Andrew Chamberlain of Zurich Switzerland and of AES International details some recent news regarding changes in Swiss accounting standards. Enjoy the show and be sure to share. Thank you and check back again soon for more updates!

1. SWISS ACCOUNTING
STANDARDS
Andrew Chamberlain

2. THE SHIFT
• When it comes to choosing between the International
Accounting Standards (IAS) 19 and the local US General
Accepted Accounting Principles (GAAP) system, Swiss
sponsors have recently shown inclination for the lesser used
local standards, with IAS19 proving less beneficial for Swiss
second-pillar pensions
• Stephen Bouvier, in his article on Swiss accounting standards,
explores this paradigm shift with a critical comparison of both
standards in respect to second-pillar pensions

3. • Typically, Swiss retirement provision is designed around cash-balance
plans, officially known as final-salary plans, which ensure lifetime
pensions with the perks of long-term disability and widows benefits
• Legally speaking, a Swiss second-pillar provision classifies almost all
Swiss plans under the defined-benefit (DB) umbrella, making them
eligible for IAS 19 Employee Benefits, from an accounting standpoint
• However, the Head of Mercer’s Swiss retirement practice, Willi
Thurnherr points out the lower statutory rate than the standard
2-3% range results in underfunding in both GAAAP and and
International Financial Reporting Standards [IFRS]
• Fortunately, under the Swiss legal system, most schemes are
sufficiently funded

4. • While IFRS determines the discount rate by applying
high-quality corporate bond rate, the Swiss discount
rate is based on expected return on plan assets
• In the long run however, the focus goes shifts away
from market-based valuation as experts point out a
Swiss company’s true pension funding position is
understated in the statutory liability measure
• Insuring the DB liability is another possible approach,
even though there is always a chance of a sponsor
transferring risk to an insurer

5. • A notable difference between IAS 19 and the Swiss statutory
model is the method of calculation of liability for scheme
members
• Swiss law holds sponsors accountable for scheme members
and more than 95% of Swiss plans are cash balance plans with
guarantee, while IAS 19 requires sponsors project unit credit
to DB schemes
• Willi Thurnherr noted that one of the biggest hurdles of
adopting IAS 19 was that according to Swiss plans, employer
contributions increase with age, while IAS 19 avoids the back-
end loading effect by attributing future contributions increases
equally over time

6. • In Switzerland, when employees leave services, all accrued benefits
are sent to them in the form of account balance and the liability of
the employers is simply the balance amount in the winding down
scheme, ridding them of all future liabilities
• In retrospect, it makes sense for Switzerland and its system to go
against norms and choose local GAAP instead of IAS 19 and IFRS.
G20, World Bank, the IMF, the Basel Committee, IOSCO and IFAC
share the unified vision of sharing a globally applicable single set of
accounting standards
• However, an research conducted by IFRS Foundation indicates that
out of 138 jurisdictions, 10 nations remain uncommitted to having a
single set of global accounting standards and Switzerland is one of
these 10 nation

7. • The Swiss stock exchange, SIX conveniently remains
flexible to both the standards, depending on the business
and the requirements of the issuer
• Two primary listed commercial enterprises are the Main
Standard and the Domestic Standard, allowing distinction
between entities
• IFRS is typically be under Main Standard, while GAAP
under Domestic and because of the transparency of
GAAP, SIX has been experiencing a steady shift of listing
towards the Domestic Standard since 2012, giving Swiss
system the hope of making it the only standard someday

8. - Andrew Chamberlain
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