On 19 March 2025, the Budget Committee reviewed the proposed amendments submitted by Members of Parliament and recommended that the Chamber of Deputies approve the Government’s draft amendment to the Accounting Act in the second reading, incorporating the proposed amendments. The full text of the proposed amendments is available on the Chamber of Deputies website. 

What are the Budget Committee’s recommendations for approval in the second reading, scheduled for the 136th session (commencing 15 April 2025)? 

1. Increasing the limits for the classification of reporting entities and groups for the turnover and total assets indicators (the headcount indicator remains unchanged)  

• Micro entities: total assets up to CZK 11 million, turnover up to CZK 22 million.   

• Small entities and small groups: total assets up to EUR 120 million, turnover up to CZK 240 million.   

• Medium-sized entities and medium-sized groups: total assets up to EUR 600 million, turnover up to CZK 1.2 billion  

 2. Change in the statutory audit requirement – amendment to Section 20 of the Accounting Act 

Under the proposed amendment, the statutory audit requirement would apply only to medium-sized and large reporting entities (with the exception of selected reporting entities). This change would eliminate the current obligation for small reporting entities to undergo a statutory audit upon exceeding the legal thresholds. The obligation to audit consolidated financial statements, as well as audit requirements imposed by other legal regulations (e.g. in the case of conversions or foundations), would remain unchanged. 

3. Change in the sustainability reporting obligation – amendment to Section 37 of the Accounting Act  

The Government’s originally proposed expansion of the obligation to prepare a sustainability report has been withdrawn, following the European Commission’s published intention under the Omnibus initiative (as reported in our previous article). Conversely, the scope of entities required to prepare a sustainability report under the current legislation would be slightly reduced. According to the new proposal, the obligation would apply only to companies, credit unions, or insurance companies that: 

• are classified as public interest entities, 

• meet the criteria for a large entity, and 

• exceed an average headcount of 1,000 employees during the reporting period as of the balance sheet date. 

The amendment is expected to come into force on 1 January 2026. However, as mentioned in our September article, certain provisions—such as the revised classification limits—may apply retroactively to some extent. 

What specific changes are proposed to the statutory audit requirements? 

Let’s now take a closer look at the practical implications of the proposed amendment on audit requirements. As outlined above, under the new proposal, small entities would no longer be required to have their financial statements audited for reporting periods beginning on or after 1 January 2026. This change would also release them from the obligation to prepare an annual report and, in most cases, from the requirement to publish a profit and loss account–unless otherwise required by specific legislation. These entities may also be permitted to prepare condensed financial statements. 

Entities that prepare condensed financial statements are not required to recognise deferred tax. However, if an entity has previously accounted for deferred tax, it cannot discontinue this practice solely due to the change in the scope of its financial reporting. Such a change would be considered a voluntary change in accounting policy, which is only allowed if it improves the true and fair presentation or enhances the quality of the financial statements. Ceasing to recognise or removing previously recognised deferred tax would not meet this condition and could compromise the reliability of the financial statements. 

The fact that an entity is not legally required to have its financial statements audited does not necessarily mean that it will avoid an audit altogether. For instance, if the entity is a subsidiary or part of a group where the parent (consolidating) company prepares consolidated financial statements that are subject to audit, the data used in the consolidation must also be audited. Additionally, banks may require audited financial statements when providing financing, and audits may also be necessary for certain grants or may be required by potential investors. 

Is an optional (non-statutory) audit different from a mandatory (statutory) audit? Can it be cheaper? From the perspective of the auditor and the applicable auditing standards, it is entirely irrelevant whether the audit is required by the Accounting Act, as long as the auditor is engaged to provide reasonable assurance, meaning they issue an opinion stating whether the financial statements give a true and fair view. The only difference is that in the case of an optional audit, the contracting entity may choose a lower level of assurance, referred to as limited assurance, which typically involves a lower scope of audit work. It is also worth noting that if a company is not subject to regular audits and then requires one for a specific purpose (e.g. to obtain more favourable financing or in connection with a corporate transformation), such a one-off audit is often more costly, and the audit process itself tends to be longer or more complex. In contrast, regular audits help to avoid these disadvantages. 

The audit has often been a valuable tool for tax advisers, who could rely on the fact that accounting data and accounting methods had been independently verified. This helped reduce the risk of the tax authority challenging the selected accounting method as non-compliant with the Accounting Act. This raises the question of whether the savings from not conducting a statutory audit may, in fact, lead to increased costs in preparing the tax return. 

Therefore, if the proposed limitation of the statutory audit obligation is approved, the decision whether to discontinue cooperation with the auditor—or to continue it and in what scope—will certainly require a more thorough analysis by the entity’s management. This should include an assessment of the economic impacts (verification costs versus potential increases in credit financing costs, higher tax risk, etc.). 

The letter of the Chamber of Auditors of the Czech Republic also offers some additional points for consideration in connection with the proposed increase in statutory audit limits.