Independent Auditors' Report

 
 
 
Independent auditors’ report
 
 
To
The President and the Board of Directors
Banco Central do Brasil
Brasília - DF
 
 
 
1. We have examined the balance sheet of Banco Central do Brasil as of December 31, 2002 and the related statements of income and changes in shareholders’ equity, for the period from July 1 to December 31, 2002, which are the responsibility of its Management. Our responsibility is to express an opinion on these financial statements. The financial statements of the financial institutions in liquidation, with which Banco Central do Brasil holds credits receivable, in the amount of R$ 27,880,891 thousand, were examined by other independent auditors. A provision for losses in the amount of R$ 8,969,737 thousand was recorded for these credits, on the basis of specific accounting rules adopted by Banco Central do Brasil. These rules require the determination of the net assets of these institutions available to the Bank as being the total assets reduced by the preferred liabilities, obtained from those financial statements. Our opinion on the sufficiency of the provision for losses on credits with the institutions in liquidation is based on the opinions of those auditors on the financial statements used as a basis for their calculation (Note 7).
 
2. With the exception of that reported in paragraphs 3 and 4, our examination was conducted in accordance with auditing standards generally applied in Brazil and included: (a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal controls of the Bank; (b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by the management of Banco Central do Brasil, as well as the presentation of the financial statements taken as a whole.
 
3. As reported in Note 13, Banco Central do Brasil now evaluates legal contingencies for purposes of recording a provision for losses, based on the expectation of occurring. This evaluation process determines that a provision should only be recorded for those actions with an unfavorable decision based on merit, transited in rem judicatam, and those with court order debts payable issued. Consequently, a provision of R$ 572,423 thousand has been recognized. The evaluation process should be extended to actions pending judgment, but at the balance sheet closing date, this evaluation had not been concluded. Therefore, it was not practicable to extend our audit procedures to conclude as to their effects on the financial statements.
 
4. As reported in Note 9d, Banco Central do Brasil has recorded balances receivable and payable, arising from the settlement of accounts to be made between the Bank, its employees, the National Institute of Social Security - INSS and the Internal Revenue Service - SRF, for a net amount receivable of R$ 344,332 thousand, in accordance with Law 9650. This Law, with the changes introduced by Provisional Measure 45, of June 25, 2002, determined, among other provisions, the method for calculating of the aforementioned settlement of accounts. However, this Provisional Measure was rejected by the National Congress on November 12, 2002, resulting in its effects suspended. Although the calculation of adjustments had been concluded during the period of the aforementioned Provisional Measure, was valid, the Project for Legislative Decree was in process in the National Congress, which has the competence authority to change the previously established situation. Therefore, only after the publication of the decree, will it be possible to proceed with the effective settlement of accounts.
 
5. As stated in Note 17, Banco Central do Brasil is responsible for paying the retirement pensions to its employees, who have retired since 1991 land do not participate in the CENTRUS pension plan. This obligation, justified by the legislation that establishes the “Sole Legal System” - RJU, is settled on a monthly basis, from the budgetary appropriation provided in the Administrative Budget. Banco Central do Brasil did not record this obligation as a liability, based on their understanding of the rules contained in Supplementary Law 101/2000, which provides that this actuarial obligation should be evaluated within the context of the social security situation for the federal public servants as a whole.
 
6. The financial statements for the semester ended December 31, 2002 were prepared in accordance with the accounting practices described in Note 3, which do not differ significantly from the accounting practices adopted in Brazil. During 2002, with the approval of the National Monetary Council, and in order to approximated to best international practices, Banco Central do Brasil implemented certain changes in these accounting practices, mainly in relation to: (i) Allocation of all expenses related to the obligations from covering actuarial reserves with CENTRUS - Note 8; and (ii) Identification and segregation of the portfolio of securities held to maturity, with consequent adaptation of its criteria of valuation to corrected cost - Note 6.
 
7. In our opinion, based on our examinations and on the opinion of other independent auditors, as stated in paragraph 1, and except for the adjustments which might result from the matters discussed in paragraphs 3, 4 and 5, the above-mentioned financial statements present fairly, in all material respects, the financial position of Banco Central do Brasil as of December 31, 2002, and the results of its operations for the period from July 1 to December 31, 2002, in accordance with the accounting practices adopted in Brazil, complemented by the specific rules applicable to Banco Central do Brasil, described in Note 3.
 
8. The financial statements for the semester ended December 31, 2001, presented for comparison purposes, were examined by us, and we issued an opinion with shared responsibility with the independent auditors for the matter discussed in paragraph 1, and with a qualification with respect to the matter discussed in paragraph 5.
 
 
February 10, 2003
 
 
KPMG Auditores Independentes
CRC SP014428/O-6-F-DF
 
Ricardo Anhesini Souza
Accountant CRC SP152233/O-S-DF