Czech Statutory Auditor Exam cheat sheet

Czech GAAP: accounting entities must keep double-entry books under Act No. 563/1991 Coll.; IFRS consolidated statements are required for entities whose securities are admitted to a regulated market in an EU state.

IFRS 15 five-step model: identify contract, identify performance obligations, determine transaction price, allocate price to obligations, recognise revenue on satisfaction of each obligation.

IAS 16: depreciation begins when an asset is available for use; residual value and useful life are reviewed at least annually; revaluation model requires revaluation of the entire class.

IAS 36: impairment loss = carrying amount minus recoverable amount, where recoverable amount is the higher of fair value less costs of disposal and value in use.

IFRS 9 classification of financial assets is driven by the business model and the contractual cash flow characteristics test (SPPI); equity instruments may be measured at FVOCI only by irrevocable election.

IAS 37: a provision is recognised when a present obligation from a past event is probable and can be reliably estimated; a contingent liability is not recognised.

IFRS 16: lessee recognises a right-of-use asset and lease liability at present value of lease payments; Czech tax law applies separate rules, so deferred tax often arises.

Czech GAAP uses the chart of accounts (směrná účtová osnova) and the accounting unit's own chart; financial statements comprise balance sheet, profit and loss account and notes, plus cash flow and statement of changes in equity where required.

Functional currency (IAS 21) is the currency of the primary economic environment; foreign currency items are translated at the spot rate at transaction date and retranslated at closing rate for monetary items.

ISA 200: reasonable assurance is a high but not absolute level of assurance; the auditor obtains sufficient appropriate evidence to reduce audit risk to an acceptably low level.

ISA 700 series governs the auditor's report: key audit matters are required for listed entities under ISA 701, and the opinion paragraph must identify the entity and the statements audited.

ISA 705 modifies the opinion: qualified opinion (material but not pervasive), adverse opinion (material and pervasive misstatement), disclaimer (inability to obtain evidence, material and pervasive).

ISA 315 (Revised 2019) requires identifying risks of material misstatement at the financial statement and assertion level, with inherent risk factors such as complexity, subjectivity, change and uncertainty.

ISA 240 presumes a risk of fraud in revenue recognition; the auditor must design procedures addressing management override of controls, including journal entry testing.

ISA 570 going concern: the auditor evaluates management's assessment over at least twelve months from the date of the financial statements, and the report must include a separate section if a material uncertainty exists.

ISA 600 (Revised) governs group audits: the group engagement partner is responsible for the group opinion and must direct, supervise and review the work of component auditors.

ISQM 1 requires a firm to design a system of quality management addressing eight components, including risk assessment, governance, engagement performance and monitoring and remediation.

Czech statutory audit is governed by Act No. 93/2009 Coll. on auditors, and the auditor must be entered in the register maintained by the Chamber of Auditors of the Czech Republic (KAČR).

Audit risk model: AR = IR × CR × DR; detection risk is controlled by the auditor through the nature, timing and extent of procedures.

Materiality: overall materiality is commonly set as a percentage of benchmark (e.g., 5% of profit before tax, 1% of revenue, 1–2% of total assets); performance materiality is lower and reduces the probability that aggregate undetected misstatements exceed overall materiality.

Risk assessment procedures include inquiries of management, analytical procedures and observation and inspection; the auditor cannot rely solely on inquiry.

Sufficient appropriate audit evidence: sufficiency is quantity (affected by risk and quality), appropriateness is relevance and reliability; external evidence is generally more reliable than internal.

Audit sampling under ISA 530: sample size increases with lower tolerable misstatement and higher expected misstatement; projection of misstatements to the population is required.

Subsequent events: ISA 560 requires procedures up to the date of the auditor's report; facts becoming known after that date require consideration of whether the statements need amendment.

Analytical procedures are required in the risk assessment phase and in the overall review at the end of the audit; substantive analytical procedures compare expectations with recorded amounts with a threshold of acceptable difference.

Documentation (ISA 230): the audit file must be assembled within 60 days of the date of the auditor's report and retained for at least 5 years from that date (Czech rules may require longer).

Related parties (ISA 550): the auditor performs procedures to identify related party relationships and transactions outside the normal course of business and evaluates their disclosure.

IESBA Code: five fundamental principles are integrity, objectivity, professional competence and due care, confidentiality, and professional behaviour.

