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The New Law on Accounting and Financial ReportingStructured Presentation and Explanation of the Main Changes

2 The New Law on Accounting and Financial Reporting | Audit

Content

Preface 3

1. Introduction 4

2. Accounting and financial reporting 52.1. The duty to keep accounts and prepare financial reports 52.2. Requirements regarding accounting and financial reporting 6

3. Recognition of assets and liabilities and structure of the financial statements 83.1. Minimum structure of the balance sheet: Assets 83.2. Minimum structure of the balance sheet: Liabilities and shareholders equity 93.3. Minimum structure of the income statement 103.4. Minimum information of the notes 12

4. Valuation 154.1. Principle of individual valuation 164.2. Assets with a quoted market price or another observable market price 164.3. Hidden reserves 17

5. Financial statements prepared in accordance with a recognized accounting standard 18

6. Annual Report 206.1. Components of the annual report 206.2. Reporting requirements for larger entities 216.3. Cash flow statement 216.4. Management report 21

7. Consolidated financial statements 227.1. Duty to prepare consolidated financial statements scope of consolidation 227.2. Exemption from the duty to prepare consolidated financial statements 237.3. Reporting requirements for consolidated financial statements 24

8. Transitional provisions 25

Appendix 26

1st editionJuly 2013

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Preface

On 23 December 2011 the Swiss Parliament enacted the new accounting law, which became effective on 1 January 2013. The new law no longer differentiates between the legal form of companies but uses their economic significance as a determinant.

Companies still have some time to implement the new legislation. It will be applicable to financial statements as of and for the financial year 2015, and 2016 for consolidated accounts, respectively. Entities also have the possibility of early adoption should they wish to.

This KPMG publication aims to support companies in their implementation of the new legislation. It explains the most important changes and, using a side-by-side comparison, presents the differences between new requirements and current stipulations that are still applicable. This document thus provides an overview of the changes to come.

Zurich, July 2013

KPMG AG

Franois Rouiller Reto Zemp Partner, Audit Zurich Partner, Audit Zurich

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1. IntroductionOn 23 December 2011, the Federal Assembly of the Swiss Confederation enacted the new law on commercial accounting and financial reporting. These new provisions are contained in the 32nd Title of the Swiss Code of Obligations (CO). The accounting provisions previously included in the Company Law have been deleted accordingly. The new law came into force effective 1 January 2013.

The new legislation will affect all commercial entities. The term entity includes sole proprietorships and partnerships as well as legal entities according to the Swiss Civil Code (CC) (associations and foundations) and the Swiss Code of Obligations (corporations, limited liability companies, limited partnerships and cooperatives).

This brochure compares the new law with the current provisions of the Swiss CO on commercial bookkeeping (art. 662 et. seqq. and art. 957 et seqq. CO; status as at 1 January 2012). It also provides a brief explanation of the most important changes. The references to the law stated in the margins relate to the new legislation. Links to the German, French, Italian and English text of the new law have been included in the Appendix to this brochure.

As of 1 January 2012, the CO was already amended with regard to the thresholds for an ordinary audit in art. 727 para. 1 lit. 2 CO: These thresholds were increased to total assets of CHF20 million, revenues of CHF40 million and 250 full-time equivalents on a yearly average. Once these thresholds are exceeded in two consecutive years, the entity is subject to an ordinary audit. The thresholds for associations were, however, not adjusted and remain at total assets of CHF10 million, revenues of CHF20 million and 50 full-time equivalents on a yearly average.

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2. Accounting and financial reporting2.1. The duty to keep accounts and prepare financial reports

The introduction of the new accounting and financial reporting law will change the criteria for the duty to keep accounts.

New law Current law

The duty to keep accounts and prepare financial reports is applicable to the following:1. sole proprietorships and partnerships

which generated sales revenues of at least CHF500,000 in the last financial year

2. legal entities.

The following are only obliged to keep accounts on their receipts and disbursements (cash method of accounting) and their financial position:1. sole proprietorships and partnerships which

generated sales revenues of less than CHF500,000 in the last financial year

2. associations and foundations without obligation to register with the commercial register

3. foundations exempted from appointing an auditor as per art. 83b para. 2 CC.

The obligation to keep accounts and prepare annual financial statements is a consequence of a companys duty to register with the commercial register.

Entities that operate a trade, manufacturing or other business of a commercial nature are obliged to register with the commercial register at the place of their domicile.

Sole proprietorships are exempted from the duty to register if they achieve less than CHF100,000 in annual sales revenues.

Figure 1 The duty to keep books accounts and prepare financial reports

The new requirements provide relief to smaller sole proprietorships and partnerships in particular (i.e. those with less than CHF500,000 in sales revenues). These need only prepare accounts on receipts and disbursements (i.e. using a cash method of accounting) and an overview of their financial position. Associations and foundations with no obligation to register with the commercial register and foundations exempted from having to appoint an auditor may also keep this type of accounts.

Art. 957 CO

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2.2. Requirements regarding accounting and financial reporting

The following figure shows the requirements and duties in regard to accounting and financial reporting:

New law Current law

Accounting Financial reporting

Principles Principles of orderly accounting: complete, faithful and systematic recording of transactions and matters

documentary proof clarity appropriateness in view of the type and size of the business

verifiability

The accounting presents the financial position of the business, so that third parties can judge it reliably.

Fundamentals: assumption of going concern

cut-off in regard to time and nature

Principles of orderly financial reporting: clarity and understandability

completeness reliability materiality prudence consistency in presentation and valuation

no offsetting of assets and liabilities or income and expenses

Faithfulness and clarity of the financial statements: According to generally accepted commercial principles the accounts must be complete, clear and well structured in order to provide relevant insight into the companys financial position.

Principles of orderly financial reporting: completeness clarity and materiality prudence going concern consistency in presentation and valuation

no offsetting of assets and liabilities or income and expenses

Currency Swiss francs or the functional currency of the business activities

Swiss francs or the functional currency of the business activities, the latter requiring disclosure of the amounts in Swiss francs and the conversion rates used

Inventory, income statement and balance sheet to be prepared in Swiss francs

Language An official language of Switzerland or English

An official language of Switzerland or English

Not specified in the CO

Retention of records

Accounting records and accounting vouchers (as hard copies or in electronic or similar form) must be retained for ten years.

Annual reports and auditors reports (signed hard copies) must be retained for ten years.

Income statement and balance sheet must be retained as signed hard copies. Accounting records, accounting vouchers and business correspondence (as hard copies or in electronic or similar form) must be retained for ten years.

Figure 2 Requirements regarding accounting and financial reporting

Art. 957a para. 2 COArt. 958 COArt. 958a COArt. 958b COArt. 958c para. 1 CO

Art. 957a para. 4 COArt. 958d para. 3 CO

Art. 957a para. 5 COArt. 958d para. 4 CO

Art. 958f CO

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The principles of orderly accounting are now explicitly stated in the law. The requirements with regard to accounting and financial reporting are largely unchanged. However, the reliability and the cut-off in regard to time and nature are not explicitly stated in the current law.

The assumption of going concern was clarified by assuming that the business will be continued in the foreseeable future. However, if an entity intends to discontinue all or part of its activities or if such a discontinuation cannot be averted within twelve months from the balance sheet date, the accounting for the business concern