What is Statutory audit?
A statutory audit is an independent examination of a company’s financial statements and accounting records, required by law. The purpose of a statutory audit is to ensure that a company’s financial reporting is accurate, compliant with applicable accounting standards, and free from material misstatements. The audit is typically conducted by an external, independent auditor who evaluates whether the company’s financial statements give a true and fair view of its financial position and performance. In Switzerland, statutory audits are mandated for certain companies to enhance transparency, ensure compliance, and protect stakeholders, including shareholders, creditors, and regulators.
Key Features of a Statutory Audit
- Independent Examination: A statutory audit is conducted by an external auditor who is independent of the company being audited. This independence ensures objectivity and impartiality in the audit process, which is critical for the credibility and reliability of the audit findings.
- Compliance with Accounting Standards: The auditor examines the company’s financial statements to ensure they are prepared in accordance with the relevant accounting standards, such as Swiss GAAP (Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), or other applicable frameworks.
- Audit Report: After completing the audit, the auditor provides an audit report that expresses their opinion on the financial statements. The report may contain an unqualified (clean) opinion, a qualified opinion, or an adverse opinion, depending on the auditor’s findings regarding the accuracy and fairness of the financial statements.
- Material Misstatements and Fraud Detection: One of the auditor’s responsibilities is to detect any material misstatements in the financial statements, whether due to error or fraud. While auditors are not required to uncover all instances of fraud, they must exercise professional skepticism and look for signs of fraudulent activity.
- Regulatory Compliance: Statutory audits are conducted in accordance with legal requirements set by regulatory bodies or government agencies. These requirements ensure that companies comply with financial reporting obligations and that stakeholders can rely on the integrity of the financial statements.
Statutory Audit in Switzerland
In Switzerland, statutory audits are required for certain companies as mandated by the Swiss Code of Obligations (CO) and other relevant laws. Swiss law sets specific thresholds for companies that are obligated to undergo a statutory audit, with the aim of ensuring transparency and accountability in business practices.
- Legal Requirements: The Swiss Code of Obligations requires companies that meet specific size criteria (such as total assets, turnover, or number of employees) to undergo a statutory audit. Small and medium-sized companies may be exempt from the requirement if they do not exceed certain thresholds defined by law. For example, companies with fewer than 10 employees and less than CHF 500,000 in total assets may not be subject to a statutory audit.
- Types of Companies Subject to Statutory Audit:
- Public Limited Companies (AG): Public companies listed on the Swiss stock exchange or those with significant shareholder bases are typically required to undergo a statutory audit.
- Large Private Companies: Large private companies that meet certain financial thresholds (e.g., CHF 20 million in total assets or CHF 40 million in revenue) must also undergo a statutory audit.
- Cooperatives and Foundations: Some cooperatives, foundations, and associations that meet size criteria are also required to conduct statutory audits to ensure proper financial oversight.
- Audit Process and Reporting: The auditor evaluates the company’s financial records and internal controls, tests for compliance with tax and legal requirements, and assesses the company’s financial health. Following the audit, the auditor issues an audit report that provides an opinion on the company’s financial statements. In some cases, the report may also include recommendations for improving financial practices or internal controls.
- Audit Committees and Oversight: In larger Swiss companies, an audit committee, typically composed of independent board members, oversees the audit process. The audit committee ensures that the audit is conducted thoroughly, independently, and in accordance with legal and regulatory requirements.
- Importance for Stakeholders: Statutory audits in Switzerland provide critical assurance to investors, creditors, and other stakeholders that the company’s financial statements accurately reflect its financial position. They also ensure that companies adhere to Swiss accounting and regulatory standards, helping to maintain trust in the Swiss financial system.
Statutory audits play an essential role in promoting transparency, accountability, and good corporate governance in Switzerland. For companies subject to audit requirements, undergoing a statutory audit provides an opportunity to enhance the credibility of their financial statements, identify potential risks or weaknesses in financial controls, and demonstrate compliance with legal obligations. By working with qualified and independent auditors, companies can ensure that their financial practices align with Swiss regulations and maintain the confidence of stakeholders.