Introduction to statutory audit in Switzerland
Swiss law distinguishes two forms of statutory audit for legal entities: the ordinary audit (ordentliche Revision) and the limited audit (eingeschränkte Revision). The difference is not only in scope but in methodology, costs, and legal consequences for corporate bodies.
Articles 727–727c of the Swiss Code of Obligations (CO) set out the quantitative criteria that determine which type of audit applies. Companies exceeding certain size thresholds must undergo an ordinary audit; others may opt for a limited audit — or, in certain cases, waive the audit entirely (opting-out).
This guide analyzes in detail the legal requirements, size thresholds, procedures for each audit type, opting-out conditions, and auditor requirements, with precise references to the CO and the practice of the Federal Audit Oversight Authority (FAOA).
Legal framework: CO 727–727c
The Swiss statutory audit system is governed by the Code of Obligations (thirty-second title, fourth section) and the Federal Act on the Licensing and Oversight of Auditors (AOA). Here are the key articles:
| Article | Subject | Scope |
|---|---|---|
| CO 727 | Audit obligation | Defines which companies are subject to ordinary audit based on size criteria; all other legal entities undergo limited audit |
| CO 727a | Limited audit | Governs the content and scope of the limited audit: verification of whether facts exist that suggest irregularities, without full assurance guarantee |
| CO 727b | Audit waiver (opting-out) | Allows companies with fewer than 10 FTEs to waive the limited audit with unanimous consent of all shareholders/members |
| CO 727c | Auditor independence | Establishes independence requirements for auditors and audit firms: no relationship that could compromise objectivity of judgment |
| AOA 4–6 | Auditor licensing | Defines licensing conditions for audit expert (ordinary audit) and auditor (limited audit) with the FAOA |
Note: audit rules apply to AGs (SAs), GmbHs (Sagls), cooperatives, and associations exceeding certain thresholds. Sole proprietorships and partnerships are not subject to statutory audit obligations under the CO.
Size thresholds: ordinary vs. limited audit
Art. 727 CO stipulates that a company is subject to ordinary audit if it exceeds two of the following three criteria in two consecutive financial years. If it does not, limited audit applies — unless opting-out.
| Criterion | Limited audit | Ordinary audit |
|---|---|---|
| Total assets | ≤ CHF 20 million | > CHF 20 million |
| Revenue | ≤ CHF 40 million | > CHF 40 million |
| Headcount (average annual FTEs) | ≤ 250 employees | > 250 employees |
| Triggering condition | Does not exceed 2 of 3 thresholds in 2 consecutive years | Exceeds 2 of 3 thresholds in 2 consecutive years |
The 'two out of three in two consecutive years' rule prevents oscillation: a company exceeding thresholds in only one year does not automatically switch to ordinary audit. This gives time to adapt the compliance structure.
The limited audit: procedure and content
The limited audit (eingeschränkte Revision) is a lighter procedure than the ordinary audit, designed for SMEs. The auditor verifies whether facts exist that suggest the financial statements are not compliant with law and articles of association. Here are the main phases:
Planning and understanding the business
The auditor gains an understanding of the company's business, industry, organizational structure, and key risks. This phase is less in-depth than in an ordinary audit but essential for directing subsequent procedures.
Analytical procedures and inquiries
The auditor performs analytical procedures (year-over-year comparisons, analysis of significant variances) and asks questions of management and accounting staff. There is no obligation to verify individual transactions or obtain external confirmations.
Compliance verification
The auditor verifies that the annual accounts (balance sheet, income statement, notes) comply with legal requirements (CO 957 ff.) and the articles of association. Particular attention is paid to asset valuation, completeness of notes, and the proposed allocation of profit.
Report to the general assembly
The auditor issues a written report to the general assembly with a positive, negative, or qualified conclusion. The standard wording reads: 'Based on our review, nothing has come to our attention that causes us to believe that the financial statements are not in accordance with the law and the articles of association.'
Reporting irregularities
If the auditor discovers legal violations, manifest over-indebtedness (CO 725), or other serious irregularities, they are obligated to report them to the board of directors and, in certain cases, directly to the court (CO 725a para. 3).
The ordinary audit: scope and differences
The ordinary audit (ordentliche Revision) provides a significantly higher level of assurance. The auditor expresses an opinion on the compliance of the financial statements as a whole. Here are the key elements distinguishing it from the limited audit:
In-depth planning and risk assessment
The auditor conducts a detailed analysis of the risks of material misstatement (audit risk), evaluates the internal control system (ICS), and plans procedures based on the highest-risk areas. This requires thorough understanding of the business, industry, and regulatory environment.
