Activity Report 2015

Enforcement and court rulings | FAOA 2015 41
Enforcement and court rulings
Enforcement
In the reporting year 11 applications
were rejected (prior year: five). Five
individuals withdrew their applications
or licences during ongoing
proceedings (prior year: seven). One
application was not proceeded with
due to incomplete documentation
(prior year: none). Additionally, 14
licence withdrawals were imposed
(prior year: 21) and 34 reprimands
issued (prior year: none). The number
of reprimands has increased, on
the one hand, because the FAOA has
had the possibility to reprimand audit
firms and individuals that are not state-regulated
since 1 January 2015. On
the other, most reprimands relate to
deficiencies identified in renewing the
licences of audit firms that are not state-regulated.
As licence renewal takes
place only every five years far fewer
reprimands are expected in 2016.
Court rulings
The federal courts (Federal Administrative
Court (FAC), Federal Criminal
Court (FCC) and Federal Supreme
Court (FSC)) again addressed FAOA
practice, and in particular the withdrawal
of licences from auditors and
audit experts. A complete list of all
rulings is given on page 51. The rulings
mentioned below are of note.
According to the FAC 46 the withdrawal
of an auditor’s licence for two
years is proportionate where the auditor,
as auditor-in-charge of a group,
respectively various subsidiaries, on
the one hand regularly attended
board meetings and represented a
board member at those meetings
and, on the other, represented a significant
shareholder (23.63% of shares)
at board meetings and at the general
meeting of shareholders, as well as
acting as chairman at an extraordinary
meeting.
The auditor-in-charge was, at least in
appearance, acting as a board member,
and thus in a decision-making
role, and had a close business relationship
with a director and a major
shareholder of the audited company.
The court concluded that the same
would apply if the shareholders of
the audited company agreed to the
independence violation. It is also irrelevant
that the board member and
major shareholder provided clear instructions
to the auditor-in-charge
in the power of proxy as regards his
representation. Upon appeal against
this ruling the FSC 47 confirmed the
independence breach. It concluded,
however, that this had occurred on
only one mandate and that the illegal
situation had been corrected at
the initiative of the auditor-in-charge
and before the intervention of the
FAOA. The court therefore came to
the conclusion that under these special
circumstances license withdrawal
without prior warning was not permissible
48 .
In another case the FSC 49 dealt with
the failure to exercise proper duty of
care in the audit of the consolidated
financial statements of a listed
company. The auditor-in-charge had
overlooked the fact that the value
of a loan and profit for the year had
been overstated, respectively understated,
by CHF 14 million. The court
found that the so-called «20% rule»
(Art. 6 para. 1 letter b AOA) applied
to the audit firm and not to specific
audit services and therefore could not
be held against the auditor-in-charge.
Conversely, the latter is responsible
for audit quality on the audit engagement
(Art. 18 AOA), although this did
not presuppose a natural or adequate
causality between his conduct and
the mistakes of a member of his audit
team. The FSC confirmed the ruling
of the FAC and thus also the FAOA
reprimand of the auditor-in-charge.
46 FAC Ruling No. B-1826/2013 of 7 January
2015.
47 FSC Ruling No. 2C_125/2015 of 1 June
2015.
48 The FAOA applied to the FSC for a review
of this ruling as it believed it was based
on an incorrect assessment of the facts. In
particular, the breaches referred to did not
only occur on one engagement but 13 audit
engagements and the auditor-in-charge
restored a lawful situation only after,
and not before, FAOA intervention. In a
ruling of 30 July 2015 the FSC rejected the
application for review.
49 FSC Ruling No. 2C_163/2014 of 15 January
2015 (instituted on appeal against
FAC Ruling No. B-3736/2012 of 7 January
2014, cf. in addition the statements made
in FAOA Activity Report 2014, p. 36).