The new provisions on accounting and financial reporting came into force on 1 January 2013 and replace the former corresponding general provisions, as well as the specific rules of corporation law. The new accounting law is applicable as from the financial year starting at the earliest on 1 January 2015, unless a company voluntarily decides on its earlier application.

1 CONTEXT AND GOALS OF THE REVISION

The former general provisions on commercial accounting were based on a traditional approach aiming at the protection of creditors. The aspect of the protection of minority interests was largely overlooked. The consolidated accounts were not subject to any clear rule.

The new accounting rules, resulting from a tortuous years-long reform process, came into force on 1 January 2013 as the second part of the broader corporation law reform. Their scope is not limited to corporations but applies to all businesses, regardless of their legal form. Nearly all the specific provisions of corporation law have thus been deleted and transferred, in a revised form, to the accounting law.

The new accounting law greatly strengthens minority rights. However, in some instances these give way to other requirements, such as the tax neutrality of the new regime and the limitation of the additional costs for the company.

An important novelty concerns the language and currency of the financial reports: both the accounting and the financial reports can be prepared in a national language or in English, and the most important currency in relation to the activities of the company can be used instead of the national currency. In such case, the corresponding value in the national currency must also be included and the exchange rate used must be mentioned and, if applicable, explained in the notes to the accounts.

In summary, the new accounting law is a compromise that extends and complements several important points of the former general provisions on commercial accounting, without any real revolution. Under the new accounting law for instance, as under the former provisions, the principle of true and fair view, according to which the accounts should provide an accurate presentation of the company in terms of its finances, fortune, and results, does not generally apply. Therefore, as in the past, it is possible to build up hidden reserves in the annual accounts prepared in accordance with the Swiss Code of Obligations, as long as the total net amount resulting from the dissolution of those hidden reserves is stated in the notes to the accounts.

2 DUTY TO KEEP ACCOUNTS AND PRESENT FINANCIAL REPORTS

Henceforth, the requirements in terms of accounting and presentation of the financial reports mainly depend on the economic importance of the business. However, several distinctions are made, depending on the legal form of the business:

  • Sole proprietorships and partnerships, whose annual turnover does not exceed CHF 500,000, as well as some associations and foundations, need only to keep an account of their income, expenses and assets and are not requested to prepare an annual report with annual accounts.
  • Conversely, sole proprietorships and partnerships, whose annual turnover is of at least CHF 500,000, and all legal entities must keep regular accounts and prepare an annual report with annual accounts.
  • Additional requirements apply to large businesses, such as the requirement to prepare a cash flow statement and a management report (see para. 3.2 below).

    Large businesses within the meaning of the new accounting law are those that are required by law to have an ordinary audit. The relevant thresholds for the ordinary audit have been increased as of 1 January 2012 as follows: balance sheet total of CHF 20 million, turnover of CHF 40 million and 250 full-time employees on an annual average (whereby two of these thresholds shall be exceeded in two successive financial years). For associations however, the former thresholds still apply unchanged: balance sheet total of CHF 10 million, turnover of CHF 20 million and 50 full-time employees on an annual average.
  • Other specific provisions apply to public corporations and legal entities that are required to prepare consolidated accounts (see para. 4 and 5 below).

3 MANAGEMENT REPORT

3.1 In General

As in the past, the management report contains the annual accounts (balance sheet, profit and loss account and the notes to the accounts) and the consolidated accounts where applicable. Under the new law, only large businesses are required to prepare a management report.

In comparison with the former law, additional information must now be included in the notes to the accounts such as: (i) details of the principles applied in the annual accounts when these are not specified by law, (ii) the participation rights or options granted under a participation plan, (iii) significant events that occurred after the balance sheet date and (iv) exceptional, non-recurring or prior-period items in the profit and loss account.

In contrast, some information must no longer appear in the notes to the accounts, such as those concerning the implementation of a risk assessment (exception for large businesses, see para. 3.2 below).

Sole proprietorships and partnerships are required to prepare notes to the accounts only if they are required to file financial reports under the provisions for large businesses.

3.2 Specificities applying to large businesses

The notes to the accounts of large businesses should indicate the amount of fees paid to the auditors (distinguishing benefits, revision and other services), as well as information on long-term debt bearing interests.

Large businesses must also establish, as part of their annual report, a statement of cash flows, distinguishing cash movements for operating, investing and financing activities.

Annual reports of large businesses must also include a management report presenting the activities and economic situation of the business, or of its group where applicable, highlighting the aspects that do not appear in the annual accounts. In particular, the management report must provide details of the conduct of a risk assessment, extraordinary events and future prospects of the business.

4 FINANCIAL STATEMENTS IN ACCORDANCE WITH RECOGNIZED FINANCIAL ACCOUNTING STANDARDS

Listed companies are required, in accordance with the directives of the relevant stock exchange, to prepare, additionally to the accounts in accordance with the Swiss Code of Obligations, financial statements prepared in accordance with a recognized financial reporting standard. This requirement also applies to large cooperatives and to foundations that are required by law to have an ordinary audit. This obligation ends if the company prepares consolidated financial statements in accordance with a recognized standard.

