As this amendment implements the requirements of European Directives, particularly the Corporate Sustainability Reporting Directive (CSRD) – Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 – and the Commission Delegated Directive 2023/2775 of
17 October 2023, amending Directive 2013/34/EU of the European Parliament and of the Council as regards the adjustment of the size criteria for micro, small, medium-sized and large enterprises or groups, it is not anticipated that the Chamber of Deputies will adopt this amendment.

What is the proposed effectiveness of the amendment?

The proposed effective date is set for 1 January 2026, with certain specified provisions coming into effect the day after their publication in the Collection of Laws. Unfortunately, the transitional provisions of the amendment are rather complex and difficult to interpret clearly. Therefore, the information provided below regarding the effective dates of individual provisions is only indicative.

What does the proposed amendment bring?

The first significant change is the implementation of Directive 2023/2775, which raises the thresholds for categorising entities and groups based on turnover and total assets by approximately 20%. According to the transitional provisions, this amended rule may already be applied for classifications in reporting periods beginning on or after 1 January 2024. The new limits for these two indicators are as follows:

• Micro reporting entity: assets up to CZK 11,000,000, turnover up to CZK 22,000,000
• Small reporting entity and small group: assets up to CZK 120,000,000, turnover up to CZK 240,000,000
• Medium-sized reporting entity and medium group: assets up to CZK 600,000,000, turnover up to CZK 1,200,000,000

The threshold for the average number of employees remains unchanged.

This means that the 2024 reporting period could be the first time an entity no longer exceeds two of the specified thresholds (the change is not retrospective). However, in accordance with Section 1e(2) of the Accounting Act, an entity’s classification can only change if this situation persists for at least two consecutive reporting periods. As a result, any change in classification solely due to the new thresholds may take effect in 2026 at the earliest.

The change to the turnover threshold has also impacted the obligation to prepare and disclose an income tax report, with the net turnover indicator increasing from CZK 200,000,000 to
CZK 240,000,000.

The amendment also broadens the consolidation obligation to include not only commercial companies but also credit unions and insurance companies, provided they are the controlling entity.

In addition, the amendment transposes the requirements of the Corporate Sustainability Reporting Directive (CSRD). The previous version of the CSR provisions addressed only the first wave of reporting for 2024. This amendment expands the requirements in the following areas:

• Obligations to prepare: Sustainability reports must be prepared by any company, credit or savings cooperative, or insurance company that qualifies as a large reporting entity. This obligation will take effect, according to transitional provisions, for reporting periods starting on or after 1 January 2025. It also applies to issuers of securities admitted to trading on a European regulated market, with an exception for issuers that are micro-reporting entities (the provision in the Accounting Act that automatically classifies any public interest entity as a large reporting entity does not apply in this case). A consolidated sustainability report must now be prepared by every large group, except when the consolidating entity is an investment fund.
  The transitional provisions for consolidated sustainability reports are similar to those for individual sustainability reports.
• Obligations relating to third-country sustainability reports or consolidated third-country sustainability reports: Entities are now required to prepare sustainability reports or consolidated reports that meet the standards for third-country operations.
• Content: The simplification for reporting value chain information has been removed. Notably, there are extensive transitional provisions outlining when this repeal will take effect for different types of entities. A special provision has been added for the sustainability reports of medium and small entities.
• Disclosure: Sustainability reports are now subject to the same disclosure requirements as financial statements.
• Labelling: If a document is labelled as a sustainability report, it must comply with the requirements of the Accounting Act for such reports, including the audit obligation. This provision aims to prevent entities not required to produce a sustainability report from misusing the title for documents that do not meet the necessary content and quality standards.

In line with the implementation of the CSRD Directive, Section 21(3) has been amended to extend the obligation to disclose information about intangible resources that are fundamental to an entity’s business model and are a source of its value. This requirement now applies to all entities obliged to prepare a sustainability report. However, several exceptions to this regulation are outlined in the transitional provisions.

What about the new Accounting Act?

As the draft of the new Accounting Act has not yet been submitted to the Government Legislative Council or Parliament, it is evident that its approval is unlikely before 2025. Given the recommendation by the Legislative Council that the Act should not come into effect until 12 months after its promulgation, it appears probable that the new Accounting Act will not be effective before 1 January 2027. Therefore, the adoption of the proposed amendment to the existing Act is crucial, as the current version does not incorporate the transposition of the directives required by the European Union.