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10 March 2008
On January 1 2008 the revised auditing legislation entered into force. It comprises changes to the Code of Obligations and the entry into force of the new Audit Supervision Act. The amendments establish uniform requirements for all legal entities and provide for an overall auditing law which no longer differentiates between the legal form of entities, but rather focuses on the economic importance of the company by establishing the principle of 'same business, same risks, same rules'.
The main innovation is in the implementation of two categories of audit: the regular audit and the limited audit. The regular audit encompasses a more comprehensive examination than the limited audit and also includes an audit of the internal control system (ICS) of the company. Moreover, there are differences regarding the qualifications that the auditor performing either the limited or the regular audit is required to possess.
Pursuant to Article 727 of the code, companies are subject to a regular audit if they qualify as a publicly held company or as an economically important company, or are obliged to prepare consolidated financial statements.
'Publicly held companies' are defined as companies:
On the other hand, a company is considered economically important if it exceeds at least two of the following figures in two consecutive financial years:
Additionally, a regular audit must also be carried out, regardless of the size of the company, if:
The new audit law extends the scope of the regular audit by requesting that the auditor also verify the existence and set-up of an ICS. The scope of the ICS will depend on the particular company, its field of business and its risk profile.
Pursuant to Article 728b of the code, a regular audit includes two audit reports: one to the attention of the board of directors and one to the general meeting of shareholders. The report directed to the board of directors provides a comprehensive view and contains the auditor's comments on the accounting rules, the ICS and the execution and the results of the audit. The second report is an executive summary for the general meeting of shareholders containing only the results of the audit.
The regular audit for listed companies must be carried out by auditing enterprises subject to public supervision; the regular audit for companies that are considered as economically significant can be carried out by a licensed expert auditor.
The limited audit is less extensive than the regular audit and grants a relief to companies which are economically less significant. Pursuant to Article 727a of the code, a company must have its annual financial statements audited if it does not meet the requirements for a regular audit. The limited audit is therefore applicable to small, medium-sized and micro enterprises. Unlike the regular audit, the limited audit can be carried out by an licensed auditor, which is required to have fewer qualifications than an expert auditor or an auditing enterprise.
Furthermore, with the consent of all of the shareholders, the limited audit can be eased or even waived if the company has fewer than 10 full-time employees on annual average. It is, however, expected that many of these companies will still carry out a limited audit in order not to lose, or to obtain, third-party financing. Moreover, a company that is subject to a limited audit may also choose to conduct a regular audit.
The main difference between the regular and the limited audit is that the limited audit is not concerned with the ICS. This audit is limited to the examination of facts that confirm whether the annual financial statement and the proposal concerning the use of the balance-sheet profit comply with the law and the articles of incorporation. The auditors prepare a special report not for the board of directors, but only for the general meeting of shareholders. In a limited audit, the new audit law also waives the obligation of the auditors to be present at the general meeting of shareholders.
The new audit law is largely set out within the law on corporations but is incorporated by reference into the laws on all other legal entities. However, certain provisions do not apply to all legal entities, which can be found under the provisions for the specific entity, (eg, limited liability companies, cooperatives, associations and foundations). For example, a partner in a limited liability company who is obliged to make supplementary contributions may request a regular audit (Article 818 of the code).
For further information on this topic please contact Markus Dörig or Philipp Schaller at Badertscher Dörig Poledna by telephone (+41 1 266 20 66) or by fax (+41 1 266 20 70) or by email (email@example.com or firstname.lastname@example.org). The Badertscher Dörig Poledna website can be accessed at www.bdp.ch.
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