Internal control system verification
Unlike the limited audit, the ordinary audit requires verification of the existence and effectiveness of the internal control system. The auditor assesses key controls (approvals, segregation of duties, reconciliations) and tests their actual operation.
Substantive testing and external confirmations
The auditor tests samples of transactions, obtains third-party confirmations (banks, debtors, creditors), attends physical inventory counts, examines significant contracts, and verifies the accuracy of balance sheet valuations using proper audit techniques.
Detailed report and opinion
The ordinary audit report contains an explicit opinion: unqualified, qualified, adverse, or disclaimer. It also includes a confirmation of the ICS existence and, where applicable, observations on specific matters.
Enhanced reporting obligations
In the ordinary audit, the auditor has broader reporting obligations: they must communicate significant ICS deficiencies to the general assembly and notify the court of over-indebtedness (CO 725a para. 2) if the board of directors fails to act.
The ordinary audit entails significantly higher costs than the limited audit (typically 3–5 times higher for an SME), longer timelines (4–8 weeks vs. 1–3 weeks), and requires an audit firm licensed as an audit expert by the FAOA.
Opting-out: audit waiver for SMEs
Art. 727b CO allows small companies to waive the limited audit entirely (opting-out). This option reduces compliance costs but transfers control responsibility entirely to the corporate bodies. The conditions are cumulative:
Size threshold: fewer than 10 FTEs
The company must not exceed an annual average of 10 full-time equivalent positions. The average headcount for the financial year is counted, converted to FTEs. Part-time employees are counted pro rata.
Unanimous consent of all shareholders/members
All members (GmbH) or shareholders (AG) must consent to the waiver. A single dissenting vote — even from a minority shareholder — prevents the opting-out. Consent must be renewed annually or included in the articles of association.
Formal declaration to the commercial register
The audit waiver must be registered with the commercial register. The company submits a declaration signed by all shareholders/members attesting to unanimous consent and compliance with the FTE threshold.
No specific contrary legal obligation
Opting-out is not possible if the company is subject to audit obligations for other reasons (e.g., FINMA-supervised entities, foundations with mandatory audit, companies with bond issues).
Opting-out does not release the board of directors from its supervisory duties (CO 716a). Without an auditor, directors are directly responsible for the accuracy of accounts and timely notification of over-indebtedness to the court.
Auditor requirements
The law distinguishes two levels of auditor licensing, regulated by the AOA and supervised by the Federal Audit Oversight Authority (FAOA). The choice of audit firm must meet precise requirements:
Core requirements
- Limited audit: the audit firm must be registered with the FAOA as 'auditor' (Revisor). Requirements: qualified commercial education (federal professional certificate, bachelor HES/HEG or equivalent) and at least 4 years of supervised practical experience in auditing
- Ordinary audit: the audit firm must be registered with the FAOA as 'audit expert' (Revisionsexperte). Requirements: federal diploma as certified accountant, certified fiduciary, or certified tax expert, or university degree in economics with at least 12 years of practical experience, including 4 in auditing
- Independence (CO 727c): the auditor must not have economic, personal, or organizational relationships with the audited company that could compromise objectivity. Prohibited: equity stakes, employment, significant loans, advisory mandates creating self-review
- Rotation: for companies of public interest, the lead auditor must be rotated after 7 years. For other companies, rotation is not legally mandatory but is recommended by the profession as good governance practice
- FAOA oversight: the FAOA periodically verifies that registered auditors comply with licensing and independence requirements. In case of violation, it may revoke the license, issue warnings, or impose fines up to CHF 100,000
7 practical tips for directors and fiduciary firms
- Monitor size thresholds annually: an unexpected breach of CO 727 limits can force you from limited to ordinary audit with significant costs and timelines. AccountEX lets you monitor total assets, revenue, and FTEs in real time
- Prepare the audit file in advance: gather trial balance, bank reconciliations, debtor/creditor details, significant contracts, and tax calculations at least 4 weeks before the audit starts
- Choose your auditor based on industry experience: an auditor who knows your sector identifies risks faster and reduces audit time (and cost). Ask for references in your field
- If you opt out, document consent formally: keep the declaration signed by all shareholders/members and update it whenever the shareholder structure changes. Informal consent is insufficient
- Use the audit as an improvement tool: auditor findings are not just formal requirements but opportunities to improve internal controls, accounting quality, and corporate governance
- Verify auditor independence: if your fiduciary also keeps the books, they cannot be your auditor — it's an explicit conflict of interest under CO 727c. Always separate bookkeeping and audit roles
- Plan the transition if approaching thresholds: if your company is growing and nearing ordinary audit limits, start structuring the ICS and preparing internal documentation at least 12 months in advance
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