The audit body: appointment and duties

The audit body is the organ that checks the company’s accounts as a safeguard for shareholders and creditors. Many entrepreneurs experience it as a cost to avoid, others as an automatic obligation: both readings are inaccurate. Swiss law scales the obligation according to the size of the company and even provides for the possibility of waiving it. Let us look at who must appoint it, in what form, and what duties it performs.

Three regimes: ordinary, limited, opting-out

The Code of Obligations provides for three different situations.

Ordinary audit. It is the most thorough control and is mandatory for companies that exceed certain thresholds or that are of particular significance. In particular for economically significant companies, which in two consecutive financial years exceed two of the following three values: balance sheet total of CHF 20 million, turnover of CHF 40 million and 250 full-time positions on annual average. Listed companies and those required to prepare consolidated accounts are also subject to the ordinary audit.

Limited audit. It is the ordinary regime for SMEs that do not reach the thresholds of the ordinary audit. It is a less extensive control, based mainly on enquiries, analytical procedures and appropriate checks.

Opting-out. Companies with no more than ten full-time positions on annual average may, with the consent of all shareholders (or partners), waive the limited audit entirely. This is the typical situation of micro-enterprises. The waiver must be entered in the commercial register and also applies to subsequent years, as long as the conditions persist.

Who appoints the audit body

The audit body is appointed by the general meeting (for the AG) or by the meeting of partners (for the GmbH). The term of the mandate and the arrangements for re-election follow the law and the articles of association. The appointment — and any opting-out — must be entered in the commercial register: that is where third parties check whether and by whom the company is audited.

The requirements of independence and licensing

Not just anyone can act as auditor. The following are required:

• Licensing by the Federal Audit Oversight Authority (FAOA): audit expert for the ordinary audit, licensed auditor for the limited one.
• Independence from the audited company: the auditor may not take part in the accounting or provide services incompatible with the control, and may not have ties that would compromise their objectivity.

Independence is the heart of the function: a control carried out by someone who has also kept the accounts offers no real assurance.

What the auditor actually does

The duties depend on the regime, but the core is common: verifying that the annual accounts (and, where required, the consolidated accounts) comply with the law and the articles of association and that the proposed appropriation of profit complies.

• In the ordinary audit the auditor also verifies the existence of an internal control system and draws up a detailed report to the board in addition to the summary one to the general meeting.
• In the limited audit the control is less extensive and the report is shorter, but it remains a relevant instrument of assurance.

At the end, the audit body recommends to the general meeting whether or not to approve the accounts, with or without reservations.

The role in a crisis

The auditor has a task that goes beyond the accounts: if it detects manifest over-indebtedness and the board does not act, it must notify the court. It is an important safeguard in difficult moments, adding to the duties of the board of directors regarding loss of capital and liquidity. For this reason the audit body is not just an annual “rubber stamp”, but a piece of the company’s early-warning system.

Opting-out: is it always worthwhile?

Waiving the audit reduces a cost, but it is not without drawbacks. An audit body, even a limited one, gives credibility to the accounts towards banks, investors and counterparties, facilitates extraordinary transactions and transfers of shares, and offers the directors an independent control that is useful also in terms of liability. The choice must be made with an eye to the company’s phase, not just to the bill: many growing companies reintroduce the audit precisely to open up to credit and investors.

How we work at SIH ONE

We help companies correctly frame their audit regime, manage the appointment and registration, set up or review the opting-out and prepare orderly accounts that make the control quick and effective. The audit itself is carried out by licensed and independent auditors, as the law requires.

Do you want to understand which audit regime is right for your company and arrive at the control with the accounts in order? Discover our accounting services and set the right foundations.