The calendar year 2016 is behind us already and now comes the time for most companies, when they will be drawing up the financial statement “in a new way” for the first time. In connection with the changes in the accounting regulations, which have been brought by significant changes in the structure as well as the content of the individual items in the financial statements, we would like to use this article to provide you with tips for how best to draw up the statements and what to pay attention to, when drawing them up. We will take a closer look at the new profit and loss statement in one of the upcoming articles. Now, we will therefore only focus on the drawing-up of the balance sheet, the cash-flow statement and the statement of changes in equity.

When drawing up the balance sheet, it is necessary to pay attention to the individual lines of assets and liabilities especially, because the structure has been expanded and the same item newly has a different line specification than in the previous year. In order to ensure comparability of data in statements drawn up with the new structure, it is necessary to draw up a financial statement not only for the year 2016, but also for the year 2015. Some changes in the balance sheet only consist in the merging or division of some lines, while for other items, a change in reporting has occurred. Among the assets, for example, we will no longer find a separate item for “establishment costs”, which are newly posted within the item of “other long-term intangible assets”. In the balance sheet, the division of some items has been expanded in general (from the original three levels of division to the current five levels) and there are many more sub-totals. We therefore recommend to you to check all subtotals at the end.

Due to the extensiveness of changes in accounting rules, a new Czech accounting standard no. 24 was also created. It contains the basic procedures when drawing up a financial statement for the accounting period that began in the year 2016, in order to achieve conformity in the use of accounting methods by accounting entities in the posting of items of the balance sheet and the profit and loss statement to ensure comparability of the current and the past accounting period.

Along with the change in the balance sheet and the profit and loss statement, medium and large accounting entities also have a new duty to draw up a statement of changes in equity and a cash flow statement. Especially the cash flow statement will probably cause the greatest problems for companies. At the same time, it applies to this statement, too, that it needs to be drawn up for the year 2015 as well as 2016, to achieve comparability. A template for the cash flow statement is provided by the new Czech accounting standard no. 23.

Whereas statements inform about profit, which can already be reinvested in a company, the cash flow statement informs about the actual money of an accounting entity. The cash flow statement provides detailed information about a change in the state of cash, including negative balances in current accounts (as follows from the balance sheet). The initial cash balances are the basis, which is adjusted for cash flow from operating, investment and financial activity. It informs about where money was earned and what it was spent on. 

Probably the most difficult part is the operating activity. When drawing up cash flow statement for operating activity, either a direct or an indirect method is used. In case of the direct method, cash costs and revenues are posted in a suitable division following for example the profit and loss statement. In case of the indirect method, the basis is the accounting result prior to taxation, which is adjusted for:

• Non-monetary transactions (depreciation, change in adjusting entries and reserves, revaluation of securities, revaluation of balances in foreign currency as of the reference date),
• Unpaid costs or revenues (change in the state of working capital),
• Costs and revenues connected to investment or financial activity (sale of long-term assets, sale of securities).

In operating activity, cash flow should not be negative in the long term, while it investment activity it should not be positive in the long term.

The general structure of the cash-flow statement is as follows:

The last statement, which medium and large accounting entities newly have to draw up, is the statement of changes in equity. This statement informs users about changes in equity in a more detailed form than the balance sheet does. From the balance sheet, it is only possible to find out that a change in equity has occurred, while in the cash-flow statement it is possible to find out the origin of this change. That is if balances have only been rearranged within the equity (a transfer of the economic result, drawdown of the fund or reserves to cover losses, etc.), if resources have been added to equity from outside (for example a contribution), or if resources have been withdrawn (for example the payment of dividend). A template of the statement of changes in equity is provided by the interpretation of the National Accounting Council no. I-32.

In case of any such major change in reporting, many questions and unclarities arise. If you feel lost when drawing up the statements according to the new legislation, please, do not hesitate to turn to us.

Author: Renata Komancová