Vláda projednala nový zákon o účetnictví a doprovodné zákony

On November 27, the Government of the Czech Republic discussed the proposal for a new accounting law along with accompanying legislation. This step marks a significant advancement in the modernization of Czech accounting legislation, which has been in preparation for several years.

Why is this change so significant?

The existing accounting law dates back to 1991 and no longer meets the needs of today’s economy or the trends in international reporting. The new proposal focuses on what is most important for users of accounting information: financial reporting. The aim is for the financial statements to provide a true and fair view of the company’s financial situation and performance. While bookkeeping remains, the main emphasis shifts to the quality and clarity of the resulting reports.

The new law expands the scope of accounting entities that will use the international accounting standards (IFRS) adopted by the European Union. This is a step that the professional community has long demanded, as many companies already use IFRS due to their connections with foreign groups.

Regarding the extent of the proposed changes to income tax law, it is significant. In combination with the proposed changes in accounting, this represents one of the largest changes to Czech taxes since the establishment of the independent tax system.

Below are selected insights:

Taxpayers using international accounting standards will generally base their results on the performance determined according to these standards. However, adjustments will need to be made to the tax base for any permanent differences between Czech standards and IFRS.

A revolution in asset management is underway. There will be a complete recodification of the approach to assets and their management. This includes changes in terminology, approaches to leasing, tax depreciation, depreciation groups, depreciation periods, technical and newly additional valuations, and related value limits.

Given the extensive changes, the proposal includes many specific transitional and phased provisions, such as specific procedures for the introduction of the IFRS tax regime, the implementation of new depreciation rules, or the new approach to financial leasing.

And what about effectiveness? The accompanying letter does not specify a date. The specific date will likely be decided as part of further steps. How quickly will it be possible to set the effectiveness of such a fundamental change, and will companies be prepared?

What does this mean for practice? Companies should prepare for new requirements in reporting, consolidation, and valuation. For some, this will mean transitioning to IFRS, for others, changing reporting to comply with IFRS, and for others, simplifying administration. In any case, this represents the largest change in accounting legislation in over thirty years.

We will see how the newly incoming government approaches this initiative. This topic will certainly not be the last time we write about it.

Authors:

Kateřina Dedková

Hana Cicvarková