The approaching end of the year is the time of preparation for drawing up the financial statement for many accounting entities. The amendment of accounting rules, which has been known for some time, has brought several novelties effective as of 1 January 2018.  With regard to the fact that some of them relate to changes in reporting within the financial statement, we would like to recapitulate them with you in today's article.

Reporting accruals

In the accounting period beginning in the year 2018, accounting entities can choose from two options for posting accrued assets and liabilities. Based on the change of the respective articles of the decree (article 3, article 13 and article 19), the accounting entity may decide, if it will render accruals, as was the case previously, in the item “D. Accrual of assets/liabilities”, or newly in current assets or liabilities within the group item “C.II. Receivables” or “C. Liabilities”, respectively. In such a case, the balance sheet does not contain item “D. Accruals” and the structure of data posted in the balance sheet will be as follows:

C.II. Receivables

C.II.1. Non-current receivables

C.II.2. Current receivables

C.II.3. Accrual of assets

C.II.3.1. Accrued expenses

C.II.3.2. Complex accrued expenses

C.II.3.3. Accrued income

C. Liabilities

C.I. Non-current liabilities

C.II. Current liabilities

C.III. Accrual of liabilities

C.III.1. Accrued costs

C.III.2. Accrued revenues

The accounting entity must decide by balance sheet date at the latest, about which way of reporting to choose. The way of rendering assets and liabilities must be identical, a combination of the two ways is not admissible. The ways of booking to accrual accounts do not change.

In relation to accruals and their reporting, the question of revaluation of accrual accounts arises again. The National Accounting Council has issued an interpretation on this subject, I – 37 Accruals and foreign currency. In a simplified way, a conclusion can be summarised to say that regardless of what part of the balance sheet the entries of accrued income and expenses are posted in, these items can be considered receivables and liabilities, and they therefore need to be revaluated as of balance sheet date. Accrued expenses and revenues, on the other hand, do not represent a receivable or liability, and therefore revaluation at the end of the accounting period does not apply to them.

From the practical perspective, we recommend consulting a change of reporting, because many factors and circumstances need to be taken into account. For example, you need to deal with reporting the previous period, or consider, how the individual users of the financial statement will perceive the given reporting.

Own equity

The new paragraph 15a of the decree unites the current entries in liabilities “A.IV.1. Retained earnings from previous years” and “A.IV.2. Unpaid loss from previous years” into one entry “A.IV.1. Retained earnings or unpaid loss from previous years”. At the same time, the designation of the liabilities entry “Other profit and loss result from previous years” if changing from the original A.IV.3. to A.IV.2. The new form of reporting has no effect on the current way of booking to the respective accounts of group 42x, to which it is still possible to book only based on a decision of the supreme body of the accounting entity.

The given way of reporting will simplify the clarity of own equity entries and will make the decision-making at general meetings or among partners regarding the achieved profit or loss easier.

Other

Goodwill depreciation

Based on the change in article 6 paragraph 3 of the decree, it will not be possible to depreciate goodwill or negative goodwill for a period of up to 120 months but only up to 60 months. While the new stipulation of article 56, paragraph 2 does enable the accounting entity to decide about a period of goodwill or negative goodwill depreciation between 60 and 120 months, it is only in case that the usability of goodwill and intangible result of development cannot be estimated. The accounting entity must also justify the chosen period of depreciation in the notes.

Intangible results of research

With effect from the accounting period beginning in the year 2018, intangible results of research will not be considered non-current intangible assets. Research costs will be booked according to the specific situation as current expenses, complex accrued expenses, or procurement of non-current tangible assets or unfinished production. According to transitional provisions, an accounting entity, which reported intangible results of research in entry “B.I.1. Intangible results of research and development” until the end of an accounting period beginning before the year 2018, continues to depreciate it and reports these assets until their disposal in entry “B.I.4. Other non-current intangible assets”.

Reporting, valuation and publication of information on derivatives

The amendment has cancelled articles 52 and 53 relating to valuation differences when using real value for hedging derivatives and for derivatives for trading. At the same time, article 3 of the decree stipulates in the new paragraph 10 that for the purposes of reporting, valuation and publication of information of derivatives in the notes to the financial statement and operations with them, the accounting entity will use the stipulation of decree no. 501/2002, for accounting entities, which are banks or other financial institutions, in the version effective as of 31 December 2017. Accounting entities will thus continue to proceed according to the accounting standard IAS 39 and not according to the accounting standard IFRS 9, to which decree no. 501/2002 newly refers in the year 2018. The Czech accounting standard for entrepreneurs no. 009 DERIVATIVES adds that for accounting procedures, the stipulations of Czech accounting standards for financial institutions as applicable will also be used adequately.

Conclusion

In order for us not to have it so easy with compiling a financial statement, the forms of state reports and some terms are changing – for example we will now look for Long-term Assets under Fixed Assets or the Residual Value of Sold Material under Sold Material. At the same time, the statements will also reflect all of the above-mentioned changes as well. In the cash flow statement, a comparable period of the previous year must obligatorily be reported, too.

When drawing up their financial statement, companies should also consider their categorization. The 2018 may mean a change of category for them in relation to the achieved criteria (assets, turnover, number of employees). A change of category may not be an easy thing for the accounting entity. A duty of an audit may arise, a duty to change the method of valuation of assets, requirements as to the structure of information stated in the notes to the financial statement will change, or the duty to compile a cash flow statement and a statement of changes in equity may arise.

If you are not certain how to deal with the above-mentioned changes, do not hesitate to contact us. In case you are dealing with a possible change of categorization of an accounting entity and related effects, you will find out more in our following article.

Ing. Renáta Habeltová, Ing. Klára Honzíková