New Accounting Act – changes in the obligation to audit financial statements

The published draft of the new Act on Accounting envisages changes in the obligation to audit individual financial statements, i.e., in the scope of the range of accounting entities that will be subject to audit. In view of the sensitivity of the topic, the text of the law proposes two alternative solutions.

The first alternative assumes that the mandatory audit would remain only for medium and large accounting entities, while the category of small accounting units would be completely exempted from this obligation. The thresholds for classification into categories of entities are the same in the new law as in the current legislation.

The second alternative is to include small entities in the mandatory audit according to the criteria, which have, however, been increased by inflation since 2002 (when the current limits were set). The newly proposed values for the statutory audit are total assets of CZK 65,000,000, annual net turnover of CZK 130,000,000 and average number of employees per accounting period of 50.

This proposed change is rather surprising. The drafting of the new act also involved the professional public in several working groups. However, the issue of auditing was not discussed during this process, as is evident from the opinion of the Chamber of Auditors of the Czech Republic (https://www.kacr.cz/vyjadreni-komory-auditoru-k-navyseni-limitu-pro-povinny-audit-v-cr). According to the Chamber of Auditors’ estimates, this change could result in the abolition of the audit obligation for about 5,000 accounting units.

In the commenting procedure and especially in the adoption of the law, a big battle of arguments for and against can be expected. The Ministry of Finance argues for the reduction of administrative costs and the indexation of the limits to inflation. The Chamber of Auditors argues that reducing the limits may have a very negative impact on the business environment in the Czech Republic. The obligation to audit contributes to the quality of accounting, to better tax collection and to the protection of society against harmful transactions related to money laundering.