Financial accounting and financial statements (IFRS and Czech GAAP)
What this domain tests
You must show you can prepare, audit and reconcile a statutory financial statement under Czech GAAP and under IFRS as adopted by the EU. Czech GAAP (Act No. 563/1991 Coll., on Accounting, plus Decree No. 500/2002 Coll. for entrepreneurs) is a prudence-based, historical-cost, tax-influenced system tied to a prescribed chart of accounts (účtová osnova). IFRS is judgement-based and fair-value oriented.
Core rules
- Recognition in Czech GAAP follows the Accounting Act and the Decree; accruals (časové rozlišení, dohadné položky), provisions (rezervy) and impairment allowances (opravné položky) are mandatory where the criteria are met.
- Deferred tax (odložená daň) is required under Czech GAAP where material - a point candidates frequently miss.
- IFRS anchors: IAS 1 presentation, IFRS 15 five-step revenue model, IFRS 16 lessee capitalisation, IFRS 9 expected credit losses, IAS 36 impairment, IAS 2 lower of cost and net realisable value.
- Consolidated accounts of Czech groups that are public-interest entities are prepared under IFRS; individual statutory accounts normally stay under Czech GAAP.
- Disclosure: notes plus, for audited entities, an annual report (výroční zpráva); large entities also report non-financial (ESG) information.
Worked example
A Czech s.r.o. leases a machine for three years at CZK 1,200,000 payable annually in arrears; the incremental borrowing rate is 5%. Under Czech GAAP this is an operating lease and only the rent is expensed. Under IFRS 16 the lessee recognises a right-of-use asset and a lease liability of CZK 3,269,000 (annuity factor 2.7232 × 1.2m). Year-one depreciation is CZK 1,090,000 and interest CZK 163,000, so the IFRS charge is CZK 1,253,000 against CZK 1,200,000 under Czech GAAP. Reasoning: identical cash flows, different profile - EBITDA rises, debt ratios worsen, and the note reconciling the two frameworks is exactly what the marker looks for.
Traps that cost marks
Assuming Czech GAAP allows revaluation of intangible assets (it does not); omitting deferred tax; treating IFRS 16 as a disclosure-only change; forgetting that the Czech chart of accounts constrains presentation, so a misposted item can be substantively wrong even when the total is right.