Accounting entity size categories: where do you fit in?

The size of the entity determines what the company is legally required to do. A small newsagent has fewer obligations than an industrial giant with hundreds of branches. Find out which category your business falls into and what not to forget.

What is the purpose of categorising accounting units?

The classification of accounting units (CUs) and the resulting rules are based on the Accounting Act (AoA) and the related Decree 500/2002 Coll:

• preparation and publication of financial statements in a certain scope,
• auditing the financial statements,
• preparation of an annual report,
• the preparation of cash flow statements and changes in equity.

For example, large corporations are required to prepare an annual report, whereas small businesses are generally not. There are four sizes of accounting units: micro, small, medium and large.

How is the size of an accounting unit determined?

Your business falls into a size category based on how many of the conditions for that category it meets. If it exceeds (or ceases to exceed) 2 or more of the specified thresholds in the table below twice in a row at the balance sheet date, it moves into a higher (lower) category.

Some CUs are then automatically classified as large CUs, regardless of whether the criteria are met. These are entities of public interest (banks, insurance companies, companies issuing investment securities, etc.) and selected entities according to the Accounting Act (e.g. state authorities).

Breakdown of accounting units by size

When is the size of an entity assessed?

The size of an entity is usually assessed at the balance sheet date. The law states that if a CU exceeds the above values on two consecutive balance sheet dates of its regular financial statements, it will change its category from the beginning of the following financial year (by analogy, the opposite is also true, i.e. when it stops exceeding the limits).

In the first accounting period after its incorporation or commencement of operations, the CU follows the rules for the category into which it is likely to fall at the first balance sheet date.

When must an entity be audited?

The financial statements of certain CUs are subject to verification by an independent auditor who will check that the documents give a true and fair view.

According to the Accounting Act (§20), the audit of financial statements is compulsory for medium-sized and most large entities and those that are required to do so by specific legislation. Micro-accounting units, on the other hand, are usually not audited.

The situation is more complex for small accounting units. The State first assesses whether the CU has reached these limits:

• total assets of at least 40 million CZK.,
• annual net turnover of at least CZK 80 million,
• average number of employees min. 50.

Other rules depend on the type of entity. Joint stock companies and trusts that reach at least one of the specified values twice in a row are required to have their financial statements audited. For other small SOEs, the rules are more relaxed - they must pass an accounting audit if they meet at least two of the criteria twice in a row.

Preparation of the annual report

In addition, all entities that are subject to a statutory audit (+ those that are required to do so by a specific law) must produce an annual report. This includes financial information and, in the case of large entities, prescribed non-financial information.

Overview of the obligations of accounting entities by size

Now you know where your company falls and whether it is subject to a statutory audit. Let's summarise which accounting obligations apply to you.

In general, entities with statutory audits also keep full accounts and prepare full financial statements and an annual report. On the other hand, CUs that do without an audit have fewer obligations.

Thesimplified scope of accounting is used by some micro and small CUs (unaudited) and they follow the rules according to §13a of the ZOU. Most unaudited CUs prepare abbreviated financial statements (specific items of the abbreviated financial statements vary according to the category of the CU).

The size of the entity also has an impact on the information that the CU provides in the notes to the financial statements and their order. This is governed by §39-39(c) of the Decree.

Accounting for companies in simple terms

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