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August 14, 2008

New audit oversight regulations 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 Accountant.

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 firms 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 required to abide by US Sarbanes-Oxley regulation and IFRS.

Added burden

The Accountant interviewed firms of varying sizes and received a mixed reaction to the new laws. All partners agreed the oversight is an extra burden as it requires firms to prepare extra documentation to meet the requirements of the regulations.

KPMG, a firm which generated CHF422 million ($385.2 million) in its most recent financial year, said the regulations are both directly and indirectly affecting the firm.

“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.

“There are two [types of laws that affect KPMG]. Those that affect us directly as KPMG, giving us more work which we can’t charge to our clients,” he explained. “The other thing is more regulations for all the companies, which means our clients, and this could also mean more work for us. They will probably need more audit work and advisory. For us it’s a costly process although on the other hand we can also sell more services.”

BDO Visura is the largest Swiss mid-tier firm by some margin with fee income of CHF139.5 million in the year ended December 2007. It 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 the regulation would 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.

Potential benefits

Where BDO is set to benefit is by picking up work from smaller firms that are being forced to exit the market.

“Those who are not able to register drop out of this type of audit work and so from smaller firms we pick up work. Fewer firms to do all the audit work might be another issue,” Schiesser explained.

BDO Visura’s audit practice grew about 15 percent and a third of this growth could be due to work secured from smaller firms, Schiesser added.

Nexia Switzerland, an association of independent firms with combined fee income of CHF25 million, said the new regulation, intended by the government to reduce bureaucratic red tape, is making life harder for smaller firms and clients.

“Our profession now has a new overseeing body that is complicating things. We have our anti-money laundering laws, apparently the strongest in Europe, which is creating a lot of work that is unnecessary and extremely formalistic,” regional chair Roland Schaer remarked.

“Now you have to be credited 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.”

Schaer said the growing use of IFRS requires Nexia professionals to attend seminars in order to upgrade skills.

“It’s costing money and some time is spent, which can’t be [directly] billed out to the clients. However, it’s something that makes things more expensive for the client,” Schaer said. Arvind Hickman and Melanie White

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