PROFESSIONALISM AND INTEGRITY

In the previous item we described the strategies we use to consolidate the pillar “Growth with quality”. However, we understand that quality relies on “Professionalism and Integrity”, two values central to protecting the repute and quality of KPMG’s services around the world.

In this topic we explain how this pillar of our strategy is in full harmony with the two themes stated by our stakeholders: conducting business ethically and ensuring the quality and independence of our services.

Strategy Fundamentals at KPMG

The quality and independence that underpin our services primarily derive from a set of quality control, risk management and compliance policies and procedures implemented both nationally and internationally. Risk management is a crucial element that interconnects this set.

A lot of the quality control and risk management processes we use are multifunctional and applicable to our three sectors – Audit, Tax and Advisory. We do clarify that this part of the report focuses on the Audit practice which is highly regulated and whose practices depend on the degree of reliability attributed to our clients’ financial statements.

Risk management

GRI 4.6 | 4.11 | SO2

Through the Risk Management area, we manage factors that could have an impact on our business, our professionals and clients, the capital market and the environment in which we operate. Therefore, this area is essential to KPMG, and is directly related to sustainability.

Alongside the Service Quality Control System, this shapes our policies, people management and development, client acceptance guidelines, engagement monitoring and implementation, in particular anticorruption and antibribery procedures, which underpin all the activities of the entire network of independent firms operating under the brand KPMG in Brazil. SO2

In order to make this management feasible, we run a department consisting of partners, partner-directors, managers and technical staff whose mission is to manage risks, disseminate professional practices and accounting standards, providing technical support and coordinating the implementation of quality programs.

Risk Management Structure at KPMG

Provides technical guidelines and consultations on professional practices and distributes updates for emerging technical guidelines both local and foreign. Coordinates quality review programs.     Area responsible for issues related to management of regulatory risk, testing adherence to KPMG practices and training by means of electronic tools.     KPMG's global online system to verify whether it is possible to undertake the projects, given the requirements of independence and applicable norms. GRI 4.6     Manages a rigorous and systematic policy for accepting and continuance with clients and projects, which includes verifications and consulting public information about the business and administration of potential clients, such as the financial health, the reputation of its management, type of products, technical risk of the Project and issues related to ethics and independence.

Responsible for policies that protect the confidentiality of information in both hard and soft form. As part of the information security policy, all of the computers have software for encrypting data and access protected by passwords. In addition, all professionals have to maintain the confidentiality of client and ex-client information. Knowledge and compliance with this commitment are checked annually by means of a statement via web. Our e-learning about ethics and independence also addresses the matter and notices are routinely issued reinforcing the procedures. In the period embraced by this report there was one proven claim with this nature, which was duly investigated and resolved with the client GRI PR8     Maintain controls and analyses of conformity of our operations and services provided in relation to our policies and the procedures from regulatory bodies, with respect to independence and verification of any conflicts of interest.     Undertake any judicial claims. During the period covered by this report, we were not subject to any sentence resulting from disputes about services rendered.GRI PR4     Assist the Organization with corporate issues, analyzing our commercial relationship with suppliers and clients, and monitoring the standards established for the proposals to provide services.

The support teams for this structure comprise an integrated management, which includes five fundamental groups for quality control and risk management throughout KPMG in Brazil:

I. Independence, integrity, ethics and objectivity

II. People management, including professional training and development

III.Acceptance and continuance of clients and work

IV. Execution of the work

V. Monitoring

See below a number of the most relevant procedures from these groups.

I.Independence, integrity, ethics and objectivity

The procedures and policies that underpin our work in respect of these principles are set out in three documents: Code of Conduct, Global Marketing Risk Management (GMRM), Global Quality and Risk Management Manual (GQ&RM Manual), which are given to our professionals by way of leadership and training on ethics, independence and anticorruption. Our professionals can also see these documents via our intranet.

Code of Conduct

In Brazil, we adopt and disseminate the KPMG Global Code of Conduct, which expresses the commitments to our stakeholders and the conduct to be adopted by our professionals to ensure ethical principles in their relations with KPMG, other professionals, clients and the community.

The Code emphasizes the personal responsibility of each professional to comply with legal and ethical standards which apply to their position, as well as disclosing the resources and channels available to provide assistance on the themes covered.

Although our core values and principles remain unchanged, in 2012 the Code was updated to include changes to laws, regulations and professional ethics codes, making specific commitments to combat bribery and corruption and to act in the public interest. It also takes into account our responsibility in broader issues, such as how we can contribute to development and sustainability.

Code of Conduct - Commitments

Global Marketing Risk Management (GMRM and Global) Quality and Risk Management Manual (GQ&RM Manual)

Transparency is a core principle for maintaining our integrity. We therefore seek to establish an open and honest communication with all our stakeholders, founded on ethics and objectivity. The GMRM and the GQ&RM Manual provide guidelines to ensure that these principles are present in the relationships with KPMG’s stakeholders, aligning our communications and marketing strategies.

