Obligation to consolidate in Switzerland

The benefits of consolidated financial statements in the SME environment are often underestimated. Particularly in the case of growing groups of companies, consolidation is often only discussed when the relevant thresholds are exceeded and the law prescribes its preparation. As a management tool, but also for external stakeholders such as investors or banks, consolidated financial statements can be central to assessing the economic situation. There are often financial relationships between the companies in a group, such as current accounts or loans. Depending on the organisation, sales are also generated between the companies. Without the preparation of consolidated financial statements that eliminate intra-group relationships, it is often not possible to assess the overall economic situation.

 

1 Who is subject to consolidation?

According to Art. 963 OR there is an obligation to consolidate if a legal entity:

  • controls one or more companies (i.e., by a majority of votes or de facto control), and
  • exceeds the thresholds for an ordinary audit:

Two of the following three criteria in two consecutive financial years:
- Balance sheet total > CHF 20 million
- Sales revenue > CHF 40 million
- Full-time positions > 250

2 Why are consolidated financial statements important?

In the case of groups of companies with several legal entities that maintain financial relationships with each other, a clear picture of the economic situation is often not available. The consolidated financial statements show the economic situation of the group of companies as a single economic entity and serves investors, creditors and authorities as a basis for decision-making and ensures that all assets and liabilities are correctly recognised.

3. types of consolidation

Full consolidation

  • For subsidiaries (>50 % participation)
    • All assets, liabilities, income and expenses are included in full.
    • Minority interests are recognised separately.

Proportionate consolidation

  • For jointly controlled entities (joint ventures)
    • Proportional inclusion according to the share.

Equity method

  • For associated companies (20-50 % participation)
    • The investment is recognised as an asset and adjusted on a pro rata basis.

 

4th practical challenge: setting up consolidation

Setting up the consolidation is central to a smooth process

  • Standardisation of the reporting date
  • Reconciliation of charts of accounts and valuation principles
  • Elimination of intragroup transactions
  • Determination and presentation of the Hidden reserves
  • Careful documentation for auditors

Especially for SMEs without their own finance department, it is advisable to seek professional support at an early stage in order to avoid mistakes and unnecessary extra work.

Conclusion

Consolidated financial statements should not only be prepared for the auditors, but should also be used as a management and decision-making tool. The implementation of consolidation poses practical challenges for many companies. Early preparation is crucial.