Update on the new accounting law

The new Accounting Law is intended to allow accounting units to more accurately reflect the economic substance of transactions carried out. The Law has undergone extensive changes and now contains 251 sections.

Let us summarize some of the major changes that the new Accounting Law will bring:

• Change in basic accounting principles - Focus on accounting reporting instead of bookkeeping; substance over form.
• Emphasis on financial statements - Accounting will focus more on the information provided to users.
• Inclusion of International accounting standards - Principles that were previously applicable only to entities using international accounting standards will now be adopted.
• Changes in the reporting of real estate leases, tangible assets, and changes in accounting for all lease agreements - Leasing will now be accounted for as financing rather than rent. This will lead to the inclusion of leased assets in the assets and liabilities of the company and to the depreciation of leased assets.
• New valuation methods for receivables and debts based on present value - Abandonment of the principle of reporting solely at nominal value.
• Changes in reporting business combinations - Valuation and reporting of goodwill, abolition of valuation differences on acquired assets.
• Changes in the systematic valuation of assets and liabilities at Fair Value - Including fair valuation of fixed assets and financial instruments. More frequent use of fair value, also defined under IFRS.
• Changes in reporting employee benefits - Social fund, untaken leave.
• Different definition of provisions - Some provisions can no longer be recognized (e.g., provision for repairs, provision for income tax).
• Change in revenue reporting, e.g., for Long-term Projects.
• Change in the way of determining the equity method.
• Changes in consolidation methods - Proportional consolidation method abolished, change in the way the equity method is determined.
• New definition and categorization of accounting units, including Audit Obligation - Fewer accounting units - with the new rules, the number of entities required to maintain accounting records will be reduced. This requirement should no longer apply to branches of foreign entities or individuals. However, they will still have to keep records for tax purposes.
• Mandatory reporting under IFRS for most financial Institutions and Insurance companies (the Decree No. 501/2002 Coll. will be repealed without replacement).
• Abolition of the term annual report - replaced by a set of reports (e.g., management report, sustainability report).
• Mandatory Audit for fewer companies - There will be a significant increase in the thresholds for mandatory audit of financial statements, up to three times the current levels (except for employee numbers). Audits will be carried out only by entities meeting 2 of the 3 criteria: turnover above CZK 240 million; asset value above CZK 120 million; and/or more than 50 employees.
• Accounting in foreign currency - Under certain conditions, accounting units will be allowed to keep accounts in a selected foreign, so-called functional currency (USD, EUR, or GBP).
• Introduction of Mandatory Electronic Submission of Financial Statements and overall electronization of Accounting.
• Introduction of a new set of Czech accounting standards - This will replace some existing CAS and Accounting and Tax Evidence Procedures. The new CAS will be based on International Financial Reporting Standards, taking into account the specific needs of Czech accounting units.
• Changes in the Preparation of Financial Statements - Specifies the content and structure of the financial statements with an emphasis on providing relevant and understandable information to users.

In connection with the new Accounting Law, many other laws, decrees, and regulations will be amended through an accompanying law, including significant amendments to the Income Tax Act, the Civil Code, the Act on Business Corporations, and many others.

In conclusion, it should be noted that the new Accounting Law represents a significant step towards modernizing Czech accounting and aligning it with international standards. As described above, it will bring numerous changes for all types and sizes of accounting units, requiring significant adaptation of accounting systems and processes. However, once implemented, the new Accounting Law promises to simplify and streamline accounting, enhance transparency and relevance of accounting information, and strengthen overall competitiveness in relation to our international partners. Given the scope and complexity of the changes, we recommend that accounting units familiarize themselves with the new law in a timely manner. If you need any assistance, do not hesitate to contact us.