Overview of Accounting and Auditing in Switzerland
Switzerland is one of the most attractive places worldwide for doing business owing to its lowest tax burdens both for individuals and legal entities across the globe, continually taking one of the top spots in numerous country ranking indexes. A large number of global corporations are managing their international investments by having their head offices in Switzerland. More and more corporate groups have established manufacturing, sales companies and special purpose entities in the Swiss Confederation.
Financial reporting has become a challenge in today's time due to the increasing complexity of transactions and ways of doing business. This challenge is further increased by significant changes to financial reporting standards in various jurisdictions. At the same time, more companies are seeking improvement in their processes to achieve more timely and accurate financial reporting.
Enterslice’s Accounting Advisory team is perfectly structured to provide our clients with tailor-made solutions. We combine in-depth accounting knowledge and practical experience to help them meet their industry-specific accounting challenges and get their financial reporting right. Our Financial Services Accounting Advisory professionals work together with experts from our global, multidisciplinary network.
The Accounting Framework of Switzerland
The accounting framework of Switzerland is discussed below -
- Accounting regulations in Switzerland are enumerated in the Swiss Code of Obligations (the CO, also referred to as Swiss GAAP). The main objective of these accounting regulations is to ensure the presentation of the financial statements by the entities in a way that facilitates the third parties to make a reliable judgement about their economic position.
- Financial statements governed by the CO and those produced as per a recognised standard (such as IFRS or CAS) have different objectives: financial reporting governed by the CO is oriented primarily towards the protection of creditors and forms the basis for taxation and, where applicable, dividend payments.
- Unlike IFRS and CAS, financial statements prepared as per the CO are primarily driven by the principle of prudence and can't be described as true and fair, although assets in subsequent valuations can be valued at their market price if an observable market exists.
- Furthermore, overstatements of liabilities and understatements of assets are permitted but are usually limited to the boundaries permitted by tax legislation.
- Specific CO requirements differ depending upon the size of the company, such as reduced reporting and disclosure requirements for smaller companies, as well as certain exemptions for larger companies that are included in the consolidated financial statements of a group.
- The financial statements prepared by larger companies according to the CO consist of five elements, profit and loss account, cash flow statement, balance sheet, management report and notes.
- However, management reports the cash flow statement and certain other additional information in the notes to the accounts aren’t needed if the undertaking itself, or a legal entity controlling the undertaking, has prepared the consolidated accounts according to a recognised financial reporting standard (for example, IFRS as adopted by IASB).
- There are certain regulatory standards for companies with a listing on SIX (the Swiss stock exchange) available depending on the circumstances of the company.
- Companies can make a choice between internationally recognised financial reporting standards (IFRS or US-GAAP) and the Swiss Reporting Standards (Swiss GAAP FER).
- Along with this, there are specific admission standards for investment and real estate companies and for collective investment schemes. Swiss GAAP FER is a short but comprehensive accounting standard framework which is suitable both for medium-sized and large companies, including listed entities.
- Accounting in Switzerland is conducted in Swiss francs (CHF) or in any other currency needed for business operations. If there is the usage of any foreign currency, the values of the same must also be reflected in Swiss francs.
- The foreign exchange rates which are used are the ones published by the Swiss Federal Tax Administrator and should be disclosed in the notes.
- Swiss accounting has to be conducted in English or one of the official Swiss languages. It may be conductedelectronically, inwriting or in a comparable manner.
Accounting Requirements in Switzerland
The accounting requirements in Switzerland are elaborated herein under
- Company Obligations
The Board of Directors (BOD) of a Swiss company must prepare an annual report for each financial year within 6 months of the end of the relevant FY.Every company must keep digital, physical records of all its business transactions for a time span of 10 years.
- Annual Reports
The annual report contains the financial statements in the form of the profit and loss account, balance sheet, the corresponding notes, and a management report of a Swiss company. The annual report is inclusive of the turnover for the preceding FY and must follow Swiss accounting principles. The annual report, along with the corporate tax return, should be filed with the relevant cantonal tax authority by 30th November of the calendar year (at the latest) after the end of the FY.
- Publishing Results
The publication requirements in Switzerland are very limited. Only individuals and consolidated financial statements of listed companies should be published.
Swiss Holding Company: Consolidating Financial Statements
Every Swiss holding company should establish consolidated accounts
Consolidation refers to the aggregation of the annual reports from various companies which make up the group for obtaining a single annual report reflecting the situation of the group.
According to Swiss accounting law, 2 or more companies form a group upon meeting the following conditions.
- If 50% of the company is held by the Group, the holding company of the Group, or another company within the Group.
- If they have similar objectives and purposes.
Small groups would be exempted from consolidating their accounts and are so defined upon meeting 2 of the 3 following criteria:
- A total balance sheet of < CHF10 million,
- of employees < 200
- A turnover < CHF20 million.
The company should also conform to the conditions detailed below:
- The company shouldn't have shares quoted on the stock market.
- No shareholder having more than 10% of the capital has demanded consolidation.
Auditing Requirements in Switzerland
The size of the Swiss company and its economic importance ascertain the type of audit which must be undertaken by the company. Under some conditions, smaller companies are not audited.
There are two main forms of statutory audit in Switzerland, the ordinary audit and the limited statutory examination. Other forms of audit may be required to be carried out in specific scenarios, for example, when there is a reduction in the share capital upon the decision of the stock corporation.
