ASB Czech Republic: Substantive Intent of the New Accounting Act
Last year, we informed you about a dispute concerning the duty to revaluate advances for the acquisition of assets paid in foreign currencies.
About a new, modern accounting law, international trends and the rapid development of information technology in the field of accounting.
For a long time now, the profession has been speaking about the need for a new and up-to-date accounting act, one that would respond to both international trends as well as the rapid development of information technology in accounting.
On 5 October 2020, the government approved the Draft Substantive Intent of the Accounting Act. The basis for its creation was the Summary of Concept Solutions for New Accounting Legislation 2020–2030, drawn up by an expert working group made up of employees from the Ministry of Finance, the relevant occupational chambers, and academia.
Below, we will try to list the main changes that the new accounting act should bring about.
The current Accounting Act does not define the individual building blocks of financial statements. This is the well-known problem of missing definitions for terms such as “assets” and “income”, etc. The new accounting legislation should address this shortcoming. The conceptual framework sets out a set of assumptions, principles and definitions on which accounting is generally based. Inspiration for the Czech conceptual framework was taken from the international accounting standards that have been adopted and applied within the European Union (IAS and IFRS-EU, or IFRS-EU in the text below).
Application of the IFRS:
The new act intends to expand the mandatory application of IFRS-EU for preparing financial statements for some accounting entities on the financial market. These mainly include banks, some financial institutions, and insurance companies.
Expanding the application of IFRS-EU has been widely discussed in the context of the new accounting act. In order to reduce the administrative burden, Act No. 586/1992 Coll., on Income Tax, would have to be amended because it still assumes that financial statements are prepared pursuant to Czech accounting legislation.
If it is more effective for them to do so, accounting entities should newly be allowed to use a currency other than the Czech Crown, and if this currency is predominant in their transactions. However, the functional currency may only be the US dollar, the euro or pound sterling. Once again, this change is conditional upon a change in the tax laws.
The new accounting act is currently undergoing external review and it is expected to come into effect only as of January 2024. Therefore, keep in mind that the final draft may differ from the proposed changes described above. We must be prepared for surprises in the new wording of the accounting regulations.
Author: ASB Czech Republic