In October 2016, we looked on this website at an amendment of act no. 563/1991, on accounting, which brought significant changes as of 1 January 2016. One of the greatest changes was the introduction of so-called categorization of accounting entities. We suppose that two years after implementation, most accounting entities have successfully come to terms with this change and the terms micro, small and large accounting entity have become part of daily practice. 2018 is the second important year after the year 2016, when it was necessary to determine the respective category. The year when a change in the category of an accounting entity may occur for the first time. Does the change of category apply to your company as well? And what other obligations does it bring with itself? Before we answer these questions together, let us go over the main rules for classification of accounting entities.

The rules for classification of an accounting entity can be found in article 1a to 1e of act no. 563/1991 on accounting. We will determine what category an accounting entity belongs to, according to the following criteria. 

If you belong among accounting entities, which exceeded or ceased to exceed two limit levels mentioned above on two successive balance sheet dates of regular financial statements, you are obliged to change the category of the accounting entity from the beginning of the immediately following accounting period.

What does it mean for you? Inclusion in the correct category has an effect on the obligations relating to the financial statement and its publication. At the same time, it may influence the obligation to have the financial statement audited and the related obligation to compile an annual report. It may also have an influence on the forms of valuation of assets of the company.

Let us therefore take a closer look at the simplification of obligations, which only apply to selected categories of accounting entities.

Micro accounting entities:

• will not use valuation by real value according to article 27 of the accounting act, with the exception of micro accounting entities stated in paragraph 7 of this article

Micro and small accounting entities:

• do not need to compile a statement of changes in equity and cash flow statement
• are not obliged to have their financial statement audited, with the exception of those small accounting entities, which will exceed the criteria set by the accounting act, and with the exception of accounting entities, for which this obligation is stipulated by a special legislative act

Micro and small accounting entities, to which the obligation of having the financial statement audited, does not apply:

• can compile the financial statement in short form
• can compile notes to the financial statement without some information, which other accounting entities are obliged to publish
• do not need to publish the profit and loss statement, unless this obligation is stipulated by a special legal regulation for them
• are not obliged to compile and publish an annual report 

Micro, small and medium accounting entities, which are obliged to compile an annual report:

• do not state non-financial information according to article 21, paragraph 2 letter a) to f) of the accounting act in the annual report

The above-mentioned possible effect of the change of category of an accounting entity on the forms of asset valuation is treated in the new article 61c of the decree for entrepreneurs, which sets the following rules. A micro accounting entity, which changes the category of accounting entity, will valuate the respective assets at real value. An accounting entity, which has changed its category to micro accounting entity and had valuated assets at real value, will valuate the respective assets according to article 25 of the accounting act, on the contrary.

In both cases, the change will take place as of the first day of the accounting period, in which the change of category occurs. It is necessary to keep in mind that this is a change of method, which should be described in the notes to the financial statement and which may have tax effects.

Therefore, prior to compiling the financial statement, do not forget to examine classification of your accounting entity in the correct category. In case of a change of category, prepare yourselves in time for possible changes in reporting, do not forget to verify a possible change of obligation to have the financial statement audited and a possible change in asset valuation.

Are you not certain, if you belong among accounting entities, for which an obligation to change the category of accounting entity arose in 2018? Do you not know how to handle the obligations arising for your company due to the change of category? Do not hesitate to turn to us, we are prepared to help you.