Approval process begins for new Accounting Act
The Ministry of Finance has published a draft of the new Accounting Act, for which the comment procedure has been completed. According to the proposal, the law should enter into effect on 1 January 2025. The bill will now be discussed by the government's legislative council and then submitted to the government for approval. Of course, its wording may still change as it goes through the legislative process. The act is expected to be passed in the autumn at the earliest.
The new Accounting Act is an extensive regulation (draft Accounting Act). Here are some of the changes it should bring, compared to the current law:
- It mainly focuses on financial reporting, i.e., on the preparation of financial statements that give a true and fair view of an entity’s financial position and financial performance, not so much on the keeping of accounts.
- It defines a number of principles which are based on international accounting standards and which, e.g., give preference to (the same) economic content of (different) legal facts (the same approach to the ownership of things and to their acquisition in the form of financial leases: in both situations, the things are treated as the entity’s assets).
- It extends the use of international standards as adopted by the European Union in account keeping and the preparation of financial statements. It distinguishes between the mandatory use of international accounting standards, e.g., by financial institutions and funds, and the voluntary use by entities that are included in consolidations under international accounting standards (or whose tax administrator is the Specialised Tax Authority).
- It narrows down the scope of entities: individuals, branches of foreign entities or certain non-profit organisations should not be obliged to keep accounts under this act, although they will have to keep some form of accounts to determine their tax base.
- It extends the possibility of using a foreign currency as an accounting currency to currencies other than euros, dollars, and British pounds, as long as they meet the functional currency conditions.
- It proposes to increase the thresholds for statutory audits to entities with assets amounting to more than CZK 120 million, an annual net turnover above CZK 240 million, and an average number of employees of 50 (at least two criteria must be met).
- The published document also includes the basic theses of the implementing regulations allowing to reflect the changes in accounting methods in the preparation of an amendment act (including an amendment to the Income Tax Act), which is currently being prepared and should enter into effect together with the new Accounting Act.
However, only the final form of the amendment act, and in particular the amendment to the Income Tax Act, will show whether the aim of reducing the administrative burden for accounting entities will be fulfilled.