The US Public Company Accounting Oversight
Board (PCAOB) identified significant deficiencies in two of the
three audits it reviewed at Ernst & Young Auditores
Independentes S/S Brazil (E&Y Brazil) in late 2006.

The PCAOB inspection team said it appeared
E&Y Brazil did not obtain sufficient competent evidential
matter to support its opinion on the issuer’s financial

The specific deficiencies were:

– A failure to perform sufficient procedures
to test contracts purchased to hedge an operating expense and
certain cash flows; and.

– A failure to perform sufficient procedures
to evaluate the issuer’s accounting for cross-currency and interest
rate swap agreements on debt issuances.

In a letter responding to the PCAOB report,
E&Y Brazil said it agreed to perform additional procedures and
improve aspects of its audit documentation in response to one of
the matters identified by the PCAOB inspections.

“We note, however, that the other matter
described in the report was observed during an internal inspection
that was performed just prior to the PCAOB’s inspection and the
additional procedures and audit documentation were completed in
response to the internal inspection,” E&Y Brazil wrote.

In neither instance did the PCAOB findings
change E&Y’s original audit conclusions or affect the audit
opinion on the financial statements.

The E&Y Brazil review formed part of the
PCAOB’s regular oversight process. It is not unusual for the
regulator to identify audit deficiencies.