Changes in the Categorization of Accounting Entities and New Statutory Audit Thresholds
InsightsNewslettersTax newslettersTax Newsletter - Archive
Accounting Entities and Statutory Audit Thresholds
The recent amendment to Act No. 563/1991 Coll., on accounting introduces substantial changes intended primarily to reduce the administrative burden on small and medium-sized enterprises. The legislative initiative was largely driven by the significant inflationary pressures observed in 2021 and 2022, which resulted in nominal increases in companies’ revenues and asset values without a corresponding proportional expansion in their actual economic scale or operational activity. Consequently, many entities were formally reclassified into higher statutory categories and became subject to more stringent regulatory requirements, despite the absence of genuine structural growth.
The amendment increases the financial thresholds for the categorization of accounting entities by approximately 25%. This adjustment reflects the requirements of the European accounting directive and, although formally effective in Czech legislation as of 1 January 2026, transitional provisions stipulate that accounting entities with a calendar-year reporting period must assess compliance with the revised thresholds already for the financial years 2024 and 2025.
The categorization of accounting entities continues to be determined on the basis of the following three criteria:
- average number of employees
- total assets (balance sheet total)
- net turnover
While the employee thresholds remain unchanged, the quantitative limits applicable to total assets and annual net turnover have been revised upwards. An entity is classified into a higher category if it exceeds at least two of the three statutory criteria in two consecutive accounting periods. For ease of reference, the original and revised thresholds are summarized below.
Accounting entity categorization limits until 31 December 2023
Accounting Entity | Employees | Assets | Turnover |
micro | up to 10 | up to CZK 9 million | up to CZK 18 million |
small | up to 50 | up to CZK 100 million | up to CZK 200 million |
medium | up to 250 | up to CZK 500 million | up to CZK 1 000 million |
large | over 250 | over CZK 500 million | over CZK 1 000 million |
Accounting entity categorization limits from 1 January 2024
Accounting Entity | Employees | Assets | Turnover |
micro | up to 10 | up to CZK 11 million | up to CZK 22 million |
small | up to 50 | up to CZK 120 million | up to CZK 240 million |
medium | up to 250 | up to CZK 600 million | up to CZK 1 200 million |
large | over 250 | over CZK 600 million | over CZK 1 200 million |
A significant consequence of the amendment is the narrowing of the statutory audit obligation, which will henceforth apply exclusively to medium-sized and large accounting entities. This legislative refinement is expected to result in the reclassification of a number of entities into lower categories and, consequently, in a material reduction of administrative and compliance costs at the corporate level.
Notwithstanding the above, the statutory audit requirement remains unaffected for public-interest entities (such as banks, insurance undertakings and securities issuers), irrespective of their size.
For a substantial proportion of smaller enterprises, the amendment represents a measurable cost saving through the elimination of mandatory external audit requirements and a simplification of the financial reporting process. Conversely, the anticipated reduction in the number of audited entities may raise concerns regarding overall transparency, the reliability of financial data, and the potential increase in reporting errors.
Although the amendment primarily concerns accounting legislation, it also produces significant implications in the field of corporate income taxation. Under Czech tax law, entities whose financial statements are subject to statutory audit benefit from a six-month statutory deadline for filing their corporate income tax return. Entities that, as a result of reclassification under the amended thresholds, cease to be subject to mandatory audit will automatically lose this extended filing period, which will be reduced to three months (or four months if filed electronically).
Accordingly, entities seeking to retain the six-month filing deadline will be required to appoint a licensed tax advisor, thereby transferring the compliance extension mechanism from the audit regime to the tax advisory framework.
Authors:
Filip Straka, Tax Department Manager
Khulan Dulmaa, Junior Consultant, Tax Department
Want to know more?