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 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/BSC, IIP/T/ES FOR GCHRISTISON 
STATE PASS TO USTR FOR MSULLIVAN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR FEARS 
USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO 
USDOC ALSO PASS PTO/OLIA 
TREASURY FOR OASIA, DAS LEE AND JHOEK 
DOL FOR ILAB MMITTELHAUSER 
 
E.O. 12958:  N/A 
TAGS: EFIN EINV KPAO ECON BR
SUBJECT:  VISIT TO SAO PAULO OF PUBLIC COMPANY ACCOUNTING OVERSIGHT 
BOARD (PCAOB) MEMBER CHARLES D. NIEMEIER 
 
 
¶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