Independence

Principle

Independence is a key prerequisite for auditing activities and must neither be compromised in fact nor in appearance (Art. 728 and 729 CO).

According to doctrine and case law, the grounds for incompatibility applicable to ordinary audits (Art. 728 para. 2 CO) also apply to limited audits to a large extent. The legislator merely makes two exhaustive exceptions for limited audits:

Participation: participation in accounting and the provision of other services involving the risk of self-auditing are permitted under certain conditions (Art. 729 para. 2 CO), and
No rotation requirement: the seven-year rotation requirement for auditors in charge does not apply (Art. 730a para. 2 CO).

No further exceptions are provided for.

Limited audit

The following points should be considered regarding the independence of the auditor in a limited audit.

Limits of permissible involvement

Unlike in an ordinary audit, the law generally allows the external auditor to be involved in the accounting and to provide other services for the audited company in a limited audit (Art. 729 para. 2 CO).

Where the line of permissible involvement is to be drawn, must be assessed case by case by the auditor in charge. The law sets out mandatory framework conditions here for:

Board responsibility for «critical» judgements

The audited company’s board of directors remains strictly liable for all key («critical») judgements in the annual accounts – e.g., depreciation, value adjustments/impairments, provisions, capitalisation of certain costs, revaluations, or changes in accounting principles (Art. 716a para. 1 no. 3 and para. 6 CO).

Which services are considered relevant in this context

Solely services that create a risk that the external auditor would have to review its own work are considered relevant in this context (Art. 729 para. 2 first sentence CO).

Safeguards where self-audit is a risk (cf. possible safeguards)

If there is a risk of self-review, the external auditor must implement appropriate organisational and staffing measures to ensure a reliable audit (Art. 729 para. 2 CO).

The board of directors may not delegate these decision-making powers to the external auditor. Furthermore, the external auditor must, as an assurance provider, not be subordinated to the board’s instructions and must ensure that it conduct the audit of the accounts without conflicts of interest.

Any outsourcing of accounting and financial reporting to the external auditor in a way that effectively transfers the board’s decision-making powers goes beyond what the law authorizes and is not permitted.

Rule of thumb

the higher the external auditor’s involvement in accounting, the harder it becomes to put adequate safeguards in place – and the greater the auditor’s liability risk.

The audit firm must define, in its general internal guidance for staff, where the boundary for permissible involvement by the statutory auditor in accounting and in other services that create a self-review risk,lies. The auditor in charge must then apply those internal rules in the specific audit engagement. The following remarks serve as practical guidelines for the audit firm and the auditor in charge and provide them with the necessary tools.

The law requires safeguards at two levels:

at audit firm level (organisational safeguards); and
at the level of the individuals involved in the engagement (staffing safeguards).

Accounting work or other relevant services and the limited audit must not be carried out by the same individual or the same team (Federal Council Dispatch, BBl 2004 4026). Clear and effective segregation of duties is therefore mandatory in all cases. Sole-practitioner audit firms are therefore not permitted to be participate in accounting or to provide any other relevant services in addition to performing the audit.

Possible safeguards

Audit firm policies and tools

The audit firm is required to establish instructions, processes and controls in accordance with professional requirements on quality assurance and independence. This also relates to participation in accounting and the provision of other relevant services. In smaller set-ups, external monitoring by an independent third party may be appropriate.

Level of involvement

Responsibility for the annual accounts rests with the audited entity and its board of directors respectively (Art. 716a para. 1 nos. 3 and 6 CO). The external auditor must not perform any tasks that could create the appearance of taking on such responsibility. Where the audited entity has discretion in accounting and financial reporting (e.g. depreciation, impairments, provisions, capitalising certain costs, revaluations, exceptions to the prohibition on set-off, or changes in accounting policies), the external auditor must not exercise that discretion itself; it may at most point out the boundaries of the discretion.

Accordingly, any involvement in accounting must be limited to supporting the preparation of the annual accounts. The audited entity must remain the author («intellectual owner») of the annual accounts. If the annual accounts are prepared in whole or in substantial parts by the external auditor’s staff (even if they do not participate in the audit), the external auditor becomes the de facto author and thereby effectively assumes responsibility.

