required since 1999. Niemeier's discussion generated spirited debate on whether mandatory rotation of auditors has been beneficial to the Brazilian system. Luiz Fernando Figueiredo, president of the Association of Market Investors and former director of the Central Bank, previously supported the mandatory rotation of auditing companies, but today feels that this practice is disruptive, costly, and inefficient. He now advocates the rotation of individual auditors instead. The president of the National Association of Auditors was also strongly opposed, stating that mandatory rotation is destroying the auditor/company relationship, increasing costs to a prohibitive level, and raising problems in retaining talented auditors in the field. On the other side, the Brazilian Central Bank supports mandatory rotation, as does Bengt Hallqvist, founder of the Brazilian Institute of Corporate Governance, who believes the root of the problem is found in the concentration of business in Brazil's four largest auditing firms. The general consensus that emerged during the discussion was that after experience with two rotations in Brazil, there needs to be a study of the practice's effectiveness. Visit to Futures and Stock Markets -------------------------- 3. A short visit to the futures trading floor allowed Niemeier an opportunity to observe the intense trading in dollars, and the more traditional coffee market, which still operates on the trading floor. The Futures and Commodities Exchange (BM&F), which has offered electronic trading for the past 10 years, will have more electronic transactions than traditional transactions for the first time this year. Niemeier also visited Bovespa's Novo Mercado, introduced in 2000 with stringent transparency requirements regarding corporate governance for companies listed. The result has created a stronger, more credible and transparent market, with increased activity and equity capital for the Brazilian stock market. Since the new rules were introduced, 22 companies have raised approximately USD 6.8 billion in 26 primary and secondary issues, compared to a total of five IPOs seen from 1995 to 2003. Niemeier stated that the Novo Mercado, with its transparency and good governance requirements, is a good example for the rest of the world and will attract investors in the long run. Joao Lauro Amaral, International and Government Relations Director for BM&F, confided that companies opening up to public investment are now considered questionable if they do not appear on the Novo Mercado. Amaral, like the rest of the financial community in Brazil, believes the Novo Mercado has strengthened the market and created a sense of credibility with its tough regulations and transparency. SAO PAULO 00000970 002 OF 002 Positive Press -------------------------- 4. Comment: Mr. Niemeier's presentation on the mandatory rotation of auditors generated frank discussion among the business leaders, bankers, and auditors present at the Cafe com Finanzas, both for and against mandatory rotation. In addition to the open exchanges at meetings, the positive press generated made this a successful visit for all involved. An interview with Mr. Niemeier discussing mandatory rotation and the Novo Mercado appeared in Brazil's most traditional business-oriented daily newspaper, the Gazeta Mercantil, (circulation of 73,000). He also received favorable coverage in Valor Economico, an independent daily newspaper launched in 2000 by Folha de Sao Paulo and O Globo whose editorials are sometimes critical of US trade policy toward Brazil (circulation 60,000). In all his comments, Mr. Niemeier was very positive about the Novo Mercado and its effect on the Brazilian stock market, and predicted it will continue to attract more investors in the future due to its transparency, regulations, and higher standards. End Comment. 5. This cable was coordinated/cleared with Embassy Brasilia. McMullen |