Recognized financial reporting standards currently include IFRS, IFRS for SMEs, Swiss GAAP FER, U.S. GAAP and IPSAS. For banks, securities dealers and collective investment schemes, the relevant provisions of the FINMA are equivalent to a recognized financial reporting standard. The choice of the standard is made by the management or administrative body, unless the articles of association, partnership agreement or deed of foundation provide otherwise, or the supreme body specifies the recognized standard.

The application of a recognized financial reporting standard does not waive the obligation to prepare annual accounts in accordance with the Swiss Code of Obligations. As in the past, these are crucial to determine taxation and evaluate certain facts, such as a capital loss or over-indebtedness as per Art. 725 of the Swiss Code of Obligations.

Compliance with the recognized standard is verified by a licensed audit expert within an ordinary audit. Those financial statements, prepared and revised in accordance with a recognized standard, shall be submitted to the governing body during the approval of the annual accounts, but do not require formal approval, as they are not part of the annual report.

5 CONSOLIDATED ACCOUNTS

Any legal entity required to prepare financial reports and controlling one or more businesses required to prepare financial reports shall include in its annual report the annual consolidated accounts of all the businesses it controls. Among other exceptions, the groups which, on a consolidated basis, do not qualify as large businesses may in certain circumstances be released from the obligation to prepare consolidated accounts.

Associations, foundations and cooperatives can under certain conditions delegate the obligation to prepare consolidated accounts to a controlled business.

The consolidated financial statements of listed companies (when required by the stock exchange) and of large cooperatives and foundations that are required by law to have an ordinary audit must be prepared in accordance with a recognized financial reporting standard. In this case the recognized standard determines the scope of consolidation.

6 MINORITY RIGHTS UNDER THE NEW ACCOUNTING LAW

Under the new accounting law, minority rights are strengthened to the extent that some qualified partners or members of an association now have the right to require of their company:

  • the compliance with requirements applicable to large businesses (additional information in the notes to the accounts, cash flow statement, management report), even though the company is in principle released from this obligation when itself or a controlled entity prepares consolidated accounts in accordance with a recognized financial reporting standard;
  • the preparation of financial statements in accordance with a recognized standard, unless consolidated financial statements are already prepared in accordance with such a standard;
  • the preparation of consolidated accounts, although the company is in principle not required to prepare them;
  • the preparation of consolidated accounts in accordance with a recognized financial reporting standard, even if such accounts are in principle not required.

These minority rights can be exercised by any partners, cooperative members or members of the association, who reach a significant participation threshold (depending on the specific context, 10% or 20% of the share capital, 10% of the cooperative members or 20% of the members of the association) or by any partner or member who has a personal liability or obligation to make additional payments.

No statutory deadline is set for the exercise of these rights. The question of whether the exercise of one of these opting- up in terms of accounting also applies the following years is not specified. The practice should solve this issue, and more generally also the question of whether the various practical conditions to the exercise of these rights can be determined in the articles of association.

7 PUBLICATION AND RIGHTS OF CONSULTATION

The new accounting law adopts certain rules in terms of publication and rights of consultation already included in the corporation law and does not introduce a general obligation to publish accounts (or consolidated accounts), nor to make them publicly available.

This obligation applies only to companies with issued bonds or listed equity securities: these must either publish the annual accounts, the consolidated accounts when applicable and the corresponding audit reports, or alternatively submit a copy of these documents to any person requesting them within twelve months of their approval.

Other businesses must, regardless of their size, recognize a right to consult the annual report and the audit reports to any creditor who claims a legitimate interest. The notion of legitimate interest is interpreted strictly to protect trade secrets.

Moreover, other publications required under specific provisions should continue to be taken into account, in particular in cases of transformation or merger under the Merger Act, or in regulated sectors, such as banks, securities dealers, insurances and gaming houses.

8 TRANSITIONAL PROVISIONS

The new accounting law entered into force on 1 January 2013. Its material provisions will only apply as from the financial year starting at the earliest on 1 January 2015. The material provisions relating to consolidated accounts will be applicable from the financial year beginning on or after 1 January 2016. During this transition period, the former repealed law remains in principle applicable from a material perspective, unless a company voluntarily decides on the earlier application of the new rules.

9 PERSPECTIVES

Businesses in general and companies in particular still have time to adapt to the new accounting law, unless a decision is taken to apply the new provisions on an early and voluntary basis. Companies should nevertheless anticipate the upcoming changes by adapting their accounting procedures and financial reporting, as well as the references to the accounting law contained in their articles of association and other internal regulations where applicable. In particular, one should ensure that the specific relaxed rules applicable to SMEs under the new accounting law, such as the waiver of the obligation to prepare a management report and to present information on a risk assessment in the notes to the accounts, can be effectively applied and are not excluded by provisions of the articles of association compliant with the former law which would not have been adapted to the new law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.