The 2024 financial year is over and Czech businesses are preparing their annual financial statements. You should be aware of significant changes in accounting legislation that will impact their preparation. The changes primarily relate to the definition of turnover, categorization of accounting entities, and audit obligations.
1. New Definition of Turnover
One of the most important updates is the new definition of turnover under Section 1d of the Accounting Act and Section 35 of Decree No. 500/2002 Coll. This revised definition applies specifically to entrepreneurial entities, while non-profit organizations remain unaffected.
The Chamber of Auditors of the Czech Republic (KAČR) clarified that:
-
The new turnover definition will apply for the accounting period beginning on or after 1 January 2024.
-
Therefore, the income statement for 2024 should report net turnover according to the new definition, while the comparative period (2023) will reflect the original definition.
-
Importantly, annual net turnover is one of the three key criteria used to determine the category of an accounting entity.
When evaluating an entity’s category as of 31 December 2024, the turnover for 2024 must follow the new definition, while 2023 turnover is still based on the previous criteria.
The Ministry of Finance confirmed that it is acceptable not to disclose 2023 turnover in the income statement for 2024, if it would cause confusion due to the differing definitions.
2. Categorization of Accounting Entities and Audit Obligations
The categorization of an accounting entity is critical because it determines the scope and structure of the financial statements and whether the entity is subject to statutory audit.
Key points:
-
Categorization is based on the results from 2022 and 2023.
-
Audit obligation for small entities is assessed based on data from 2023 and 2024.
-
Consolidation requirements are evaluated solely based on 2024 data.
Entity categories and thresholds (valid as of 2024):
| Category | Net Assets | Turnover | Employees |
|---|---|---|---|
| Micro | CZK 11 million | CZK 22 million | 10 |
| Small | CZK 120 million | CZK 240 million | 50 |
| Medium | CZK 600 million | CZK 1.2 billion | 250 |
| Large | Exceeds two limits of the medium category |
If an entity crosses two thresholds (either upward or downward) on two consecutive balance sheet dates, it will be reclassified starting from the next accounting period.
Note: There is a planned update to these thresholds currently going through the legislative process (first reading in the Chamber of Deputies). However, it does not affect the audit obligation.
3. Additional Clarifications: Treatment of Stamps and Vouchers
As of 2024:
-
Account 213 is reserved only for vouchers used as payment methods.
-
Items previously classified under this account that do not qualify as payment instruments should now be posted to Account 381 (prepaid expenses).
Final Note
These legislative updates are complex and have implications for financial reporting, audit requirements, and the classification of your business. If you’re unsure how the new rules apply to your entity, don’t hesitate to consult a qualified accountant or tax advisor.
Need support with your financial statements or audit obligations?
We’re here to help → www.expat-tax.cz