Why do we need a new Accounting Act?
Reflections by Jana Skalová
Why do we need a new Accounting Act?
As many of you know, at the end of last year, a new draft Accounting Act was published. Since then, I have seen intense interest from our clients in the new developments that this Act will bring, as well as some fear of the unknown. In my opinion, however, the fears are unfounded.
The current Accounting Act is number 563/1991 Coll. and came into force on 1 January 1992. Perhaps some of you will recall with me the accounting reform that was set off by this Act. Throughout 1992 there was intensive training of all accountants in the Czech Republic to prepare them for the start of the new accounting system, which was embodied in a measure of the Ministry of Finance that established accounting procedures and, above all, the chart of accounts from which we still use account numbers.
From 1992 to the present day, 37 laws have been published which have amended the Accounting Act. Some of the changes have been minimal, others very substantial. Surely, we all have vivid memories of the 1 January 2016 amendment to implement the new EU directive on accounting and financial statements.
On the one hand, the current law is excellent because it has “survived” for more than 30 years; on the other hand, it is criticised, especially by the professional community, for not containing a conceptual framework and definitions of basic accounting concepts and for being outdated. Given all that has happened since it was written, it is hardly surprising. The most significant change is the Czech Republic’s accession to the EU, when we became a small open economy, and the current development of digitalisation, robotics and artificial intelligence. At the time of the original law, hardly anyone could have dreamt of crypto assets, global international accounting standards and free trade in the EU. This is why it has to be acknowledged that we need a new Accounting Act? A law that is based on the modern state of accounting theory, reflects the state of the economy and the business environment, and ensures that accounting serves its primary purpose of providing users with information for their economic decisions.
And if anyone is concerned that this is an ‘accounting reform’, then reassurance is in order. The new Act introduces a number of new things, but double-entry accounting will still be built on the same foundation. The advantage will be that we will have defined what is an asset, debt, expense, income and other important concepts. In addition to this, there will be a number of innovations, new procedures for practice. But these are all based on modern accounting knowledge, EU directives and international accounting standards. The new Act was drafted by a team of experts who worked together with the Ministry of Finance staff for several years. The text of the Act was therefore drafted as a work discussed with the professional public.
For many of us, the new Accounting Act will provide a new impetus to look at accounting in the context of economic and technological developments and to work on our professional training. I truly look forward to it and I will be covering the various interesting parts of the Act in more detail in the pages of the TPA newsletter.