These documents present a set of principles and rules which have to be adopted by the KPMG International member firms to ensure global consistency of the brand name, control the risks related to its reputation and manage client expectations with respect to the services provided, with the disclosure of clear and objective information. See below important information about these two documents:

Marketing - all the communication and marketing material prepared by KPMG is revised by qualified professionals accredited in GMRM. In 2012, a team of 21 professionals accredited by KPMG International in the standards ensured no cases of nonconformities or cautions arose related to the organization’s codes or regulations.GRI PR6 PR7

Information on products and services - underpinned by the GQ&RM Manual, our contracts provide full transparency to clients about details of the service, including scope, description of the deliverables, schedule, fees, client responsibility, subcontracting and responsibilities of KPMG. GRI PR3.

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People, Performance and Culture GRI 4.6 - To achieve independence, ethical work and the objectivity of our professionals during the services provided, we have a policy that establishes the norms for relationships with our public, for example, assessing any possible conflict of interests prior to allocating a professional on certain projects.

KPMG in Brazil also monitors compliance of its investment policies, whether of the Organization or its partners, directors and managers, through an automatic integrated tracking system of independence based on the Web. This system contains a list of public stock corporations, their branches and financial institutions and the types of securities they issue. It also includes a list of investments held by KPMG in Brazil and other financial relationships that have to be analyzed prior to KPMG in Brazil accepting a new client. The Independence Department continually updates this list and these relationships.

Prior to acquiring securities, the partners, partners-directors and managers have to use the independence tracking system to determine whether the investment is restricted. They also have to inform all of the movements in individual investments within 14 days after purchasing or selling investments. If a security becomes restricted on a subsequent date, the holders of these amounts will receive automatic notification stating that they have to dispose of the restricted investment.

The documents we mentioned (Code of Conduct, GMRM and GQ&RM Manual) informs the conduct to be adopted at each of the human resource management areas, as an integral part of the process for analyze quality and risk management, attending to the norms enacted by the local laws and also professional requirements in Brazil, requirements of the Federal Accounting Council (CFC), Institute of Independent Auditors in Brazil (IBRACON), the National Monetary Council (CMN), the Securities Commission (CVM), the Secretary for Complementary Social Security and by international bodies, such as Public Company Accounting Oversight Board (PCAOB) and US Security and Exchange Commission (SEC).

Every year, Training in Ethics and Independence is provided, which is mandatory for all partners, partner-directors, managers and other technical professionals that provide services to clients, and also Anticorruption Training, mandatory for all professionals. After concluding this training, the professionals sign a document confirming their understanding and compliance with KPMG policies and their independence in performing the services.

During the period covered by the report, 100% of the required professionals - that had to receive the training - were trained in the Ethics & Independence and Anticorruption policies.

II. People management, training and development

The complex and dynamic nature of our work and the environment in which we operate demands that we continually seek professional excellence. People are our core asset and therefore constitute one of the groups integrating our risk management and quality program. In addition to the specific training stated above, our people management includes actions to attract, retain, train, develop and recognize our professionals, which reflect the way we want to grow and be recognized.

This system is shown, in general terms, in this figure, but is presented in more detail in the next strategic pillar “People”

GRI SO3

-People in mobility or on leave are not included amongst the required professionals
-The apprentices became required in 2011.
-Specifically for E&I training, the non management administrative professionals are not required.
-Professionals admitted by the end of the year may hold corporate trainings in the subsequent year, within the time set for compliance*, and those trainings are regarded as made in the year of admission
-100% of the required professionals performed the E&I and Anticorruption trainings. Specifically for the Anticorruption training, if we consider all KPMG professionals, we average 99% of attendance (100% in partners and partner-directors category and 99% in managers and non-management categories)
* To newly admitted, the deadline for compliance is 30 days for E&I training and 90 days for Anticorruption training.

We work diligently to avoid any conflicts of interest arising. In addition to the tools and systems to improve the independence, integrity and objectivity of the work of our professionals, we have a global, exclusive system, called Sentinel. GRI 4.6

Finally, to offer services with consistency and integrity, we have implemented the rotation of audit partners, in compliance with legislation, which limits the number of years that the leaders can provide this type of service to the same client. This exchange of leaders assists us to develop transition and succession plans, which encourages the continuity of our business.

III. Acceptance and continuance of clients and work

We rely on policies and procedures for assessing risk that support decision making regarding the acceptance of and continuance with clients and projects, such as the tools referred to previously, CEAC and Sentinel. Rigorous compliance is essential for us to provide Professional services with quality and integrity that are necessary for building more ethical and sustainable markets.

