Unit 1: Company Reporting & Group Accounting Flashcards
What are the main accounting standards relevant in Switzerland?
CO (OR), IFRS, Swiss GAAP FER, US GAAP
What is the purpose of accounting standards?
To provide a framework for financial reporting that ensures consistency, transparency, and comparability of financial statements across entities.
What is the CO (OR) accounting standard?
The Swiss Code of Obligations (CO/OR) governs statutory financial statements for all Swiss companies.
What is IFRS?
IFRS is a principle-based framework providing comprehensive guidance, used mainly by internationally focused companies.
What is Swiss GAAP FER mainly used for?
It is used by non-listed small and medium enterprises (SMEs) and groups in Switzerland, providing compact but essential disclosures.
What distinguishes US GAAP from other accounting standards?
US GAAP is rule-based and offers extensive guidance, often resulting in very detailed disclosures.
How do IFRS and US GAAP differ in their approach to financial reporting?
IFRS is principle-based, offering flexibility with fewer specific rules, while US GAAP is rule-based, providing more detailed and prescriptive guidelines.
How often are amendments made to IFRS and US GAAP?
IFRS undergoes continuous amendments, while US GAAP also has frequent updates due to the extensive guidance it provides.
What are the main differences in disclosure requirements between Swiss GAAP FER and IFRS?
Swiss GAAP FER focuses on essential information with compact disclosures, whereas IFRS requires extensive disclosures.
What is the main practical difference between principles-based and rules-based accounting?
Principles-based accounting (e.g., IFRS) allows for more interpretation and flexibility, while rules-based accounting (e.g., US GAAP) provides more detailed, prescriptive rules to follow.
What is the core principle of OR?
The principle of prudence
What prudence means ?
It means that this set of rules is designed so that the evaluation of financials produces prudent results (i.e. prudent accounting).
This is an attempt to prevent excessive assets or liabilities from being recognized.
Why is prudence principle so important ?
Important that the company retain as much money as possible –> profit should not be so high because it reduces the amount that will disturb shareholders
The prudence standard applies to the company and shareholders.
What is the core principle of Swiss GAAP/ US GAAP/ IFRS?
True and Fair view
True and Fair View
An attempt is made to convey a picture that corresponds to the actual circumstances by the type of evaluation.
–> are mostly not used in the individual financial statements, but in the consolidated financial statements (informing stakeholders about the actual economic situation)
What are OR and Swiss Gap based on?
Principle based
What is Principle based?
the regulations are formulated relatively generally and serve as guidelines. Not every single accounting issue is regulated here, but rather more general issues
What are Swiss Gaap and IFRS based on?
Rule Based
What is rule based?
follows the ideal that every single accounting issue must be regulated somewhere. –> cook book accounting
What is the structure of the OR?
general requirements that apply to different positions
What is the structure for Swiss Gaap/ IFRS/ US Gaap?
Topical focus : general requirements do not apply to different positions
example : there is a standard for property, plant and equipment
Pratical implication (pro & cons) of rule based accounting
(negativ) increased complexity for financial statements
(negativ) Higher probability of structuring contracts to match the rules
(positiv) increased comparability among companies
(positiv) Increases certainty in disclosures (acroit la certitude des informations)
Pratical implication (pro & cons) of rule based Principle based
(negativ) The information reported might lack consistency
(negativ) Reduced comparability among companies
(positiv) Increased flexibility for Financial Statements preparers
(positiv or negativ) Judgement is involved to a larger extent
Between IFRS and US GAAP which one is more rule based ?
IFRS are considered less rule based as US GAAP (they leave more space for interpretation)
Accounting standards description: OR (CO)
- Swiss statutory financial statement
- Approx 1’200 pages
-Prudence, Principle based
-compact disclosures
-Amendments : rare - Accounting policy choices : Multiple permitted
IFRS
- Listed companies with focus
on international markets
-Non-listed SME and groups - Approx. 3’600 pages
-True and fair view
Principle-based
Comprehensive guidance
-Extensive disclosures
-Continuous amendments
-Accounting
policy choices limited
Swiss GAAP FER
- SIX Swiss Exchange listed
companies
-Approx. 200 pages
-True and fair view
Principle-based
Limited guidance
-Compact with focus on essential
information
-Rare amendments
-Some permitted accounting policy choices
US GAAP FER
-Listed companies with focus on
US markets
-Approx. 25’000 pages
-True and fair view
Rule-based
Extensive guidance
-Extensive disclosures
-continuous Amendments
-Very limited Accounting policy choices
OR history
- 1883 because of the need of uniforming commercial law among the cantons.
- Regulation: The commercial bookkeeping and accounting are regulated in Articles 957 ff. of the
Swiss Code of Obligations. → These regulations generally apply to all companies in
Switzerland - The law sets out a minimum structure for the balance sheet and income statement, as well as a minimum content for the notes to the financial statements.
