An amendment to the Act no. 563/1991 Coll., On Accounting, which incorporates new European Union legislation into Czech law, will come into force on 1st January 2016. This extensive amendment, published in September in the Collection of Laws under no. 221/2015 Coll., brings the greatest changes in accounting since 2003. The main changes concern the categorization of accounting entities and consolidation groups. The amendment also reinstates the institution of single-entry bookkeeping and a new obligation to draw up a report on government payments.
In this first part of the article, we will focus on the categories of accounting entities and consolidation groups of entities.
Categories of accounting entities
Accounting entities will be newly classified into one of four categories - micro, small, medium and large. The classification is based on whether a unit on the balance sheet date exceeds at least two of the three established criteria: value of assets, net turnover and average number of employees.
Section 1b of the Accounting Act states:
(1) A micro entity is the one that does not exceed at least two of the following values on the balance sheet date
a) Total assets CZK 9,000,000,
b) annual net turnover of CZK 18,000,000,
c) average number of employees during the accounting period: 10.
(2) A small entity is one that is not a micro entity and does not exceed at least two of the following values on the balance sheet date
a) Total assets CZK 100,000,000,
b) annual net turnover of CZK 200,000,000,
c) average number of employees during the accounting period: 50.
(3) A medium entity is one that is not a micro entity or a small entity and does not exceed at least two of the following values on the balance sheet date:
a) Total assets CZK 500,000,000,
b) annual net turnover CZK 1,000,000,000,
c) average number of employees during the accounting period: 250.
(4) A large entity is one that exceeds at least two of the values specified in paragraph 3 on the balance sheet date.
(5) The following accounting entities are always considered a large entity:
a) a public interest entity,
b) a selected entity.
There are different rules set for each category of accounting entities in relation to the full or simplified extent of accounting, the obligation to prepare a cash flow statement or a statement of changes in equity. Different rules also apply to the obligation to verify financial statements by an auditor, to prepare an annual report or to publish a profit and loss statement.
Categories of groups of accounting entities
New categories of accounting entities come hand in hand with new categories of groups of entities. The entities are, again, categorized into groups based on the fact whether they exceed the values of at least two of the three established criteria on the balance sheet date: value of assets, net turnover and average number of employees. The law newly distinguishes between small, medium and large groups of accounting entities.
Section 1c of the Accounting Act states:
(1) A small group of entities is one that consists of a consolidating entity and consolidated entities and that does not exceed at least two of the following values on a consolidated basis on the balance sheet date:
a) Total assets CZK 100,000,000,
b) annual net turnover of CZK 200,000,000,
c) average number of employees during the accounting period: 50.
(2) A Central Group of entities is one that is not a small group of entities and consists of a consolidating entity and consolidated entities and that does not exceed at least two of the following values on a consolidated basis on the balance sheet date:
a) Total assets CZK 500,000,000,
b) annual net turnover CZK 1,000,000,000,
c) average number of employees during the accounting period: 250.
(3) A large group of entities is one that consists of a consolidating entity and consolidated entities and exceeds at least two of the values specified in paragraph 2 on a consolidated basis on the balance sheet date.
A small group of entities is not obliged to prepare consolidated financial statements, except in cases where one entity in the group is a public interest entity. The definition of the public interest entity (Section 1a) has newly moved to the Accounting Act (it was formerly part of the Act on Auditors).
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