Detailed theses of the decree for entrepreneurs in connection with the accounting amendment

On 1 November 2024, the Ministry of Finance published an updated working version of the amended Accounting Act. Along with this version, more detailed theses of the decrees were also published, which supplement and clarify various points of the proposed law. In many cases, the detailed proposals for legislation and policies refer to specific International Accounting Standards (IFRS) and the National Accounting Council Interpretations (NUR). The opening balances guidance will be incorporated in the accounting legislation.

From a formal perspective, the statements appear to abandon the concept of a standardised structure, the line items should include references to the details in the notes and an indication on the materiality of the item. There will be a simplification of the reporting of assets, whereby gross values and adjustments will no longer be shown for assets part in the balance sheet. The issue of comparatives is likely to be addressed by the fully implemented National Accounting Council Interpretation I-30.

The theses of the decrees contain detailed principles of offsetting for purpose of financial statements and negative definition of offsetting at the level of statements compared to the credit, credit note and accounting for discounts. The shift towards reporting in accordance with international standards is the presentation, on an offsetting basis for  costs and revenues from the sale of fixed assets, interest income and expense, losses and surpluses of inventories, or reinvoiced costs for accounting entities whose principal activity is the sale of products, goods or services.

The new Accounting Act addresses the general definition of materiality of accounting information. Insignificant assets, materials, leasehold improvements and corrections of errors will be charged directly to the expenses. The presentation of groups of low value assets implies a similar approach as for prepaid expenses. The definition of the materiality threshold and how it is determined is assumed for public sector entities.

In relation to the measurement of the elements of the financial statements, present value measurement will be newly relevant  number of entities (especially medium and large entities). Long-term monetary debts, lease debts, long-term receivables and provisions are expected to be measured at present value. The reference interest rate will be PRIBOR for the Czech koruna. Entities using a different accounting currency shall use a similar relevant interest rate.

The impact of the revaluation of tangible fixed assets on fair value will not be included in available equity. It will gradually become distributable at the same rate as the revalued asset is depreciated, with an assumed zero tax effect.

The established terminology of technical appreciation (leasehold improvements and valuation allowance are refined. and the thesis of the Decree modifies their presumed definition.

The substantive solution includes a detailed definition of intangible assets, tangible assets and leases. For intangible assets, the link to IAS 38 is clearly defined for both internally and externally generated intangible assets. However, trademarks or customer lists will not be considered as intangible assets if internally generated. For tangible assets, there will be a precise definition of spare parts which, depending on their economic use, will be tangible assets or inventory. IFRS 16 will be mandatory for medium and large entities, while micro and small entities can opt for voluntary application.

For provisions, the definition will be refined in terms of the existence of a debt accompanied by uncertainty about the creditor or the maturity of the debt. Debts arising from consideration received shall be deemed certain unless the contrary is proved. Provisions for refunds where there is a right of repayment will be charged directly against revenue.

The estimations will be presented as part of receivables and debts, rather than as separate financial statements line items. Accruals will be recognised separately within receivables and payables section. Untaken leave will be reported as a debt to employees and its currently interpreted nature as a provision is explicitly excluded.

The section dealing with revenue recognition will address in more detail the previously uncovered situations where the total consideration is split into individual revenues with different timing of realisation. Consideration is given to the option of accruing according to the fair value of the individual elements or measuring the main part of the consideration at fair value and accruing the remaining consideration.

For subsidies, as has already been made clear in the published initial theses of the Declarations, the reduction of acquisition costs is replaced by accrual that will be released according to the fulfilment of the conditions of the subsidy (or reduction of the value of subsidised assets for insignificant subsidies).

The changes introduced by the updated working version of the amended Accounting Act and the related theses of the decrees are significant and will have a major impact on the accounting practice. This overview is not a complete list of all the changes but focuses on the key aspects that could affect your accounting practices. We will continue to monitor further developments and provide updates on new developments and their practical implications.

Author:

Kateřina Dedková