The new Accounting Act should be the most important part of the design of new accounting legislation whose goal is to create a new system of accounting regulations , which will be able to respond better to new and existing trends in the area of accounting.

From the history of the project

The working group for the preparation of the new accounting legislation was created by the Ministry of Finance already in 2017. Its goal was to perform an analysis and assess the need for new accounting legislation. In addition to the Ministry of Finance employees, the working group includes members of professional organisations, chambers and academia.

The result of this working group was the preparation of a working document entitled “Summary of solutions for the design of new accounting legislation 2020 – 2030”, which contains an analysis of the current situation as well as a proposal of the future treatment of accounting in the Czech Republic.

In November 2018, the material was presented for public consultation, where the expert public could familiarise itself with the new possible concept of accounting and comment on it.

In April 2019, the Ministry of Finance assessed the public consultation. In July 2019, it prepared a consultation document on the new Accounting Act and in mid-November 2019, it sent its slightly modified version to the inter-resort comment procedure. The deadline for addressing the comments is 14 January 2020. The consultation document on the Act is expected to be presented to the government no earlier than in mid-2020.

We describe below the primary changes that the new accounting policy should bring. Please note that the final form of the changes could differ from the proposed ones.

New system of legal regulations in the area of accounting

A new element should be the creation of a conceptual framework, which has so far been lacking in Czech accounting – a set of assumptions, principles and definitions that accounting is generally based on. It should be based on the current IFRS conceptual framework.

The Accounting Act in connection with the conceptual framework should regulate the basic rights and obligations of reporting entities and the general accounting requirements as such (e.g. demonstrability, archiving), including sanctions. One of the principles that should be clearly determined in the new accounting regulation is the principle of precedence of content over form. The Accounting Act should also regulate accounting deliverables (financial statements, consolidated financial statements and annual report or report of the management of the entity).

Matters concerning reporting and the use of accounting principles in typical or selected cases should be regulated at the level of implementing regulations. A joint regulation is expected for businesses and the non-governmental non-profit sector, i.e. merging current Regulations no. 500-504. There should also be a special regulation on consolidation, inventory-taking, health insurance companies, cash accounting and requirements for the approval of financial statements.

Several sets of the Czech Accounting Standards are expected to be issued, which will remain binding for reporting entities in the public sector but not for the others.

Application of IFRS

A significant change should come in the form of the proposed obligatory application of the International Financial Reporting Standards (IFRS) adopted at the level of the European Union (hereinafter “IFRS(EU)”) for selected companies that are subject to supervision by the Czech National Bank and operate on the financial market (banks, savings and loan cooperatives, insurance and reinsurance companies, pension companies, investment funds and investment companies). The application of IFRS(EU) would remain mandatory for business companies whose investment securities are admitted to trading on the regulated EU market.

Voluntary application of IFRS(EU) is proposed for reporting entities, which are part of a consolidation group where the consolidating entity (parent company) uses IFRS(EU) to prepare the consolidated financial statements, and for other entities active on the financial market.

No change compared to the current status is planned with respect to the application of IFRS(EU) for the preparation of the consolidated financial statements.

The consultation document on the Accounting Act states that a decrease in administrative burden is expected for all entities using IFRS(EU), provided that it will be possible to use the profit or loss determined based on these standards to determine the income tax base. This would be possible only if the proposed changes in Czech accounting legislation were connected to the relevant tax legislation, and this decision has not been made yet.

Currency of the financial statements

It is newly proposed to allow reporting entities to use a different currency than the Czech crown if it is efficient for the entity and this currency predominates in its transaction.

This proposed change would be made possible only if a concurrent change was made in tax laws to prevent a major increase in administrative burden.

Impact on businesses

The proposed legal regulation expects that it will ultimately decrease the administrative demands placed on businesses’ bookkeeping, improve the information value for all users and last but not least, increase digitalisation of accounting in order to make bookkeeping clearer and easier.

The consultation document also makes provisions for a high number of micro and small reporting entities, for which it envisions certain simplifications, and it does not expect any significant changes in established accounting policies.

Effective date of the new Accounting Act

It is proposed that the Accounting Act should come into effect at least twelve months after entry into force, but in any case on 1 January of the following calendar year.