The goal of this short article is to examine the annual business report, mandatory for all Swiss companies. The board of directors prepares the annual business report, which is composed of:
- The annual financial statements;
- The annual report, and;
- The consolidated financial statements if such statement are required by law.
The annual financial statements comprise the following three documents: profit and loss statement (or income statement), balance sheet, and annex.
The profit and loss statement must distinguish between operating and non-operating, as well as extraordinary, income and expenses. Income must be split separately between:
- Revenues from deliveries and services;
- Financial income, and;
- Profits from the disposition of capital assets.
Expense must at least show cost of goods sold, personnel expenses, financial expenses, as well as depreciation.
The balance sheet shall show the current assets and the capital assets, debts and equity. Current assets are divided into liquid assets, claims resulting from deliveries and services, other claims, as well as inventories. Capital assets are divided into financial assets, tangible and intangible assets. The outside funds are divided into debts resulting from deliveries and services, other short-term liabilities, long-term liabilities and provisions. Equity is divided into share capital, legal and other reserves, as well as a profit brought forward. Capital not paid in, the total amount of investments, the claims and liabilities against affiliates or against shareholders, accruals and deferrals, as well as losses carried forward are disclosed separately.
The Annex includes:
- The total amount of guarantees, indemnity liabilities and pledges in favour of third part;
- The total amount of assets pledged or assigned for the securing of own liabilities, as well as of assets with retention of title;
- The total amount of liabilities from leasing contracts not included in the balance sheet;
- The fire insurance value of assets;
- Liabilities to personnel welfare institutions;
- The amounts, interest rates and maturities of bonds issued by the company;
- Each participation essential for assessing the company’s financial situation;
- The total amount of dissolved hidden; reserves to the extent that such total amount that exceeds newly formed reserves of the same kind, and thereby show a considerably more favourable result;
- Information on the object and the amount of revaluations;
- Information on the acquisition, disposition, and number of own shares held by the company, including its shares held by another company in which it holds a majority participation; equally shown shall be the terms and conditions of such share transactions;
- The amount of the authorized capital increase and of the capital increase subject to a condition;
- Other information required by law.
The Annual report describes the development of the business, as well as the economic and the financial situation of the company. It reproduces the auditors’ report.
If the company, by majority vote or by another method joins one or more companies under a common control (group of companies), it is required to prepare consolidated financial statements. The company is exempted from consolidation if it, during two consecutive business years, together with the affiliates, does not exceed two of the following parameters:
- Balance sheet total: CHF. 10’000’000
- Revenues: CHF. 20’000’000
- Average annual number of employees: 200
However, consolidated statements shall be prepared if:
- the company has outstanding bond issues;
- the company’s shares are listed on a stock exchange;
- shareholders representing at least ten per cent of the share capital so request;
- this is necessary for assessing as reliably as possible the company’s financial condition and profitability.
Swiss valuation principles are conservative. Assets are valued at the lower of cost or market. A full provision for all known liabilities must be made. In addition, the Code gives discretionary powers to the board to value assets at amounts lower than maximum carrying values prescribed by law, or to create hidden reserves. The maximum asset values permissible are set out in articles 664 through 670 of the Code. These are as follows:
Costs of incorporation, capital increase, and organization resulting from the establishment, expansion or reorganization of the business may be included in the balance sheet. They must be shown separately and amortized within five years. Capital assets are to be valued at a maximum of the acquisition or manufacturing costs less the necessary depreciation. Participations and other financial investments are also part of the capital assets. Participations are permanent investments in the capital of subsidiary companies; usually they give a controlling influence in the management of the affiliate. Share blocks representing at least twenty per cent of the votes are classified as participations.
Raw materials, semi-finished and finished products, as well as merchandise, shall be valued at a maximum of the acquisition or manufacturing cost. If the cost is higher than market value on the date of the balance sheet, then market value is used.
Listed securities shall be valued at a maximum of their average stock exchange price during the month preceding the date of the balance sheet. Unquoted securities shall be valued at a maximum of the acquisition cost under deduction of any necessary value adjustments.
Depreciation, value adjustments and provisions should be made to the extent required by generally accepted accounting principles. Provisions are to be established in particular to cover contingent liabilities and potential losses from pending business transactions. The board may take additional depreciation, make value adjustments and provisions and refrain from dissolving provisions, which are no longer justified. Hidden reserves exceeding the above are permitted to the extent justified in the interest of the continuing prosperity of the company or to enable the regular distribution of dividends, taking into account the interests of the shareholders. The auditors must be notified in detail of the creation and the dissolution of replacement reserves and hidden reserves exceeding the above.
If half of the sum of the share capital and legal reserves is lost, real estate property or participations whose fair market value has risen above cost may, for the purpose of eliminating the deficit, be re-valued up to a maximum of such deficit. The revaluation amount shall be shown separately as a revaluation reserve. The revaluation is only permitted if the auditors confirm in writing to the general meeting of shareholders that the legal provisions have been respected.
Companies are required to allocate five per cent of the annual profit to the legal reserve until it has reached twenty per cent of be paid-in share capital. Also, after having reached the statutory amount, the following shall be allocated to this reserve:
- any surplus over par value upon the issue of new shares;
- after deduction of the issue costs, to the extent such surplus is not used for depreciation or welfare purposes;
- the excess of the amount which was paid in on cancelled shares over any reduction on the issue price of replacement shares ten per cent of the amounts which are distributed as a share of profits after payment of a dividend of five per cent.
To the extent it does not exceed half of the share capital, the legal reserve shall only be used to remove an accounting deficit, to preserve the existence of the business enterprise in bad times, to counteract unemployment, or to soften its consequences.
There are no filing requirements in Switzerland for annual financial statements except in the case of banks, finance and insurance companies.