The new regulations on accounting and financial reporting impose some notable  changes for the vast majority of Swiss enterprises, irrespective of corporate form  but linked to their size and commercial relevance. Additionally, the new law more  precisely defines assets and liabilities, requires a minimum structure of the balance  sheet, the profit and loss statement as well as the notes and expressly sets forth  some key valuation principles. Furthermore, it introduces a most welcome modernised  approach as to the language and currency of financial reporting.

Duty to Keep Accounts and Prepare  Financial Reports

Under the newly imposed legal framework the duty to keep accounts and prepare financial reports is no longer linked  to the corporate form of the enterprise  but to its size and commercial relevance.  Accordingly, corresponding to size and  commercial relevance, different levels of  accounting and reporting requirements  have to be met. 

Micro-Sized Enterprises

The new regulations ease the requirements 

for so-called micro-sized enterprises, i.e.  sole proprietorships and partnerships with  less than CHF 500’000 sales revenue  in the last financial year, associations and  foundations not required to be registered  with the commercial register and foundations not required to appoint an auditor.  These micro-sized enterprises must only  keep accounts on receipts and disbursements and provide a simple overview on  their financial position. 

Small and Medium-Sized Enterprises  (SME) 

Enterprises of a certain size and commercial relevance, i.e. sole proprietorships  and partnerships that have achieved  sales revenue of at least CHF 500’000 in  the preceding financial year as well as  all legal entities, have to keep accounts  and prepare their financial reports in  accordance with the new law. As under  the previous regime, such SMEs are  obliged to prepare an annual report consisting of the annual, statutory financial  statements, comprising of the balance  sheet, the profit and loss statement and the notes. However, under the new  regulations, such enterprises are no  longer obliged to prepare a directors’  report (Jahresbericht).

Larger Enterprises The new set of regulations defines «larger  enterprises» as enterprises required  by law to conduct an ordinary audit. In a  nutshell, the requirement of an ordinary  audit applies to (i) publicly traded companies, i.e. companies listed on a stock exchange or having issued bonds, (ii) entities  which exceed two of the following thresh-  olds in two consecutive financial years  (a) total assets of CHF 20 million, (b) sales  revenue of CHF 40 million or (c) 250 fulltime equivalents on annual average, and  (iii) entities which are required to prepare consolidated accounts. 

Moreover, such larger enterprises are  required to prepare a cash flow statement,  to provide additional and more detailed  information in the notes and to draw up a  management report (Lagebericht). 

Accounting Standards

As under the pre-existing law, the purpose of the new accounting and reporting  provisions is to provide a picture of the  commercial situation of the enterprise,  which may be reliably assessed. This  means that the new provisions remain on  the pre-existing standard which represents the Swiss interpretation of the inter-  national accepted principles of «true  and fair view» and «fair representation». 

In addition to preparing the statutory  accounts, listed companies (if a stock exchange so requires), cooperatives with  a minimum of 2’000 members and foundations required to conduct an ordinary  audit are obliged to prepare their financial  statements in accordance with a recognised financial reporting standard. 

Furthermore, among others, shareholders who represent at least 20% of the  share capital may also request financial  statements to be prepared in accordance  with a recognised standard. IFRS, IFRS  for SME, Swiss GAAP FER, US GAAP and  IPSAS qualify as such recognised financial reporting standards.

Notable Changes

Balance Sheet Eligibility

The new law defines an «asset» as an  item which may be disposed of due  to past events, from which a future economic benefit in the form of a cash  inflow is probable and the value of which  may reliably be estimated. Thus, an  item meeting these requirements must  be shown on the balance sheet as an  asset and, by implication, items which do  not meet these requirements may not  be recognised. Complementarily, liabilities must be entered on the balance  sheet if they have been caused by past  events, a cash outflow is probable and  their value may be reliably estimated.

Minimum Structure

The revised legal framework provides  for a minimum structure of the balance  sheet with assets and liabilities being  prescribed in a statutory sequence. Under  this structure, assets are divided into  current and non-current assets while liabilities are split up into short-term and  long-term liabilities, with a statutory distinction between each of these two  categories readily available. In addition,  shareholders’ equity is required to be  shown and structured as required for the  legal form of the enterprise concerned.  Finally, the new law includes guidelines  for the profit and loss statement and  adds various additional requirements  to the notes’ minimal content.

Evaluation of Assets

As some of the most notable consequences of the newly inserted definitions,  current assets with a stock exchange  price or another quoted market price in  an active market have to be recognised  together with cash and cash equivalents.  Start-up, capital increase and similar  (re-)organisational costs may no longer be  capitalised. Furthermore, and contrary  to the traditional regime which allowed for  treasury shares to be treated as assets  booked against a reserve position on the  liability side, treasury shares now have  to be deducted from shareholders’ equity.  The same rule applies for losses carried  forward. Moreover, receivables from and  payables to direct or indirect shareholders and related parties as well as receivables from and payables to members of  governing bodies of the entity concerned  are expressly required to be disclosed  separately on the balance sheet or in the  notes.

Consolidated Accounts

Under the new rules, the duty to prepare  consolidated accounts generally hinges  on the fact that one entity controls another  entity either (i) by holding the majority of  voting securities, (ii) by having the right to  appoint and remove the top executive body  or (iii) by otherwise exercising a controlling corporate influence. By introducing  such a control principle, Swiss lawmakers  have moved away from «actual common  management» as a determining factor of  a duty to draw up consolidated accounts.  A controlling entity, when assessed  together with all controlled entities concerned, may be exempt from the duty to  prepare consolidated accounts if it falls  below certain statutory thresholds.

Language and Currency

As a welcome novelty introduced by the  new regulations, financial reports may  now be presented in one of the official  Swiss languages or in English and not only in Swiss francs as the national  currency, but also in the currency relevant  to the enterprise’s business activities.  However, if Swiss francs are not used as  the functional reporting currency, all  amounts must additionally be shown in  Swiss francs with the exchange rate  applied published in the notes.

Some Guidance on Implementation

With the transitional period coming to a  close, enterprises, if they have not already  done so on a voluntary basis, will need to  apply the newly implemented framework  for the first time for the business year beginning on or after January 1, 2015, with  the provisions on consolidated financial  statements being applicable in the following business year. When implementing  the revised provisions, comparative figures of the preceding year may, due to  an obvious lack of consistency and as an  express exception to the principal of continuity, be omitted. However, in the second  year after implementation, such comparative figures are required. 

The transition from the existing accounting and financial reporting framework  to the new law requires some foresight  and a close coordination with the stakeholders involved. Particularly, any minority shareholders who may request financial statements prepared in accordance  with a recognised standard, any accounting services provider and the statutory  (external) auditors should be closely involved in the transition process. Finally,  practical implications, such as changes to  relevant accounting and general enterprise software, accounting manuals and  related internal directives and records  management processes, should be addressed in time.