In addition, such involvement and the provision of other relevant services requires a separate engagement engagement letter, which allocates responsibilities and informs the audited entity about the risks.

Appropriate documentation (e.g. minutes of meetings between the external auditor and the audited entity) can help demonstrate the respective roles in determining critical accounting positions.

Prohibition of self-audit

Legal and professional provisions: Art. 729 para. 1 in conjunction with Art. 728 para. 2 no. 4 CO; Swiss Standard for the Limited Statutory Audit (SER) issued by EXPERTsuisse / TREUHAND|SUISSE; EXPERTsuisse independence guidelines.

A self-review risk arises in particular in connection with:

participation in accounting (posting entries, consolidation entries, booking advice, preparing/correcting annual accounts);
valuations
corporate finance and similar activities
legal services (representation of interests and legal advice)
tax, duties/levies and social security services, at least where these supersede mere declarations without the exercise of discretion
internal audit services;
IT services, in particular developing or implementing financial information and accounting systems
recruitment, personnel placement and the temporary secondment of staff.

Organisational segregation (Art. 729 Abs. 2 CO)

As part of entity-level quality assurance, the audit firm must ensure that the operational management of (i) the audit department and (ii) the department providing accounting or other relevant services is not vested in the same person or (in whole or in part) the same group of persons.

This segregation can also be implemented at engagement level: individuals may work in both areas, but not simultaneously within engagements for the same audited entity.

Additionally, individuals providing accounting or other relevant services (or department heads) must not be vested with authority to issue instructions to the audit team (or its leadership) on the relevant engagement – and vice versa. This «independence from instructions» must be established and documented as binding (e.g. in an internal policy/regulation).

The functions registered in the commercial register, as well as sole or collective signatory powers, must not create the appearance of powers of instruction that contradict the internal segregation regulations. Independence is only ensured if staff can decide without influence from a superior who is responsible for the audit department. Department heads must therefore be equipped (with individual signing powers or sufficient collective signing powers) so that each department can enter into legally binding commitments without the involvement of the person responsible for the other department.

Segregation of Duties (Art. 729 Abs. 2 CO)

At engagement level, it must be ensured that individuals who perform accounting work or provide other relevant services for the audited entity are not involved in the audit work for that same entity.

Group relationships

The independence rules also apply to companies that control the external auditor, and to companies controlled by the external auditor (group). The legal requirements (Art. 729 para. 1 in conjunction with Art. 728 para. 6 CO) – particularly those aimed at preventing self-review – must therefore not be circumvented by shifting self-review-relevant activities to legally separate group entities. In such cases, a clear and effective organisational and duty segregation is still required.

Economic dependence

Legal and professional provisions: Art. 729 para. 1 CO in conjunction with Art. 728 para. 2 no. 5 CO; Swiss Standard for the Limited Statutory Examination (Annex B) (EXPERTsuisse / TREUHAND|SUISSE); EXPERTsuisse independence guidelines; and, for audit firms under state oversight, Art. 11 para. 1 let. a AOA.

Due to the less stringent self-review prohibition in a limited audit, higher fees for other services may in practice tend to arise than in ordinary audits. However, if too large a share of an audit firm’s total fees is received from one audited entity, this can create self-interest risks and impair objectivity either in fact or in appearance.

By way of example, economic dependence may become a concern if the fee share from one audited entity (including all consolidated entities) exceeds 10% of the audit firm’s average total fee income over the last five years. At the latest when that share exceeds 20%, economic independence can no longer be assumed.

Separate engagement

Engagement in accounting and other services must be governed by a separate engagement letter, defining responsibilities and informing the audited company about the risks.

Documentation

For the specific engagement, the working papers must document the independence assessment made when deciding on acceptance and continuation of the engagement (Art. 730c CO).

Disclosure in the auditor’s report

The auditor’s report must disclose whether, and in what form, the external auditor was involved in accounting or provided other relevant services. It must also state which staffingl and organisational safeguards were implemented to ensure a reliable audit (Art. 729b para. 1 no. 3 and para. 2 CO).

