Switzerland

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  • Date: 3/12/2014

Focus on implementation of the Minder Initiative 

Interview with: Lukas Marty, Head of Audit and Member of the Executive Committee of KPMG Switzerland

What were the salient features of financial reporting in the 2013 financial year?

Lukas Marty: In 2013, many companies operated in a more stable economic environment than in the years before. This included relatively stable exchange rates for the most important currencies, a slight upturn in the global economy, continued low interest rates and rising share prices. As a result, most annual financial statements were burdened by fewer one-time adjustments than we have seen in the last few years.

What accounting topics demanded particular attention from your auditors in this reporting season?

Lukas Marty: I can identify mostly two topics: pension obligations and goodwill.
Companies reporting in accordance with the IFRS had to implement changes to the rules for recognizing pension obligations. Until now, changes in the IFRS funding ratio for pension obligations did not have to be recognized in the balance sheet immediately, but could be spread out over several years. This is no longer possible as gains and losses on invested pension assets and actuarial changes in pension obligations must be immediately recognized in IFRS balance sheets. A number of companies therefore had to increase the pension obligations in their balance sheets. For many companies the new rules also burdened the income statement with a higher pension cost.

The rules for recognizing goodwill did not change, but we were perturbed by the fact that many balance sheets contain large amounts of goodwill pertaining to acquisitions made at very high prices prior to the economic crisis. While sales recovered in many sectors, including in industry, margins often still lag behind those of 2008. As a result, the balance sheets of many companies who expected a speedier return to profitability had to be reviewed critically to determine whether the goodwill recognized in the balance sheet needs to be impaired. This is determined by applying discounted cash flow models. If – against expectations – interest rates should rise soon, a number of companies will have to impair their goodwill items.

In the current climate of increasingly complex and detailed accounting rules, did some things also become simpler?

Lukas Marty: Nowadays we spend less time on the recognition and accounting of management and employee profit-sharing plans, which are now increasingly being set up as simple share purchase plans. Those very complex option plans that are rarely understood by management or the employees have become more scarce.

In recent times, what were the issues on which the audit committees focused?

Lukas Marty: At many companies the implementation of the Minder initiative took center stage. Even after the publication of the Federal Council’s ordinance in November 2013, companies still had to take some important decisions on the implementation of the new constitutional provisions. This put much pressure on board committees. The whole issue of management compensation has become a topic of such overriding concern that one can only hope that the boards of directors will soon be able to turn their focus back to strategic and value-adding tasks and concentrate on their real job of supervision.
 

Lukas Marty

Picture of Lukas Marty

 

Head of Audit and Member of the Executive Committee of KPMG Switzerland