Explanatory Note on the Accounting Statements

 
Independent auditors’ report
 
The President and Directors of the
Banco Central do Brasil
Brasília - DF
 
 
1. We have examined the balance sheet of Banco Central do Brasil as of June 30, 2001 and the related statements of operations and changes in net equity, for the six-month period from January 1 to June 30, 2001, which are the responsibility of management. Our responsibility is to express an opinion on these financial statements.
 
2. Except for the matters described in the following paragraph, our examination was conducted in accordance with auditing standards generally accepted 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 accounting 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 bank’s management, as well as the presentation of the financial statements taken as a whole.
 
3. As mentioned in Note 7, the Banco Central do Brasil holds credits receivable from financial institutions in liquidation, in the amount of R$ 27,224,404 thousand. A provision for losses in the amount of R$ 7,993,395 thousand was constituted for these credits, on the basis of specific accounting rules applicable to the 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 creditors, based on their financial statements. Other independent auditors are examining the June 30, 2001 financial statements of these institutions, however, as of the date of this report their examinations had not yet been concluded. Therefore, we are not able, to conclude on the adequacy of such provision.
 
4. As mentioned in Note 25-e, the Banco Central do Brasil is responsible for the payment of pensions to former employees, who do not participate in the CENTRUS pension plan, being those who retired since 1991. Based on the "Sole Legal System" legislation that governs the pensions of these former employees the monthly payments are recorded as an expense on the cash basis, and the resources are provided from the budget appropriation foreseen in the Administrative Budget. The Banco Central do Brasil did not record any actuarial liability related to this obligation in accordance with the regulations contained in the Complementary Law 101/2000, which defines that this obligation should be subject to a global evaluation in the context of the pension for Brazilian federal public employees as a whole.
 
5. As mentioned in Note 3, the financial statements were prepared in accordance with specific accounting practices applicable to the Banco Central do Brasil, based on pertinent legislation, particularly Law 4595, Decree Law 2376 and Complementary Law 101/2000, which constitute an accounting basis different from the accounting practices derived from the Brazilian Corporation Law. Furthermore, the specific legislation defines the accrual basis as a basic concept for the preparation of its financial statements and the recording of its operations. However, an interpretation of the Budgetary Law modifies this concept in relation to certain expenses derived from the Administrative Budget, which is subordinated to the Budgetary Law, particularly related to: (i) the treatment of expenses in relation to liabilities, incurred but not settled as deferred expenses; and (ii) the recording of a provision against contingent liabilities only on the issuance of a court ordered debt instruments and not on the basis of an evaluation of the probability of loss.
 
6. In our opinion, except for the effects of the matters described in paragraphs 3 and 4, the aforementioned financial statements present fairly, in all material respects, the financial position of the Banco Central do Brasil, as of June 30, 2001, and the results of its operations for the six-month period from January 1 to June 30, 2001, in conformity with accounting practices applicable to the Banco Central do Brasil, described in Note 3.
 
 
August 10, 2001
 
 
 
 
KPMG Auditores Independentes
CRC 2SP014428/O-6
 
 
Ricardo Anhesini Souza
Accountant CRC 152.233/O-S-DF