Independence is not compatible with the auditor’s report being signed by the auditor in charge and additionally by a second person who participated in accounting or the provision of other relevant services for the same audited entity.

Specific audit services

The provisions on limited audits explicitly and deliberately refer exclusively to the audit of annual accounts (Art. 727a para. 1 CO and BBl 2004 4015).

Accordingly, the incompatibilities for ordinary audits also apply mutatis mutandis to the specific audit services required by law. This is also appropriate, even if the external auditor performing a limited audit provides these services as a continuation of its activities as an external auditor.

The decisive difference lies in the type of audit opinion:

Limited audit (negative assurance)
Here, the external auditor merely assesses whether it has encountered any facts that would lead to the conclusion that the annual accounts and the Board of Directors' proposal to the Annual General Meeting on the appropriation of retained earnings do not comply with the legal requirements and the Articles of Association (Art. 729a para. 1 CO). These audit procedures only provide limited assurance, which is expressed in a negatively formulated audit opinion.
Specific audit services (positive assurance)
The audit methodology and the audit objective essentially correspond to the requirements of an ordinary audit because a positive audit opinion must be issued.

Prohibition of self-review

If positive assurance is required, the following rules apply:

No prior involvement: Prior involvement with the subject matter of the audit by the same audit firm is not permitted in as far as there is a risk that its own work will have to be reviewed (Art. 728 para. 2 no. 4 CO).
No mitigation possible: Unlike for a limited audit, this risk cannot be mitigated for specific audits by organizational or staffing safeguards (e.g. separate teams).

Confirmation by case law

This strict principle has been confirmed by the courts:

Federal Administrative Court (FAC): In its judgment No. B-7872/2015 of April 21, 2016, the court confirmed that the risk of self-review cannot be mitigated by safeguarding measures in the case of these services.
Federal Supreme Court (FSC): The reformatory decision of the Federal Supreme Court did not invalidate the corresponding consideration (3.5.6) of the FAC. Contrary to other legal opinions, the FSC did not rule that a specific audit service (such as an over-indebtedness review) may be performed in violation of the self-review prohibition.
Elements of independence: In its judgment No. 2C_487/2016 of November 23, 2016, the Federal Supreme Court commented on the elements (professional competence, impartiality, integrity of character, and absence of conflicts of interest) of independence. According to the court, an unblemished reputation presupposes integrity of character and the absence of conflicts of interest. The court also confirmed gross breaches of duty of care and a breach of independence in the foundation audit in question.
Gross breaches of duty of care and breach of independence in the foundation audit in question: confirmed by the Federal Supreme Court in the same ruling.

Opting out

The principles mentioned above also apply to companies that waive the right to a limited audit (known as opting out, Art. 727a CO).

If a specific audit service is not provided by the external auditor but by a licensed audit firm, the latter is also bound by the independence rules. If the licensed audit firm has previously provided other services (in particular assistance with accounting), it may not perform the specific audit services.

Exceptions

There are specific audit services where the risk of self-review does not arise or only arises under certain circumstances. Further information can be found in the table below.

Note: The FAOA does hereby not comment on audit services not required by law.

