Differences between ordinary and limited audit
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In the following, we will explain the essential components of a regular and a limited audit and explain the differences as well as the legal regulations.
In principle, a Swiss company, regardless of its legal form, is subject to an ordinary audit as soon as it reaches a certain economic importance.
Since the reform of the auditing and accounting laws in 2007, the economic importance of a company is no longer based on its legal form. Apart from the sole proprietorship and the partnership (general and limited partnerships), which are not obliged to be audited by an external auditor, the obligation to have an ordinary audit arises from Article 727 of the Code of Obligations. Accordingly, the other companies are obligated to conduct an ordinary audit if they exceed two of the following limits in two consecutive financial years:
In addition, companies that are required to prepare corporate financial statements, as well as public companies (listed on the stock exchange), are in any case subject to an ordinary audit.
Likewise, a company must conduct an ordinary audit if:
Companies that do not meet the above criteria are subject to a limited audit or may be exempt from the audit requirement altogether.
The auditors must be independent and able to form their audit opinion objectively. Independence must not be impaired either in fact or in appearance. Further information on independence can be found in Article 728 paragraph 2 of the Code of Obligation.
In the case of an ordinary audit, the auditors shall verify whether:
In conducting and determining the scope of the audit, the auditors consider the internal control system (ICS).
The Board of Directors and the management are not the subject of the audit by the auditors.
In the ordinary audit, more in-depth audit procedures are required. These include, for example:
After the completion of the ordinary audit, the auditor submits a comprehensive report to the Board of Directors with the findings on the accounting, the internal control system and the performance and result of the audit.
In addition, the auditors shall submit a written summary report on the results of the audit to the General Meeting. This report shall contain:
In the case of an ordinary audit, the person in charge of the audit may carry out the mandate for a maximum of seven years. He may only resume the same mandate after an interruption of three years.
If an ordinary audit is carried out, the auditor must be present at the general meeting. By unanimous resolution of the General Meeting, the presence of the auditors may be waived
Accordingly, companies that are subject to an ordinary audit must have an internal control system (ICS). Furthermore, companies are obliged to:
The management report must not contradict the presentation of the economic situation in the annual financial statements.
The additional disclosures in the notes, the cash flow statement and the management report may be omitted if:
The auditors must also be independent and form their audit opinion objectively. Independence must not be compromised, either in fact or in appearance. In contrast to the ordinary audit, the limited audit allows the auditor to assist with the bookkeeping and to provide other services. If there is a risk of the auditor performing his own work (e.g. by preparing the accounts or the financial statements), suitable organizational and personnel measures must be taken to ensure a reliable audit.
In the case of a limited audit, the auditor checks whether there are circumstances from which it can be concluded that:
The limited audit is bounded to inquiries, analytical procedures and appropriate detailed tests. However, the detailed tests must provide less extensive evidence than is required for an ordinary audit.
The limited audit is conducted in accordance with the Swiss "Standard on Limited Audits", which requires that the audit is planned and performed to identify material misstatements in the financial statements. However, in accordance with the nature of the limited audit, the scope of the audit is less than for an ordinary audit.
In contrast to the ordinary audit, subsequent audit procedures are not part of the scope of the limited audit:
The Board of Directors and the management are, as in the case of the ordinary audit, not the subject of the audit by the auditors.
After completion of the limited audit, the auditors shall submit to the General Meeting of Shareholders a written summary report on the results of the audit. This audit report shall contain:
The audit report must be signed by the person who led the audit.
When reporting within the scope of the limited audit, the auditors, in contrast to the ordinary audit, do not make a recommendation for approval or rejection of the annual financial statements.
Companies subject to a limited audit must conform to the principles of proper accounting in accordance with Article 958 ff of the Code of Obligations or another recognized accounting standard in accordance with Article 962 ff of the Code of Obligations.
The section on accounting for larger companies pursuant to Article 961 ff of the Code of Obligations does not have to be complied with for companies with a limited audit.
Since 2008, small and medium-sized enterprises have had the option of dispensing with an audit under certain conditions. A renouncement of the audit is also called opting-out in technical jargon.
According to article 727a paragraph 2 of the Swiss Code of Obligations, a company can renounce the limited audit with the consent of all shareholders if the company has no more than 10 full-time employees on an annual average. This renouncement also applies to subsequent years. However, each shareholder has the right to request a limited audit at least 10 days before the general meeting. In this case, the general meeting must elect an auditor.
A renouncement of the limited audit can be decided upon when founding a company or also for an already existing company subject to the limited audit. For the entry of the renouncement, the form " KMU-Erklärung Verzicht auf Revision" must be completed and submitted to the Commercial Register Office. In addition, it must be checked whether the articles of association do not provide for a limited audit.
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