New law on accounting

Change in the obligation to keep accounts

The new law aims (among other things) to reduce the administrative burden - organizational units of foreign entities, natural persons or small non-profit organizations (which are not VAT payers and whose net turnover and total assets do not exceed CZK 3 million) will not be required to keep accounting records. It should be noted that the obligation to keep records for tax purposes is not affected.

Emphasis on financial statements

The law (similar to International Financial Reporting Standards) recognises that financial statements are an important tool for communication between companies and the public, so its focus is less on the accounting process itself and more on the form (and content) of financial statements (and how they provide true and fair information to their users). It includes, among other things, definitions of various terms within the statements, such as assets, equity, debt, income and expenses.

Changes in leasing

One of the significant differences between Czech accounting standards and IFRS is the respect for content over form. The new law aims (like IFRS) to put substance over form, which will most significantly affect leases, which it proposes to treat as a way of acquiring the right to use, i.e. the lease will be treated similarly to a purchase (the lessee will thus include the asset in its balance sheet and account for it including depreciation).

Present value

The Act newly introduces the possibility to measure receivables and liabilities at present value, i.e. the discounted value of current net cash flows. This provision was one of the most frequently criticized in the comment procedure, with the most frequent criticisms being the laboriousness of implementation, the ambiguity of the benefit, the proposed voluntariness, and the resulting reduced comparability of information across accounting units (or years).

Decisive date of mergers

Mergers within the Czech Republic will also undergo a significant change - an entity participating in a merger that does not cease to exist as part of the merger will not terminate its accounting period as a result of the merger, but will only account for the merger from the date of the conversion.

Changes to the audit obligation

The law proposes to significantly increase the thresholds for the audit obligation - currently the proposal is set at CZK 240 million CZK annual turnover, 120 million CZK total assets and the average number of employees above 50 (the current law states the values of CZK 80 million turnover, CZK 40 million assets and 50 employees), while the company must exceed at least 2 of the 3 criteria for the audit obligation.

The law was originally scheduled to take effect on January 1, 2024, but due to the length of the legislative process, it is currently projected to take effect on January 1, 2025, and skeptics expect it to take effect a year later. The Ministry itself states that the validity of the law will depend on the implementation of all related regulations. Our experts will continue to monitor the issue and keep you informed of significant changes.