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06 March 2006
Under Swiss law, every corporation is required to appoint an auditor to audit its annual financial statement. The Swiss Code of Obligations provides the qualifications with which auditors must comply in order to be eligible.
Pursuant to Article 727a of the Code of Obligations, auditors must be qualified to fulfil their duties with the company. A special professional qualification must be met if the corporation has outstanding bond issues or shares listed on the stock exchange, or exceeds certain financial bench marks. A Federal Council ordinance defines the standards through which an auditor meets the special professional qualification (eg, the auditor must be a certified public accountant). Furthermore, auditors must be independent of the board of directors and of any shareholder who has a majority vote. In particular, auditors shall not be employees of the corporation to be audited and or perform work for it that is incompatible with the auditing mandate. They must also be independent of companies belonging to the same group of companies if a shareholder or obligee so requests (Article 727c of the Code of Obligations).
Independence is lacking not only if there is actual prejudice, but also if the outward relationship between the auditor and the audited corporation appears to suggest dependence. According to case law, a close family relationship between a board member and the auditor or an economic integration (eg, the auditor audits a company with which it shares the same management or administration) is incompatible with the required independence. In addition, an auditor would not be independent if it was to audit a corporation for which the auditor also does the accounting.
On October 12 2004 the Supreme Court ruled on whether an auditor which had been elected by the general meeting of shareholders of a company fulfilled the statutory requirements of independence and special qualification.(1) The plaintiff, a minority shareholder holding approximately 47% of the capital stock, argued that the appointment of the auditor, a commercial company, had infringed Articles 727b and 727c of the Code of Obligations. In particular, the plaintiff claimed that those managing the audit for the elected auditor had no knowledge about machine tool manufacture and lacked international experience. However, the Supreme Court held that the two persons in charge of the audit became certified public accountants in 1992 and 1994, and therefore fulfilled the requirement of special qualification pursuant to Article 727b. The Supreme Court explained that a qualification that is specific to the audited corporation, and which exceeds the professional qualification pursuant to Article 727b and the ordinance of the Federal Council, does not exist.
The plaintiff also argued that the elected auditor was not independent of the audited corporation because, allegedly, more than 10% of the auditor's fees had been received from the audited corporation in the past. The 10% rule is provided by the Independence Guidelines of the Swiss Institute of Certified Accountants and Tax Consultants, a private professional association in Switzerland. The Supreme Court rejected the plaintiff's argument and held that the guidelines of a professional association are to be consulted to circumscribe the requirement of independence, but not to any legal effect. According to the Supreme Court, it must be established in each individual case whether the fees that accrue from one audit mandate compromise the auditor's independence.
At the end of 2005 Parliament approved amendments to both the Code of Obligations, concerning the audit requirement applicable to all legal forms, and presented a new Federal Law on Audit Supervision. The new laws are subject to a referendum, but it is expected that they will enter into force on January 1 2007. According to the new laws, the auditor carrying out a full scope audit must not do anything that would cast doubt of any kind over its actual or apparent independence. In addition, the new and more detailed independence rules will contain an explicit list of circumstances which prohibit audit firms and auditors from auditing particular clients.
For further information on this topic please contact Markus Dörig or Philipp Schaller at Badertscher Dörig Poledna by telephone (+41 44 266 20 66) or by fax (+41 1 266 20 70) or by email (firstname.lastname@example.org or email@example.com).
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