Consolidation

The requirements to produce consolidated financial statements are included in Act on Accounting (Articles 22 – 22b) and consolidation rules are specified in Article 23 of Act on Accounting, decree No. 500/2002 (Articles 62–67), and Czech Accounting Standard no. 020 – The Consolidation. The consolidation rules are similar to methods required by IFRS in most areas. So-called “consolidation difference” (active or passive) booked in accordance with Czech accounting legislation is, unlike goodwill under IFRS, charged/released on a straight line basis over the maximum of 20 years to profit and loss account unless there are reasons for a shorter period for it to be charged/released to the profit and loss account.

Exceptions from consolidation were moved from decree no. 500/2002 Col. to the Accounting Act §§ 22a, 22aa from 2016. Companies that are controlling parties of a group (except for entities exercising joint control) (“consolidating accounting units”) do not have to prepare consolidated financial statements  if they:

  • form a small group of entities, unless there is a public interest company within the group, or
  • are at the same time a consolidated entity included in a consolidation group of a different consolidating entity, which is a consolidating accounting unit or a consolidating foreign company regulated by EU member-state legislation, on condition that this other consolidating accounting unit holds:
    • all shares of the consolidating accounting unit (shares held by directors are disregarded);
    • at least a 90% share of the consolidating accounting unit and the fact that the consolidated financial statements have not been prepared has been approved by the remaining shareholders of the consolidating accounting unit;
    • less than a 90% share of the consolidating accounting unit and other shareholders holding at least a 10% share of the entity have not requested the preparation of the consolidated financial statements latest 6 months before the balance sheet date;
    • and at the same time, the following conditions must be met:
    • the consolidated financial statements of the other consolidating entity include all entities consolidated by the consolidating accounting unit;
    • the consolidated financial statements and consolidated annual report of the other consolidating entity are audited in compliance with the legal regulation of the country which is applicable for the other consolidating entity;
    • this consolidated annual report, consolidated financial statements together with auditor’s opinion are disclosed in compliance with annual report disclosure requirements in Czech language;
    • the notes to the financial statements of the consolidating accounting unit include the name and registered office of the other consolidating entity, which compiled the consolidated financial statements, and also reasons for not creating a consolidation group.

Act on Accounting (Article 23a) allows companies to prepare their consolidated financial statements in accordance with IFRS (instead of Czech accounting rules). As described above, all companies with listed investment shares have to use IFRS for their consolidated (and stand-alone) financial statements (Act on Accounting, Article 23a, paragraph 1).

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    Marek Richter – Partner
    PricewaterhouseCoopers
    Audit, s.r.o.
    nám. Svobody 20, 602 00 Brno
    +420 542 520 170
    marek.richter@cz.pwc.com

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    Petr Mališ – Director
    PricewaterhouseCoopers
    Audit, s.r.o.
    nám. Svobody 20, 602 00 Brno
    +420 542 520 210
    p.malis@cz.pwc.com