Report of the statutory auditor
to the Board of Directors of Raiffeisen Switzerland Cooperative, St. Gallen
Vadianstrasse 25a/ Neumarkt 5
9001 St. Gallen
Telefon: +41 58 792 72 00
Telefax: +41 58 792 72 10
Report on the audit of the consolidated financial statements
- –Consolidated balance sheet
- –Consolidated income statement
- –Cash flow statement
- –Statement of changes in equity
- –Notes, including consolidation, accounting and valuation principles
- –Information on the balance sheet
- –Information on off-balance sheet business
- –Information on the income statement
In our opinion, the consolidated financial statements as at 31 December 2018 give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the Accounting Rules for Banks (ARB) and comply with Swiss law as well as with the consolidation, accounting and valuation principles described in the notes.
Basis for opinion
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the “Auditor’s responsibilities for the audit of the consolidated financial statements” section of our report.
We are independent of Raiffeisen Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our audit approach
The scope of our audit was influenced by our application of materiality. Our audit opinion aims to provide reasonable assurance that the consolidated financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the consolidated financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the consolidated financial statements as a whole.
CHF 37.1 million
How we determined it
5 % of profit before tax, changes in reserves for general banking risks and extraordinary income and expense
Rationale for the materiality benchmark applied
We chose profit before tax, changes in reserves for general banking risks and extraordinary income and expense as the benchmark because, in our view, it is the benchmark against which the performance of the Raiffeisen Group is most commonly measured, and it is a generally accepted benchmark for materiality purposes.
We agreed with the Audit Committee of the Board of Directors that we would report to them misstatements above CHF 3.7 million identified during our audit as well as any misstatements below that amount which, in our view, warranted reporting for qualitative reasons.
We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where subjective judgements were made; For example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.
We tailored the scope of our audit at Raiffeisen Switzerland Cooperative, Raiffeisen Banks, Raiffeisen Switzerland B.V. and ARIZON Sourcing Ltd in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the group, the accounting processes and controls, and the industry in which the Raiffeisen Group operates.
The Raiffeisen Banks conduct their business activities in accordance with the centralised requirements of Raiffeisen Switzerland Cooperative; they are subject to centralised risk monitoring and have to organise their accounting and financial reporting and design the internal controls relating to the preparation of their financial statements in accordance with the guidelines of Raiffeisen Switzerland Cooperative. The process for preparing the accounts is the same for all Raiffeisen Banks. All financial statements of the Raiffeisen Banks are subject to a banking law and statutory audit. Given the homogeneity of the Raiffeisen Banks and their limited room for manoeuvre with regard to accounting and financial reporting, the reporting packages of about 60 % of the Raiffeisen Banks have been audited as at the date of preparing the consolidated financial statements of the Raiffeisen Group.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Valuation of loans to customers (amounts due from customers and mortgage loans)
Key audit matter
The primary income source of the Raiffeisen Group is its interest rate business. In this respect, it is involved in both the traditional mortgage business and the commercial loans business. We consider the valuation of loans to customers as a key audit manner as such loans represent the largest single asset category by value on the consolidated balance sheet at 83 % (prior year: 79 %). In addition, judgement is required to assess the valuation and the amount of any impairment. In particular, we focussed on the following points:
- –The approach applied by Raiffeisen Group to identify customer loans that are potentially impaired
- –The appropriateness and application of the significant judgement permitted by the policies relating to the calculation of the amount of any potential individual value adjustments.
The accounting and valuation principles applied to customer loans, the process used to identify the default risk and to determine the need for impairment as well as the evaluation of the collateral cover are taken from the consolidated financial statements (Notes).
How our audit addressed the key audit matter
We tested on a sample basis the adequacy and effectiveness of the following controls relating to the valuation of customer loans:
- –Credit analysis
Review of compliance with the guidelines and requirements concerning documentation, ability to repay, valuation and collateral
- –Loan approval
Review of compliance with the requirements of the internal authorisation regulations
- –Loan disbursement
Review of whether the disbursement of loans to customers is executed only after all of the required documents are present
- –Credit monitoring
Review of whether loans that show signs of being at risk are identified in a timely and complete manner, and whether loans that show signs of being at risk and impairments are checked periodically, especially with reard to the realisability of the collateral cover and the amount of the impairment.
Further, we performed the following tests of detail on a sample basis:
- –We performed an assessment of the impairment of customer loans and tested the application of the processes to identify customer loans with a potential need for impairment. Our sample contains a random selection of positions out of the entire loan portfolio as well as a risk-oriented selection of doubtful receivables. For our assessment, we used, among others, the expert opinions obtained by Raiffeisen Group regarding the value of collateral with no observable market price as well as other available information on market prices and price comparisons.
- –In addition, we made an assessment of the method to estimate impairments. Our audit focussed on customer loans identified as being at risk in the sense of the requirements of the FINMA Circular ‘Accounting – Banks’. We also checked whether the impairments were made in accordance with the accounting rules and the accounting and valuation principles of Raiffeisen Group.
The assumptions used were within the range of our expectations.
Responsibilities of the Board of Directors for the consolidated financial statements
The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view of the financial position, the results of operations and the cash flows in accordance with the Accounting Rules for Banks and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Raiffeisen Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors intends either to liquidate the companies in the Raiffeisen Group or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibility for the audit of the consolidated financial statements is located at the website of EXPERTsuisse: https://expertsuisse.ch/en/audit-report-for-public-companies. This description forms part of our auditor’s report.
Report on other legal and regulatory requirements
In accordance with art. 906 CO in conjunction with art. 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
Beat Rütsche Ralph Gees
Audit expert Audit expert
Auditor in charge
St. Gallen, April 1, 2019