Categorization of undertakings in the wake of the Accounting Act amendment

Czech Republic: As of 1 January 2016, 90% of all companies will no longer have to publish a profit and loss statement and may compile overall simplified annual accounts (statements).

The Accounting Act has already seen almost 30 amendments, but is now expected to undergo the most fundamental modification yet: on 1 January 2016, an amendment bill will be signed into law which implements European directive 2013/34/EU into the Czech accounting rules. As of press date, the amendment bill (parliamentary press 398) has been approved by the Senate and awaits promulgation by way of the president’s signature.

Among the central changes brought about by the amendment bill is the introduction of a categorization system for businesses. They will newly fall into four different groups, each of which is subject to different duties. The following criteria decide to what group a given undertaking will belong: total asset value, net turnover, and average number of employees, converted to FTE.

Czech accounting rules thus newly recognize the following categories (whereas a company will fall into the given category if it does not exceed at least two of the three criteria):
• micro-undertakings: balance sheet total (A): CZK 9 million, net turnover (T): CZK 18 million, and average annualized number of employees (E): 10 employees;
• small undertakings: A CZK 100 million, T CZK 200 million, E 50 employees;
• medium-sized undertakings: A CZK 500 million, T CZK 1 billion, E 250 employees;
• large undertakings: the given entity exceeds at least two of the three criteria: A CZK 500 million, T CZK 1 billion, E 250 employees.

Data collected by the finance ministry suggests that almost 90% of registered entities in the Cech Republic fall within the definition of micro-undertakings under the new rules.

Micro-undertakings and small undertakings enjoy the greatest relief under the amendment: they may compile simplified annual statements, won’t have to publish as much information in the notes to the annual statements, won’t have to publish a profit and loss statement, and are relieved from the consolidation duty.

By contrast, medium-sized undertakings and large undertakings will be obliged to produce a cash flow statement and a statement of retained earnings (statement of changes to equity). Without these documents, the annual statements will be incomplete, which will cause trouble during the mandatory audit.

The goal behind the underlying European directive is two-fold: better alignment with international accounting standards, and less administrative burden for micro-undertakings and small undertakings. On the other hand, it also imposes significant demands in terms of transparency.

Source: Parliamentary Press No. 398 Amendment to the Accounting Act No. 561/1991 Coll. Directive 2013/34/EU

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