Czech Republic Accounting System ACCOUNTING General overview 2

Czech Republic Accounting System

ACCOUNTING General overview 2

Background (History) ▪ Strongly influenced in 20 th century by the accounting practice and accounting principles. ▪ Since 1989, and consistent with broader political and economic changes → updated accounting legislation. ▪ The auditing profession. ▪ Chamber of auditors - Feb. 1993 (IFAC, FEE) 3

Czech Accounting Legislation ▪ Act on Accounting serves as the framework for accounting for all entities (companies) in the CR. ▪ Required preparation of financial statements. - “IFRS” ▪ Detailed accounting guidance - Decrees on Accounting and Czech Accounting Standards, issued by the Ministry of Finance 4

Czech Accounting Legislation Separate accounting rules for: ▪ Entrepreneurs (most companies) ▪ Banks and other regulated financial institutions ▪ Insurance companies ▪ Selected accounting units ▪ Non-profit organisations, political parties, civil associations, etc. 5

The Form and Content of Published Financial Statements ▪ Financial statements - Decree No. 281/97 417/2001 ▪ Publication of financial statements for all stock companies, large LLC or cooperatives. ▪ December 2001 - the new consolidation rule ▪ Consolidation rule: exceeding at least 2 of following limits: turnover 700 million CZK, total assets 350 million CZK, and 500 employees. 6

ACCOUNTING POLICIES AND VALUES 7

FINANCIAL STATEMENTS ▪ International Accounting Standards (IAS, IFRS) or other internationally recognized principles (e. g. , U. S. GAAP) ▪ Domestic accounting principles given by the law on accounting and domestic accounting standards 8

“ Enterprises must present the following financial reports: Profit and loss account, Balance Sheet, Explanatory notes to the accounts, . . . The financial statements must give a true and fair view of assets, liabilities, and financial position. 9

INVENTORY ▪ is shown at the lower of cost and net realizable value. ▪ work-in-progress and finished goods are measured at planned or actual cost (full or direct) CASH FLOW STATEMENTS ▪ are prepared according to the principles in IFRS 7 and based on cash and cash equivalents. ▪ operating, investing, and financing ▪ not obligatory for financial institutions. 10 TAXES ▪ ▪ to the state budget as laid down by the law ▪ income tax at the rate of 31%

DEPRECIATION ▪ normally calculated on a straight -line basis/acceelerated ▪ given for individual classes LEASE ▪ REVENUE lease period exceeds 40% of the depreciation ▪ leased asset is shown and depreciated in the balance sheet 11 ▪ when the risks and rewards have been transferred

Expected development in future Decrease in income tax Tax reliefs foreigners exceeding IFRS influence 12 Changes in ACC methods

“ The Czech accounting regulatory system is still young (compared to UK GAAP or US GAAP), so there is still a big space for improvements. This must be supported not only by accounting experts, academics, researchers and representatives of professionals organizations, but also and especially by political parties. * 13 *Tereza Miková & Marcela Žárová, University of Economics, Prague, Department of Financial Accounting and Auditing

AGROFERT ▪ ▪ ▪ Chemistry Agriculture Bakery and Mills Food Industry Ground Machinery 14

AGROFERT 15

AGROFERT 16

ACCOUNTING Changes since 2004 17

Overview Source: https: //www. sciencedirect. com/science/article/pii/S 2212567115007273 18

2016 & 2017 Changes ▪ Massive list of changes in January (list in sources) ▪ Introduction of new categorisation of accounting units (Micro, Small, Medium, Large) ▪ The structure of the balance sheet and profit or loss have been changed Source: http: //survival. rrajm. cz/en/survival-kit/iii-accounting-and-auditing/changes-in-czech-accounting-legislation-for-entrepreneurs/ 19

IFRs Implementation ▪ IFRs is a necessity for any company trading in securities. ▪ Many companies that do not trade in securitie also utilize the system ▪ Allows for investments from foreign capital holders. Source: https: //ac. els-cdn. com/S 2212567115007273/1 -s 2. 0 -S 2212567115007273 -main. pdf? _tid=9 f 726955 -ee 17 -402 a-a 9 f 6 ea 883742 c 870&acdnat=1526213190_c 6236 dce 97 b 9 fde 09 fe 8720396 b 5 f 4 df 20