Assessment of independence for specific audit services

Special transaction	Subject of the audit	Participation in accounting in principle possible?	Explanation
Foundation (Art. 635a CO)	Founding report (qualified foundation by conversion)	No	A qualified foundation by conversion (e.g. of a sole proprietorship into a corporation) is generally based on the last annual accounts or the last interim accounts. If the auditing firm was involved in the preparation of these accounts, a subsequent audit of the foundation report is impermissible.
Foundation (Art. 635a CO)	Incorporation report (qualified foundation by contribution in kind with external valuation report or by inventory)	Yes	If a founder contributes individual assets when founding a company, there is generally no risk of self-auditing. The individual items are verified by an external valuation report without the involvement of the auditor or by an inventory, and thus not by annual accounts or interim accounts.
Foundation (Art. 635a CO)	Founding report (qualified foundation through contribution in kind with valuation by annual accounts)	No	If the founder contributes assets that are valued in annual accounts prepared with the involvement of the audit firm (e.g. in the case of equity investments), the audit of the foundation report is no longer compatible with the self-audit prohibition.
Subsequent shares (Art. 634b CO in conjunction with Art. 635a CO)	Subsequent release report (payment by contributed assets)	Yes	The remarks on the foundation audit apply mutatis mutandis: As a rule, shareholders will contribute the missing capital in the form of assets that are not recorded as assets in annual or interim accounts with the involvement of the audit firm. If the valuation is based on an external valuation report without the involvement of the external auditor or on inventory lists, the audit of the subsequent release report is permissible.
Ordinary capital increase (Art. 652f Abs. 1 CO)	Capital increase report (payment by contributed assets)	Yes	The comments on the foundation audit apply mutatis mutandis: A capital increase with contributed assets that are not recorded as assets in annual accounts or interim accounts with the involvement of the audit firm is usually unproblematic.
Ordinary capital increase (Art. 652f Abs. 1 CO)	Capital increase report (payment by contribution in kind, the valuation of which is based on annual accounts)	No	If assets that are valued on the basis of annual accounts prepared with the involvement of the auditing firm (e.g. in the case of equity investments) are contributed, the audit of the capital increase report is not permitted.
Ordinary capital increase (Art. 652f Abs. 1 CO)	Capital increase report (payment by offsetting against a claim or in the case of an increase from equity capital)	No	In the case of payment by offsetting against claims against the company, the capital increase report also provides information on the existence and offsettability of the company's debt. Since the same debt was already listed in the audited balance sheet with the involvement of the external auditor, the auditor cannot comment on its existence without the risk of self-audit. In the case of an increase from equity capital in accordance with Art. 652d CO, the capital increase report must provide information on the free availability of the equity capital to be converted. In particular, it must be demonstrated that the profit or reserve amounts reported in the annual accounts or interim accounts are available and not earmarked for a specific purpose. Since these amounts were already included in the annual accounts or interim accounts with the involvement of the audit firm, the capital increase report cannot be audited without the risk of self-audit.
Approved capital increase (Art. 652f Abs. 1 CO)	Capital increase report (payment by way of contributed assets)	Yes	The statements on the foundation audit apply mutatis mutandis: a capital increase with contributed assets that are not recorded as assets in annual accounts or interim accounts prepared with the assistance of the audit firm is therefore usually unproblematic.
Approved capital increase (Art. 652f Abs. 1 CO)	Capital increase report (payment by contribution in kind with valuation by annual financial statements)	No	If assets are contributed that are valued in annual accounts prepared with the involvement of the audit firm (e.g. in the case of equity investments), the audit of the capital increase report is not permitted.
Conditional capital increase (Art. 653f Abs. 1 CO)	Issue of new shares	Yes	There is no audit of the audit firm’s own work.
Conditional capital increase (Art. 653i Abs. 2 CO)	Deletion of provisions on conditional capital increase	Yes	There is no audit of the audit firm’s own work.
Interim accounts at going concern and disposal values (PS-CH 290) (Art. 725b Abs. 2 CO)	Audit of the interim accounts to assess whether there is over-indebtedness at going concern and disposal values	No	The interim financial statements must be audited in accordance with the audit methodology set out in PS-CH 290. Accordingly, audit procedures must be performed to obtain audit assurance that enables a positive audit opinion to be issued on whether the claims of the company's creditors are covered at going concern and disposal values. This audit therefore corresponds to an ordinary audit in terms of both its objective and methodology, and not to a limited audit. If the external auditor has been involved in the accounting or has provided other services that carry the risk of self-audit, it cannot perform the over-indebtedness audit if there are justified concerns about over-indebtedness. According to the wording of the