Accounting Act

What it means

The Accounting Act, No. 431/2002 Coll., is the frame for every accounting entity whatever its tax regime: it says who keeps books and in which system, what an accounting document must contain, how the books are run and what the statements consist of.

Detailed posting rules are not in it. The chart of accounts, the accounting procedures and the statement templates come from Ministry of Finance decrees and change more often than the Act. Nor does the Act set the tax base; that is derived from profit or loss.

The Act does not apply to every entrepreneur in the same way. A sole trader on flat-rate expenses keeps no accounts under it and records only the data the Income Tax Act asks for. Only on actual expenses does the trader choose between tax records and accounts, usually single-entry, whereas an s. r. o. always keeps double-entry books.

How it works in practice

Its size criteria put a company into the micro, small or large class, which decides the extent of the statements; the audit duty has conditions of its own in the Act. It also defines the accounting period and the conditions for moving to a business year.

Statements are filed electronically through the Financial Administration portal into the register of financial statements, where they are public. The Act also sets retention periods: the statements, the annual report, the accounting documents and the books are all kept for ten years after the year they belong to.

The Act requires an inventory count of assets and liabilities as at the date of the ordinary statements. When we take over books from another accountant, we first ask for the last year’s inventory lists and compare them with the balances in the ledgers. Without them nobody can show that the figures in the statements match reality, and at an audit that falls on the company, not on the former accountant.

What to watch out for

A penalty under the Accounting Act is measured against the value of the entity assets, not against the tax lost. A company with a large balance sheet therefore pays far more for unfiled or incomplete statements than for a mistake of the same size in its tax return.

The duty to keep records for ten years survives a change of accounting software or of accountant. Data locked in an old program whose licence the company has lost counts as missing at an audit. Before ending the cooperation or the software, the company needs archiving in a readable format, or it cannot prove even what it once booked correctly.