IFRS EU endorsement process [May 2023]
The European Financial Reporting Advisory Group (EFRAG) updated its report showing the status of endorsement of each IFRS, including standards, interpretations, and amendments, most recently on 5 April 2023.
On 26 October 2022, the Ministry of Finance sent a draft of the new Accounting Act for the comment procedure. The draft of the new Accounting Act is based on the intended subject-matter that was approved by the government on 5 October 2020. The intended subject-matter was developed by the Ministry of Finance in cooperation with a working group that included experts from both the academic background and accounting and audit practice.
According to the submission report, compared to the current Accounting Act, the bill focuses predominantly on financial reporting, i.e. on the preparation of financial statements rather than on bookkeeping. This is primarily aimed at reducing the administrative burden on entities, where the emphasis is on the resulting financial statements intended to provide relevant accounting information to external users.
The draft of the new Accounting Act introduces a number of changes, the most significant being as follows:
- A conceptual framework has been created that was previously missing in the Accounting Act. The conceptual framework defines, among other things, the components of financial reporting (assets, liabilities, reserves, revenues, expenses, etc.) and the principles of financial reporting (the requirement for a true and fair view, the going concern principle, relevance, balance sheet continuity, etc.).
- Natural persons will no longer be obliged to be accounting entities but will keep accounting records only on a voluntary basis. Branches of foreign legal entities from the EU will no longer be accounting entities; it is newly mandatory only for branches from non-EU countries if they are tax residents in the Czech Republic.
- The range of entities that will apply International Financial Reporting Standards as adopted by the European Union (IFRS-EU) will be extended.
- The definition of net turnover affecting the categorisation of entities will be narrowed to revenues from the sale of products and goods or services provided.
- In the area of valuation, we expect, for example, the introduction of discounting to present value and further approximation to what we know from international financial reporting frameworks.
- The act introduces the concept of “accounting reports”, which will include income tax reports as defined in the act in addition to management reports and reports on payments to administrative entities.
- It will be possible to keep accounting records in a currency other than the Czech currency – the institution of the so-called functional currency is introduced.
- Consolidation will be mandatory only for large groups of entities.
- Significant changes have also been made in the area of administrative delicts and fines for administrative delicts.
As the bill has yet to enter the inter-ministerial comment procedure and its wording may still change significantly, we will inform you about all the new provisions in detail after the bill is approved by the government. We will also follow the development of the bill throughout the legislative process. Comments on the bill can be submitted until 9 December 2022.
The proposed effective date of the act is 1 January 2024.
Along with the new Accounting Act, work is also underway on implementing regulations (for which a list of expected amendments has been submitted) and a bill amending and repealing certain acts in connection with the adoption of the new Accounting Act. It will also be essential to align tax regulations with the new accounting legislation.
The full text of the draft of the new Accounting Act and the explanatory report can be downloaded from the website of the Ministry of Finance.
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