Independence comprises independence of mind (state of mind) and independence in appearance (avoidance of facts that a reasonable third party would perceive as compromising objectivity).

Prohibited non-assurance services for public interest entities include bookkeeping, preparation of financial statements and certain tax services that create a self-review threat.

The self-interest, self-review, advocacy, familiarity and intimidation threats must be identified and evaluated; safeguards include rotation, independent reviews and removal of the threat.

Auditor rotation: for public interest entities in the EU, engagement partner rotation after 5 years and firm rotation generally after 10 years, extendable to 20 years with complementary safeguards under Regulation (EU) 537/2014.

Czech Act No. 93/2009 Coll. requires the statutory auditor to be independent, to maintain professional indemnity insurance and to complete continuing education (at least 40 hours per year, of which a substantial part is verifiable).

Auditor's statutory duty: report to the general meeting and, where required, to the supervisory board and the audit committee; the auditor has a duty to report certain facts to the relevant authority under anti-money-laundering rules.

Fee dependence: if fees from one client exceed 15% of total fees for consecutive years, the auditor must disclose and apply safeguards; contingent fees for audit engagements are prohibited.

Confidentiality continues after the end of the engagement; disclosure is permitted where required by law, by a professional body or where the client consents.

Czech Business Corporations Act (Act No. 90/2012 Coll.) governs business companies; a joint-stock company has a general meeting, a board of directors (or administrative board) and a supervisory board in the dualistic system.

The supervisory board of a joint-stock company supervises the board's activity and reviews the financial statements and the proposal for distribution of profit; it must have at least three members.

The audit committee is established by public interest entities; it monitors the financial reporting process and the effectiveness of internal control and recommends the statutory auditor.

Czech Commercial Code concepts: a company is liable for its debts with its whole property; shareholders are not liable for company debts beyond their contribution.

The statutory body must act with due managerial care (péče řádného hospodáře); breach may lead to liability for damage and disqualification by a court.

A conflict of interest: a member of a company body must notify the other members and refrain from voting or deciding where their interest conflicts with the company's.

Public limited company (a.s.) minimum registered capital: CZK 2,000,000 or EUR 80,000; a limited liability company (s.r.o.) minimum contribution is CZK 1.

Corporate governance codes: the Czech Code of Corporate Governance and the OECD Principles recommend independent directors and transparent disclosure of remuneration policy.

Mergers and acquisitions: the transformation of companies is governed by Act No. 125/2008 Coll.; a merger requires a valuation report and an auditor's review where shares are issued.

Czech corporate income tax rate is 21% (from 2024); the tax base is derived from the accounting result by adjusting for non-deductible expenses and non-taxable income under Act No. 586/1992 Coll.

Tax non-deductible items include penalties and fines, gifts unless within statutory limits, and expenses not incurred to generate taxable income.

VAT: standard rate 21% and reduced rate 12% (from 2024); the registrant must file a VAT return within 25 days after the end of the tax period.

Transfer pricing: transactions with related parties must be at arm's length; the taxpayer maintains transfer pricing documentation and reports under DAC6 where cross-border arrangements meet hallmarks.

Tax depreciation: assets are classified into depreciation groups (1–6) with statutory useful lives; the taxpayer may elect accelerated or straight-line depreciation.

Withholding tax applies to certain payments abroad (e.g., dividends 15%/35%, interest and royalties 15% subject to treaty relief); the payer is the withholding agent.

Tax loss carryforward is generally 5 years; from 2020 a special regime allows carryback of losses for 2 years subject to conditions.

Deferred tax under IAS 12: temporary differences between tax base and carrying amount are recognised using the liability method; deferred tax assets are recognised only if future taxable profit is probable.

The Czech Financial Administration (Finanční správa) may assess tax within 3 years from the end of the tax period in which the return was due; the period is extended by certain acts.

NPV = Σ CFt / (1+r)^t − initial investment; IRR is the discount rate at which NPV equals zero; accept projects with positive NPV or IRR above the cost of capital.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − tax rate); CAPM: Ke = risk-free rate + beta × market risk premium.

Break-even point in units = fixed costs / contribution margin per unit; contribution margin = selling price − variable cost per unit.

COSO internal control framework: five components are control environment, risk assessment, control activities, information and communication, and monitoring activities.

Segregation of duties: incompatible functions (authorisation, custody, recording, reconciliation) should be assigned to different persons; where not possible, compensating controls apply.

