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August 18, 2008

New audit oversight and regulation a headache for Swiss firms

The introduction of an audit watchdog and much stricter registration laws are proving a burden on audit firms in Switzerland, according to partners speaking to the International Accounting Bulletin.

In January, the Federal Audit Oversight Authority (FAOA) was established to provide oversight of the audit profession in line with similar regimes in the US and Europe. The FAOA provides audit reviews of firms and requires them to meet strict criteria in order to become registered. At present, firms are being provisionally registered before their first review.

This layer of oversight comes at a time when the market is adapting to recent anti-money laundering legislation and a growing number of companies are abiding by US Sarbanes-Oxley regulation and IFRS.

The International Accounting Bulletin approached three Swiss firms which have posted strong growth (see graph) to gather their reaction to the new laws. Switzerland top five growth rate: 2007 2008

KPMG, the third largest firm in Switzerland, said the regulations directly affect the firm through inspections. “We are now getting controlled, we get on-site visits and it’s like they audit us as an official authority,” Stefan Mathys, head of press communications, said. “We don’t fear any consequences of this. It’s just a burden to have all the documentation ready and all the facts and figures ready to show them what we’re doing and our quality in management.”

Mathys said there has also been more audit and advisory work due to an increase in the Sarbanes-Oxley and IFRS requirements of clients.

BDO Visura provides services to listed and privately held medium-sized enterprises with up to CHF1 billion in turnover. The firm’s deputy chief executive and board member Werner Schiesser said new registration and oversight requirements will not have a massive impact on BDO internally. “I think we will need to do some homework, improve systems a little bit, improve documentation but nothing too dramatic that our income statement is hit significantly,” Schiesser said.

Some benefits

Stricter registration criteria is benefiting BDO Visura as the firm secures work from those that are forced to exit the market. “Firms who are not able to register drop out of this type of audit work. So from smaller firms we pick up work,” Schiesser explained. BDO Visura’s audit practice grew about 15 percent in the past year and a third of this growth could be due to work previously carried out by smaller firms, Schiesser said.

Nexia Switzerland, a smaller association of independent firms, said the new regulation is making life harder for smaller firms and clients. “Our profession now has a new overseeing body that is complicating things,” regional chairman Roland Schaer remarked. “Now you have to be accredited to this body and you have to fulfil certain criteria – qualification-wise, size-wise and your top people have to fulfil some financial and moral criteria.

“This thing is an ongoing process too and has been done in a hurry. It isn’t really 100 percent clear and it is all a big mess… for the time being, it is creating a lot of internal work, which is stressful.”

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