Amendment to the Act on Accounting (effective from 1 January 2016)

13. August 2015

Presently, an amendment to the Act on Accounting is submitted to the Senate for approval. It is the largest change in the said act in recent years. The change brings for example categorisation of accounting units according to their size, re-introduction of single-entry bookkeeping for some accounting units and attempt to reduce the administrative load for minor accounting units.

The amendment draft is based on the Direction of the European Parliament and Council No. 2013/34/EU dated 26 June 2013. Approval by Senate and president is still required to implement the rule in the Czech Republic.

Some principal changes in the Act on Accounting:

Categorisation of accounting units

The accounting units will be categorised into micro, small, middle-sized and large accounting units according to criteria we provide in Table No. 1 in this Article. The amendment also allows certain simplification or even exemption from certain obligations for micro and small accounting units, however on the precondition that such accounting units are not obliged to undergo audit. For summary of the categorisation of accounting units see Table No. 1.

Single-entry bookkeeping reintroduced

The amendment suggests conditions, under which single-entry bookkeeping may exist, especially for very small accounting units established not to make profit. Business organisations and accounting units under the audit obligation must have double-entry bookkeeping.            

Extending the definition and use of real value

The regulation will definitely not allow the micro accounting units to evaluate the individual components of assets and liabilities with their real value. Evaluation of property with real value will be permitted to such micro accounting units, which operate in the financial market and are subject to prudency rules, or on which the obligation to evaluate their property with real value is imposed by another domestic regulation (for example by the Act on Investment Companies and Investment Funds).

Dividend payment limitation

If an accounting unit is reporting results of its own research and development in the Balance Sheet, such unit will be limited in paying dividends. A part of accumulated losses must remain in the Balance Sheet up to the value of the results of the company's own research and development not written-off.

Definition of events after Balance Sheet date modified

The amendment suggests precise defining of the events, information of which has been obtained by the accounting unit between the Balance Sheet date and the Financial Statement compilation date, with two types of such events to be distinguished:

  • Events that already existed as of the Balance Sheet date; they shall be reported in the bookkeeping of the current accounting period;
  • Significant events that occurred after the Balance Sheet date; they shall be reported in an annexe to the Financial Statement.

Purpose of the Financial Statement

The amendment defines that the purpose of Financial Statement is to provide information to economic decisions of external users of the Financial Statement. This definition should also be the guidance for the accounting units in choosing the respective methods and procedures.

Definition of a public interest entity

Transfer of the definition of a public interest entity from Act No. 93/2009 Coll., on Auditors, to the Act on Accounting.

Expanding the definition of reserves

Definition of reserves as a liability has been added. It is still possible to make additions to reserves to cover liabilities, but also to cover expenses, especially with regard to use of the category "liability" in legal rules regulating bookkeeping.

Implementation of categorisation of consolidation groups

In accordance with implementation of the accounting units categorisation, a small consolidation group will be newly distinguished. Inclusion in the respective consolidation group will again depend on reaching or exceeding at least two of the three defined criteria (i.e. amount of assets, net turnover and average number of employees) as of the Balance Sheet date. In accordance with Section 22a (1), the category of small group of accounting units is exempted from the obligation to compile a consolidated Financial Statement. The category of small and large group does not need to be defined, as all provisions concerning consolidation pursuant to Sections 22 to 23a apply to them.

Reports on payments to governments

Such reports shall be elaborated by large accounting units and public interest entities, particularly for the reason of better transparency of payments made to governments. This applies to the accounting units engaged in mining industry or in wood cutting in original forests.

Finally, it is necessary to emphasise that the bill of the Act on Accounting has not yet been approved (as of the closing date of our magazine) and therefore the aforementioned information is subject to change. If the bill is approved in the current version, the financial statements produced for the accounting period starting on 1 January 2016 shall be governed by the new regulations. We are going to monitor the status of the Act on Accounting for you.

Author: Michal Sikora