law, there is no (independent) external auditor, which is why the statutory fallback provision for the third-party auditor applies. The external auditor must notify the board of directors of the incompatibility, which then appoints a third-party auditor. However, a definite resolution of the legal question by the legislature or the courts currently remains outstanding. The legislature does not make any explicit statement as to whether the external auditor is subject to a notification obligation during this third-party audit. However, it is practically reasonable that the audit and any potential notification to the court be the exclusive responsibility of the third-party auditor. If the latter does not identify over-indebtedness, their mandate is concluded and the reporting obligation «revives» with the external auditor. If the third-party auditor identifies the over indebtedness of the company and the board of directors fails to take action, the court will decide on the basis of the third-party auditor's notification. In the event of differing assessments, the assessment of the independent third-party auditor takes precedence. Refer also to the Federal Council's response of June 3, 2024, to the question posed by National Council member Vietze on May 29, 2024.
Audit in the event of possible dissolution of a subordination agreement in accordance with SA-CH (Art. 725b Abs. 2 CO)	Audit of annual accounts (less frequently interim accounts) to determine whether the over-indebtedness has been remedied in the meantime and whether the subordination can therefore be lifted	No	An audited annual account is required, which demonstrates the remediation of over-indebtedness with a positive audit opinion. If the external auditor has been involved in the preparation of these annual accounts or has provided other services involving a self-audit risk, the audit and issuance of a positive audit opinion is not permitted.
Revaluation to eliminate the balance sheet deficit (Art. 725c Abs. 2 CO)	Compliance with statutory regulations on revaluation	No	In order to assess whether the revaluation is permissible, it must also be examined whether half of the share capital and the legal reserves are no longer covered as a result of a balance sheet loss and whether this shortfall is remedied after the revaluation. Even if the revaluation as such can be examined on the basis of an external valuation report, the remediation of the shortfall can only be assessed by considering the entire balance sheet. This is done on the basis of annual accounts or interim accounts and in accordance with Swiss standards for auditing financial statements. A positive audit opinion is issued, whereas only a negative audit opinion is issued in the context of a limited audit of the annual accounts. The comments on the audit of the interim accounts at going concern and disposal values in accordance with PS-CH 290 apply mutatis mutandis.
Reduction of share capital with release of funds (Art. 653m Abs. 1 CO)	Coverage of claims of creditors	No	The audit of the reduction of share capital (with release of funds) is based on interim faccounts or annual accounts. If these accounts were prepared with the involvement of the audit firm, the audit of the reduction of share capital is not permitted.
Reduction of share capital to eliminate a deficit (Art. 653p Abs. 1 CO)	Coverage of creditors' claims; audit to determine whether the amount of the capital reduction eliminates the deficit	No	The audit of the reduction in share capital (to eliminate a deficit) is always based on interim accounts or annual accounts. If these accounts were prepared with the involvement of the audit firm, the audit of the reduction of share capital by the auditor is not permitted.
Liquidation interim accounts (Art. 743 Abs. 5 CO)	Liquidation interim account	Yes	In principle, the external auditor is also responsible for a company in liquidation. In contrast to the opening balance sheet and closing balance sheet for liquidation, there is a legal obligation to audit interim accounts for liquidation. A limited audit can therefore be carried out. Compared to regular annual accounts, only the valuation methods change. In this sense, it is possible to audit the interim accounts for liquidation while simultaneously keeping the accounts.
Premature distribution of assets upon dissolution (Art. 745 Abs. 3 CO)	Repayment of debts; no jeopardizing of third-party interests	No	The audit is usually based on the final liquidation balance sheet. If these annual accounts are prepared with the assistance of the audit firm, it is not permissible to audit the conditions for the premature distribution of assets upon dissolution of the company.
Relocation of registered office to Switzerland (Art. 162 para. 3 PILA)	Coverage of share capital	Yes	This audit is based on annual accounts. As a rule, these are prepared abroad without the involvement of the Swiss external auditor, which is why there is no audit of the auditor's own work.
Relocation of registered office to Switzerland (Art. 162 para. 3 PILA)	Coverage of share capital	No	If the annual accounts are prepared with the assistance of the audit firm, it is not permissible to examine the requirements for transferring the registered office to Switzerland.
Transfer of the registered office of a Swiss company abroad (Art. 164 PILA; Art. 127 para. 1 lit. b CRO [HRegV])	Coverage of creditors' claims or creditors have agreed to deletion from the commercial register	No	This audit is based on annual accounts. If these are prepared with the assistance of the audit firm, it is not permissible to audit the requirements for transferring the registered office abroad and issue a positive audit opinion.