The CO provides for the circumstances for performing an ordinary audit or limited statutory examination. Changing to a more detailed audit (often known as 'opting-up') is possible, for example, from a limited statutory examination to an ordinary audit. In some cases, it is possible to request an exemption from a limited statutory examination ('optingout’)upon meeting certain conditions.
Switzerland currently does not intend to adopt the EU audit reform or change the existing legal requirements regardingauditor independence and mandatory audit firm rotation. However, Swiss parent companies may be affected through EU-domiciled subsidiaries that may meet the definition of a public interest entity and therefore required to assess the implications for their business.
The different types of audits are further elaborated below –
- An ordinary audit is a form of audit which allows the auditors to state with reasonable assurance regarding the annual report being free from material misstatements and the financial statements and the internal control system being tested. The auditor will provide a recommendation about the acceptance; of the report by the shareholders. Their opinion is stated in a final audit report, which is signed by the auditor in charge.
- The ordinary audit is based on the Swiss Auditing Standards. Along with this, the auditor gives to the Chairman of the Executive Board or responsible management body a comprehensive report with conclusions on the financial reporting, the internal system of controls and also the conduct and the results of the audit.
- An ordinary audit may also be included as a requirement in the company's articles of incorporation or may be decided at a shareholder's meeting. Ordinary audits of public companies must be conducted by licensed audit firms and supervised by the Federal Audit Oversight Authority (FAOA). For other companies, the auditors must be licensed Swiss-certified public accountants according to the audit supervision law (FAOA).
- This is required if, for 2 consecutive fiscal years, 2 of the threshold values detailed below are exceeded.
- The balance sheet of CHF 20 million or more,
- Turnover of CHF 40 million or more,
- 250 or more full-time employees.
- A company must also conductan ordinary audit; if it is obligated for such consolidation or if a group of shareholders holding a minimum of 10% of the company's shares have requested the performance of such an audit.An ordinary audit might be specified in the company's articles of incorporation or voted on at a general meeting.
- A limited statutory examination provides less audit assurance and has a similarity with the International Standard on Review Engagements 2400. The extent of the auditor's testing is comparatively less than for an ordinary audit. Auditors aren’t needed to provide a recommendation regarding the acceptance of financial statements by the shareholders.
- Auditors must only state the detection of any circumstances leading them to conclude the financial statements, as well as the proposed appropriation of available earnings not being in compliance with Swiss Law and the company’s articles of incorporation.
- Limited statutory examinations are less time-consuming and also less expensive than ordinary audits. The limited statutory examinations are based on the Swiss Limited Statutory Examination Standards.
- Companies not exceeding the criteria of size for an ordinary audit must carry out a limited statutory examination. However, it is possible to get an exemption from a limited statutory examination if there are less than ten full-time employees in the company and if approval is obtained from every shareholder.
If the no. of full-time employees in the comany is < 10 and all of the shareholders unanimously consent, it isn't necessary to carry out an audit (opting out).
Services Provided by Enterslice
Our team of experienced CA, CFO and advisors can provide the following services to our clients.
- Bookkeeping Services
Every company in Switzerland isrequired to prepare and maintain proper records of accounts so as to comply with the applicable regulations. The financial statements are vital for the purpose of accounting and business references
Our booking services can benefit our clients in the following ways:
- A better understanding of the business performances.
- Provides clear financial foresight and a better understanding of the company’s overall financial condition.
- Enables the tracking of expenses made by the company
- Crucial in making discoveries of the possible financial mismanagement made in the company
Our team will assist the client’s company in establishing their books of accounts along with the accounting ledgers required by their business on a cloud-based platform and make a smooth transition from paper and old computerised accounting systems to cloud-based accounting platforms for better access.
- Preparation of Annual Financial statements for the company
The annual reports must be submitted by every company in Switzerland as per the prescribed timeline. Our team work towards the preparation of the annual financial statements for their company meticulously to ensure that they file the annual statements in due time
- Consolidation of Accounts
Our team prepares tailor-made regulatory-compliant solutions for our client’s company while consolidating the accounts for their company. To know more about the process, connect with the accounting experts at Enterslice.
- Accounting and Regulatory Advice
We provide an optimum approach along with the right tools and expertise for facing significant accounting changes and identifying the crucial links between the Accounting standards and regulatory changing with the aim of gaining synergies instead of facing unexpected consequences. We offer our clients the best practices for benchmarking with their peers.
- Pre and Post Deal Reporting of Market Transactions
There are various financial reporting and accounting considerations which can impact the entrepreneur’ needs like transaction structuring post-deal integration of the acquired business, valuations, and transaction-related accounting issues and requirements. Our team can help clients in developing appropriate finance accounting and tax structures along with advice on post-deal integration.
- GAAP Conversion Services
We offer support at the time of a conversion project with regard to various account standards like the GAAP IFRS or CO as the conversion projects can impact the company as a whole. Our professionals can help the client during every stage of the conversion process by delivering tailor-made solutions for assured success.
- Business Improvement Reporting and ESG
If the entrepreneur is trying to comply with the reporting requirements, consider the key considerations of the market intending for the improvement of the business performance. Our team can help them in aligning them with the important aspects for the success of their business.