Swiss accounting principles explained with practical examples

The foundations of Swiss accounting

Accounting principles govern both the recording of transactions and the presentation of financial statements. The Swiss Code of Obligations (CO) distinguishes proper bookkeeping, going concern and accrual accounting from the principles of financial reporting.

• Article 957a concerns records and their traceability.
• Articles 958a and 958b address going concern and allocation to accounting periods.
• Article 958c sets out seven principles of proper financial reporting.

An entry accepted in commercial accounts is not automatically deductible for tax. Each question requires its own assessment.

Bookkeeping and financial reporting are different levels

Bookkeeping is the daily work: recording every transaction, retaining supporting documents, using understandable descriptions and tracing a balance to its origin. The organisation should suit the nature and size of the business.

Financial reporting determines how information is grouped and explained, particularly in the annual accounts, so that an external reader can understand the economic position.

A CHF 4,000 invoice may be entered correctly in the journal with supporting evidence. But if it concerns the following year and remains entirely in the current year’s expenses, the statements do not respect the applicable period-allocation requirement.

Proper bookkeeping applies by analogy even to simplified bookkeeping. Simpler records still need to be complete, understandable and supported by documents.

The seven principles in Article 958c CO

The principles work together. Prudence does not justify any adjustment you choose, and materiality is not a reason to abandon controls. Amounts in the balance sheet and notes must be supported by an inventory or other appropriate evidence.

Clarity, completeness and reliability

A “Miscellaneous” account containing rent, private expenses and IT purchases is difficult to interpret. Better headings make movements understandable and help identify classification errors.

Completeness also means searching for what has not yet been recorded: an invoice received after year-end, a dispute, or work performed but not yet billed. These situations do not all produce the same entry; some require disclosure in the notes.

Reliability allows estimates. The useful life of a machine or the risk that a customer will not pay requires judgment. Base that judgment on identifiable facts, not the profit you want to report. See depreciation calculations and accounting entries.

Materiality, consistency and no offsetting

Materiality depends on both amount and nature. A transaction with a director may deserve attention even if it is a small proportion of total expenses. A known error should not be deliberately retained without analysis simply by invoking materiality.

Consistency enables comparison across years. A justified change remains possible, but document its reason, the affected balances and the impact on understanding comparative figures.

If the same counterparty is both a customer and supplier, do not automatically replace the receivable and payable with their net difference. The identity of the counterparty alone does not authorise offset presentation.

Going concern: which basis should be used?

Accounts normally assume that the business will continue operating for the foreseeable future. Equipment can then be valued in the context of continuing use.

If cessation of all or part of the activity is intended or appears unavoidable within twelve months of the balance sheet date, the affected parts must be valued on a liquidation basis. Costs associated with closure or a reduction in activity must also be considered under the applicable rules.

A fall in sales does not automatically require liquidation values for the entire company. Review available liquidity, financing, orders, realistic corrective measures and commitments.

Going concern and over-indebtedness are related but distinct. The management obligations arising from financial distress are explained in capital loss and over-indebtedness in Switzerland.

Allocate income and expenses to the right period

Accrual accounting allocates transactions to the period they concern. Payment may occur before or after that period.

Example, excluding VAT: a business pays CHF 2,400 on 1 October for twelve months of insurance. With a 31 December year-end and an even allocation, three months belong to the current year: CHF 600. The remaining CHF 1,800 is a prepaid expense.

Conversely, work performed in December and invoiced by the supplier in January may require an accrued expense at year-end. Examine when the service was delivered, not just when the document arrived.

Article 958b provides a specific simplification where the relevant revenue does not exceed CHF 100,000. Do not confuse this with the CHF 500,000 threshold governing simplified bookkeeping for sole proprietorships and partnerships. A small LLC does not lose its other financial reporting obligations through this relief, and tax acceptance must also be checked.

These adjustments affect the income statement as well as the balance sheet. Our year-end closing article explains how to organise the review.

Prudence, risks and estimates

A customer owes CHF 12,000 and is involved in proceedings suggesting that only CHF 3,000 will be recovered. Assess a value adjustment so that the receivable is not presented as fully recoverable without justification.

Support the amount with correspondence, proceedings, guarantees or a settlement proposal. A general provision selected solely to reduce profit is not the same analysis.

Swiss commercial law permits certain hidden reserves. Its treatment cannot simply be equated with a true-and-fair-view framework such as IFRS or Swiss GAAP FER. Examine tax deductibility and any disclosure in the notes separately.

Prudence does not generate cash. Writing down a receivable reduces its carrying amount; it does not replace debt collection or a financing solution.

A checklist for applying the principles at year-end

Before finalising the accounts, gather answers to these questions:

• Have bank accounts been reconciled and missing documents identified?
• Are receivables, payables, inventories and equipment supported by evidence?
• Have year-end invoices and services been allocated to the correct period?
• Do estimates rely on current information retained in the file?
• Are methods consistent with the previous year?
• Are significant commitments and events explained where required?

Complete the review with the requirements for the notes to annual accounts. A checklist organises the work; a particular transaction may still need its own analysis.

Frequently asked questions