The new Accounting Act is going to introduce some changes as regards the obligation to have financial statements audited. Will they affect you?

With the forthcoming new Accounting Act, the rules for the statutory auditing of financial statements are changing. If you are already shuddering at the mention of an audit, we have good news for you! The new rules may mean that you will not even be subject to the mandatory audit.

In this article, we will have a look at the criteria for statutory audits in force until 2023, how these criteria have changed since 1 January 2024, and how they will change with the new Accounting Act as of 1 January 2025 (provided that the Act passes through the legislative process in its current form).

Criteria for the statutory audit of financial statements for fiscal years beginning in 2023

Under current legislation, the following accounting entities are required to have their financial statements audited:

1. Large accounting entities
2. Medium-sized accounting entities
3. Small accounting entities if they exceeded or reached at least two (or only one for joint-stock companies and trust funds) of the following values as at the balance sheet date:
   • Total assets: CZK 40,000,000
   • Total annual net turnover: CZK 80,000,000
   • Average headcount: 50

Changes for fiscal years beginning on or after 1 January 2024

The amendment to the current Accounting Act has not brought about any change in the value thresholds for assets and turnover, but it has modified the definition of net turnover. Until now, all revenues were included in turnover. As of 1 January 2024, net turnover is defined only as revenue from the sale of products and goods and the provision of services on which the accounting entity’s business model is based. Revenues that are not included in turnover are, for example, revenues from the sale of assets and financial income (account groups 64 and 66) unless the company’s business model is based on them.

The change in the definition of net turnover means that some small accounting entities that would have been required to have their financial statements audited under the old rules are no longer required to do so.

The new Accounting Act brings changes that can save you a lot of trouble

The new Accounting Act, which is expected to come into force on 1 January 2025, regulates the value thresholds for classification into individual categories of accounting entities. We note that these criteria have not been adjusted or indexed for inflation for more than 20 years.

Categories of accounting entities under the new Accounting Act

Micro accounting entity

You fall into this category if you meet at least two of the following conditions:

• Total assets of up to CZK 11,000,000
• Total annual net turnover of up to CZK 22,000,000
• Average headcount for the fiscal year of up to 10

Small accounting entity

• You are not a micro accounting entity and you meet at least two of the following conditions:
  • Total assets of up to CZK 120,000,000
  • Total annual net turnover of up to CZK 240,000,000
  • Average headcount for the fiscal year of up to 50

Medium-sized accounting entity

• You are not a micro or small accounting entity and you meet at least two of the following conditions:
  • Total assets of up to CZK 600,000,000
  • Total annual net turnover of up to CZK 1,200,000,000
  • Average headcount for the fiscal year of up to 250

Large accounting entity

You are a large accounting entity if you meet at least two of the following conditions:

• Total assets exceeding CZK 600,000,000
• Total annual net turnover exceeding CZK 1,200,000,000
• Average headcount for the fiscal year exceeding 250

Mandatory audit? For medium-sized and large entities only.

According to the new Accounting Act, the statutory audit applies only to medium-sized and large accounting entities. This means that if you are a micro or small accounting entity, you can relax – no mandatory audit for you! The cancellation of the audit obligation for small accounting entities will lead to administrative simplification as these entities will not have to deal with the costs and processes associated with audits.

Companies may have their financial statements audited voluntarily. However, a voluntary audit does not automatically extend the deadline for filing the corporate income tax return.

Change of categories

Unless you exceed at least two criteria for classification as a medium-sized accounting entity in 2024, you do not have to worry about audits for at least three years. The earliest you can be subject to a statutory audit is for the fiscal year 2027. The accounting entity’s category will only change if you exceed two criteria for the current category in two consecutive years – only from the following fiscal year will you be placed in the new category.

What should you do if you do have the audit obligation?

If you fall into the category of entities subject to the statutory audit, or if you do not have the audit obligation but your parent company or bank requires you to be audited, there is no need to panic. An audit can be a useful tool for improving your financial processes and increasing your company’s credibility.

How can we help?

The basis of the financial statements, and therefore of a successful audit, is reliable, well-maintained accounting that complies with all currently applicable legislative requirements. Whether you are an audited or unaudited company, we will be happy to provide you with professional accounting services and make sure your books are always in perfect order – and not only for the purposes of financial statements and audits.