- Valuation should be cautious, without impeding the reliable assessment of the company’s
economic situation. Hidden reserves are still permissible. - Code of obligations accounting is used for tax purposes within Switzerland
History IFRS
- The IASC has been established in 1973 → IASB in 2001.
- Providing international companies with an accounting system with which they can work globally
- Creating a set of accounting standards for those countries without their own rules
Can you use Swiss Gaap FEr in the Main segment?
no you can’t
Only IFRS and US Gaap
In the domestic segment you can us Swiss GAAP FER
Swiss Gaap Fer definition
focuses on the accounting and reporting of small and medium-
sized organisations and groups of organisations with a presence in Switzerland.
Swiss Gaap FER structure?
has a modular structure and consists of the following pieces:
the framework, the core FER, and further standards, as well as Swiss GAAP FER
30 for groups of organisations and Swiss GAAP FER 31 for listed companies
IASB
develop and adopts the IFRS Standards
IFRIC
to publish practical interpretations of the standards
Why are Swiss listed companies switching from IFRS to Swiss
GAAP FER?
To reach the same goal of transparency by using less complex
standards
What is the most important difference between
IFRS and U.S. GAAP?
U.S. GAAP is rather rules-based and IFRS is rather
principles-based
Switzerland has mandatory disclosure requirements for specific ESG topics like ?
management remuneration or
specific sectors
ESG
Environnement, Social et Gouvernance
What are the current Sustainable regulation in Switzerland?
- mandatory disclosure requirements for specific ESG topics
- report publicly on non financial matters
- equal pay analysis
=all this is now in the law (OR)
Consolidate Financial statement
refers to a group including the parent company and all its subsidiaries
Individual Financial statement
only financial information of the parent company or the subsidiary itself.
Reasons for the individual financial statement?
- tax purpose
- How much money must be paid into a company so that the capital base can be regarded as sufficient
- Each country wants to determine when companies are over-indebted and have to file for bankruptcy.
-to analyze the financial performance of each individual subsidiary or national-level company
Reason for consolidate
primarily about information: Here, the shareholders want to know how the entire group of companies is actually doing from a business perspective.
How to do a consolidation (theortically) ?
- same accounting standards (difficult solutions)
- Each should do IFRS in addition to their financial statement
= the IFRS are added together to form the consolidated financial statement = consolidation
How to do a consolidation based on methods?
- Full Consolidation
-Proportionate Consolidation - Equity Method
-Shown as Financial Asset in Balance Sheet
Full consolidation method explication
- add up all assets and liabilities from the individual financial statements of the parent and subsidiary companies to form a so-called total balance.
- Consolidation
a) offset the book value of the parent’s stake against the equity of the subsidiary.
b) Disclose hidden reserve on pro-rata basis
c) Determine goodwill
d) Show minority interest - Prepare consolidated balance sheet
When do I use the Full consolidation method ?
- controlling (subsidiaries)
> 50 % of voting power
When do I use Proportionate Consolidation method ?
- Joint Control (joint venture) : 50 % of voting power
When do I use the equity method ?
- Joint control : 50 % of voting power
- Significant (associated) : 20 to 49 % of voting power
When do I shown as Financial Asset in Balance Sheet? Consolidation methods
Limited (financial asset) : less than 20 % voting power
Process of Group Accounting
- Standardization of single statements: Preparation of adjustement Balance sheet
- Consistent reporting dates/recognition and measurement criteria/conversion - Consolidation: Elimination of group-specific biases
Consolidation of capital/ receivables and liabilities/ intercompany results / income and expenses
Non-Controlling Interests (NCI)/ Minority shares
represent the portion of equity in a subsidiary that is not owned by the parent company.
Debt consolidation
in practice it often happens that, as in
this example, there are intra-group receivables and payables.
example : The parent company granted a loan to the subsidiary
interim profit elimination
Eliminating inter-company profits involves offsetting intra-group sales
Debt consolidation methods
- Consolidation of capital: we carry out capital consolidation, in which we offset the participation in the subsidiary against equity.
- Consolidation of Debt
- Consolidation of Inter company profits
- Consolidation of Inter company Revenues & expense
intragroup transactions
-Sales of goods
-Sales of non current assets (e.g PPE)
- Loan granted by parent to subsidiary or vice versa
- Inventory sold by parent to subsidiary and vice versa (this is something common for vertically integrated businesses)
- Intragroup services
The equity method / “one-line consolidation”.
is used when we have no dominant influence of a parent company over a subsidiary, but only a significant influence or a joint control
Equity method (mathematic formula)
CarryingValue =
InitialInvestment +
ShareofIncome −
ShareofDividends
Hidden equity
refers to the difference between the book value (carrying value) of a company’s assets and their fair value