- Identification of risks by assessing the company’s background, its administration, businesses and other relevant issues, focused on integrity. - Acceptance or otherwise of a client is determined by a partner who assesses the client, and this has to be approved by the partner responsible for risk management, when necessary. - Assessment of risks and skills of the client’s financial management team, and additional safeguards can be introduced to the services, in order to mitigate any risks identified. - Assessment of other relationships and services provided by KPMG to the potential client that are not related to the Project, to avoid potential conflicts of independence. - Acceptance of the Project is approved by its potential leader, and another senior professional, when necessary. - The continuity of each client and Project is assessed every 12 months, or less – if specific questions of integrity are identified. - The company’s risk factors are revised and possible changes to determine the continuity of the services provided.

IV.Execution of work

The implementation of all stages of our engagements follows methodological guidelines and policies that aim to maintain integrity, compliance with local and international regulations and the incorporation of good global practices.

The professional practice, risk management and quality control are the responsibility of each KPMG professional, who has to adhere to the policies and procedures (including independence policies) and to the extensive range of tools developed to support them in attending these expectations. The policies and procedures we have established for audits include the requirements for accounting, audit, ethics and quality control norms and other relevant laws and regulations.

Audit tools and methodology

We invest significant resources to maintain our standards and tools up to date. Our global audit methodology was developed by the Global Service Centre (GSC) and appears in the KPMG Audit Manual (KAM). It is based on International Standards on Auditing (ISA) and actually goes beyond them, for cases where KPMG understands that this increases the quality of our analyses. The member firms of KPMG International can also include local procedures to comply with professional, legal or regulatory requirements.

Our methodology encourages engagement teams to exercise professional skepticism in all aspects, from the planning to performing the audit. To support them in this process, KAM presents the procedures intended to identify and evaluate the risk of material misstatement and procedures to respond to those assessed risks.

The KAM methodology also includes the implementation of quality control procedures at the engagement level that provides us with a reasonable assurance that our engagements comply with relevant professional, legal, regulatory and KPMG requirements.

The policies and procedures are specific to audit practices and are supplemented by the policies and procedures set out in the Global Quality and Risk Management Manual (GQ&RM) which is applicable to all KPMG International member firms, functions and personnel. The provisions of International Standard of Quality Control I (ISQC-I) are addressed through KAM and through member firms’ implementation of the GQ&RM Manual.

Our audit methodology is supported by eAudIT, an electronic tool from KPMG, which provides the auditors of the member firms worldwide with the methodology, guidelines and knowledge of the sector necessary to undertake efficient and high quality audits.

The work flow for eAudIT provides the teams with immediate access to relevant information at the correct time during the audit, thus increasing efficiency and value for our clients. The main activities included in the eAudIT work flow are:

V. Monitoring

Monitoring procedures complete the groups of our Quality Control and Risk Management System, and include permanent assessments by means of internal and external reviews to check the integrity and independence of our professionals and adherence to our practices, methodologies, training and internal controls.

The verifications, to which we are periodically subject, and for which we have always received adequate classifications, are the following:

Risk Controls Checklist (RCC)

Annual verification performed by KPMG International on the internal controls, procedures, practices and global training.

Quality Review Program

Annual reviewed performed of the Audit, Tax and Advisory work to verify conformity with our standards and norms and with professional standards required.

Peer Review

Local review, required by the Federal Accounting Council, which consists of external verification of our work every four years, performed by our peers, i.e. by another audit company of the same size, and supervised by representatives from Brazilian regulatory bodies.

Review of the Public Company Accounting Oversight Board (PCAOB )

Three-yearly review and anticipated for all companies that provide accounting audit services, to assess compliance with the norms and regulations adopted by the PCAOB, the North American regulatory body.

In the period covered by this report, KPMG in Brazil did not incur any sanctions or fines as a result of these reviews. GRI PR9 GRI PR9

In addition to these reviews, monitoring is performed in relation to compliance with ethical standards and the integrity of our professionals and identification of any deviations in our procedures or professional norms which regulate our services.

Disciplinary Committee

This is responsible for analyzing information and documents that suggest possible violations of the rules and policies related to risk management, ethics and integrity and training by any professional, including partners.

If evidence of a violation is confirmed, it is qualified into one of four categories of seriousness (light, medium, severe or very severe) and results in disciplinary measures that vary from simple notification and additional training, to financial penalties in variable remuneration and even severance.

International confidential hotline

A channel for reporting possible illegal, ethical violations or violations of norms and standards, coordinated by an independent supplier and can be contacted by all our stakeholders, 24 hours a day, seven days a week.

All of the contacts received are registered and a confidential investigation process begins, which is also consistent with the legislation in force and our norms and procedures.

During the period covered by this report, no violations were registered by any of our monitoring tools. GRI SO4