Working capital cycle: cash conversion cycle = days inventory outstanding + days sales outstanding − days payables outstanding.

Budget variance analysis: flexible budget adjusts for actual volume; a favourable variance increases profit, an unfavourable variance decreases it.

Activity-based costing allocates overheads by cost drivers (e.g., machine hours, number of setups) rather than by a single volume-based rate.

Liquidity ratios: current ratio = current assets / current liabilities; quick ratio excludes inventory; an increasing ratio indicates improved short-term solvency but may signal idle assets.

IT general controls cover access management, change management, IT operations and program development; application controls cover input, processing and output.

CAATs (computer-assisted audit techniques) include data extraction, re-performance, stratification, gap detection and duplicate testing on full populations.

ISA 315 requires the auditor to understand the entity's IT environment, including automated controls and general IT controls on which they depend.

Audit data analytics: testing 100% of a population may still not be audit evidence of completeness if the source data is not reliable; the auditor must test the completeness and accuracy of the data.

Benford's law analysis is a screening technique; deviation from expected digit distribution is not by itself evidence of fraud.

Journal entry testing: extract journal entries and score by risk criteria such as unusual accounts, round amounts, entries made outside business hours or by unusual users.

Data protection: GDPR (Regulation (EU) 2016/679) applies to personal data processed during an audit; the auditor acts as a processor or a separate controller depending on the engagement.

Electronic signatures in the Czech Republic are governed by Regulation (EU) No 910/2014 (eIDAS); a qualified electronic signature has the same legal effect as a handwritten signature.

Cybersecurity: the NIS2 Directive applies to certain entities; management bodies must approve and oversee cybersecurity risk-management measures and may be held liable.

Czech insolvency is governed by Act No. 182/2006 Coll. (Insolvency Act); the debtor is insolvent if it has multiple creditors and is unable to pay debts for more than 30 days or its liabilities exceed assets.

Insolvency proceedings begin on the date the insolvency petition is filed with the court; the court decides on insolvency within 15 days in standard cases.

The moratorium: a debtor may request a 3-month protection period (extendable to 4 months) during which enforcement and proceedings are stayed.

Reorganisation is available to debtors with turnover above CZK 50 million or more than 50 employees; it requires a reorganisation plan approved by the court.

Avoidance actions: the insolvency administrator may challenge transactions carried out within the look-back period (e.g., 1 year for related-party transactions, 3 years for gratuitous acts).

Forensic accounting: the fraud triangle comprises pressure/incentive, opportunity and rationalisation; the auditor tests for red flags such as unusual related-party transactions and lifestyle changes.

Asset tracing: the auditor follows the flow of funds through bank statements, invoices and ledgers to identify misappropriation; chain-of-custody documentation is essential for evidence.

Insolvency register (insolvenční rejstřík) is a public electronic register; all filings and decisions are published there.

The statutory auditor's role in insolvency: the auditor may be appointed to review the debtor's financial statements or to act as an expert; the administrator prepares a report on the debtor's business.

Public sector audits in the Czech Republic: the Supreme Audit Office (NKÚ) audits state property and funds; regional and municipal audits are performed by the respective audit bodies.

The Czech public sector uses accrual accounting based on the state accounting standards (České účetní standardy pro účetní jednotky, které účtují podle vyhlášky č. 410/2009 Sb.).

Public sector entities prepare financial statements including a balance sheet, a statement of profit and loss, a statement of cash flows and a statement of changes in equity.

Non-profit organisations: associations (spolky) under Act No. 89/2012 Coll. and public benefit corporations (obecně prospěšné společnosti) under Act No. 248/1995 Coll. are subject to audit if they meet statutory thresholds.

Public procurement: Act No. 134/2016 Coll. governs procurement; the contracting authority must comply with the principles of transparency, equal treatment and proportionality.

Budgetary rules: Act No. 218/2000 Coll. (state budget) and Act No. 250/2000 Coll. (territorial budgets) set the rules for budget preparation, execution and reporting.

ISSAI standards (International Standards of Supreme Audit Institutions) guide public sector audit; the INTOSAI framework includes the Lima Declaration and the Mexico Declaration on independence.

Subsidy audit: the auditor verifies eligibility, the use of funds for the approved purpose and compliance with the grant agreement; findings may trigger clawback of the subsidy.

Public sector internal control: the Financial Control Act (Act No. 320/2001 Coll.) requires a system of financial control, including a management and control system and an internal audit function.