Shrnutí: The term statutory audit may sound like something that only applies to large corporations. But beware, medium and smaller companies may also encounter a statutory audit. In addition, changes were made in 2024 that pushed the boundaries for when an audit is mandatory. So in this article, we’ll look at what an audit is, when it’s mandatory, what’s changed in the law, and how to prepare for one.
You must have a statutory audit of your financial statements from 2024 if you are a medium or large entity, or a small public limited company or trust that meets at least two of the following three conditions in two consecutive accounting periods: assets over CZK 40 million, turnover over CZK 80 million or more than 50 employees. If you fail to have an audit, you risk fines and problems with the publication of your financial statements.
Quick checklist
If yes on at least two counts, you probably need to address the audit.
Not sure if the audit applies to your company? Use our online legal advice to find out if you have a legal obligation to have an audit.
If we were to simplify it as much as possible, we would say that an audit is an examination of your financial statements by an independent professional, an auditor. However, it is not just any audit. The auditor verifies that the company has kept its accounts correctly and that they accurately reflect reality.
The aim of the audit is to increase the credibility of the information in the financial statements, which is appreciated not only by the tax authorities, but also by banks, investors and business partners. When an outsider sees that your accounts have been audited, they can be sure that you are not reading the numbers from a crystal ball, so to speak.
The audit is governed by the Accounting Act. In addition to this law, other legislation also affects auditing, in particular the Public Registers Act, which regulates the obligation to publish audited financial statements in the Collection of Deeds, and the Income Tax Act, as the auditor’s opinion can be the basis for an audit by the tax authority.
When you say audit, most people think of an accounting audit. However, there are many other types of audits, such as internal audit (conducted by staff or a hired specialist to improve processes), forensic audit (focusing on suspected fraud or embezzlement) and IT audit (verifying the security and reliability of information systems).
In this article, we focus exclusively on the statutory audit of financial statements, i.e. what the law refers to as “auditor’s verification of financial statements”.
The change in the law has brought new limits that change the conditions for the companies affected by the audit. If you don’t know whether you need to undergo a statutory audit, send us your query via our legal advice service. You will receive an answer within 48 hours.
As of 1 January 2024, the rules for mandatory audits have changed. There is a new obligation to have the financial statements audited by an auditor for large entities, medium-sized entities and small entities if they are a public limited company or a trust and exceed at least one of the following values on two consecutive balance sheet dates:
In addition to companies, certain other entities are also subject to mandatory audits, such as foundations and certain endowment funds, municipalities and regions above a certain size, companies that produce consolidated financial statements, or companies that issue securities on the stock exchange.
Practical example:
A medium-sized manufacturing company had sales of 98 million and 58 employees in 2022 and sales of 102 million and 61 employees in 2023. It has therefore already exceeded the new 2024 limits twice. The 2024 audit will be mandatory for the company.
The creative agency had assets of 47 million, turnover of 76 million and 45 employees in 2022. In 2023, it had assets of 45 million, turnover of 75 million and 48 employees. The agency therefore exceeded only one condition. The audit is not yet mandatory for it, but it is on the borderline.
If you are not sure how to calculate turnover, assets or average number of employees correctly, we recommend consulting a lawyer or accountant. In practice, misinterpretation of the limits is one of the most common reasons why companies are late to audit.
In practice, we see companies incorrectly counting related companies or misjudging the point in time from which the limits are assessed. Often the problem arises with fast-growing firms that exceed the limits unobtrusively within two consecutive accounting periods.
You may already be starting to realise that statutory audit is not just about “letting the auditor into the office”. Yes, it is a process that takes place in several stages. First, you have to choose an auditor, and one that is registered in the list of the Chamber of Auditors of the Czech Republic.
You have to conclude an audit contract with this auditor, which is ideally concluded at the end of the year so that the auditor has time to prepare everything. Many companies also make mistakes in timing. In practice, we often see that companies start auditing only after the end of the accounting period, when it is already a problem to find an auditor with free capacity.
If you need to check that your obligations to the auditor or the Companies House are set up correctly, our lawyers can help you through the process step by step.
Next, we will hand over the documents, which are financial statements, reports, contracts, etc. This is followed by the actual audit, where the auditor goes through the data and communicates with the accountants and management. The result is the auditor’s report, which may be unqualified, qualified or adverse.
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As mentioned above, an audit can only be carried out by an auditor registered in the list maintained by the Chamber of Auditors of the Czech Republic. You can choose between individuals and audit companies. When choosing an auditor, always consider their expertise and specialisation, it is always better to have someone who focuses directly on your field of business. Next, look for experience with firms of similar size.
The auditor should also be able to explain everything to you in a human and understandable way. Many entrepreneurs choose an auditor based on price alone. However, this can get expensive. A poorly done audit can lead to problems with bank financing or when the tax office audits your books.
According to the Auditors Act, the auditor must always act impartially and professionally. They are bound by confidentiality and are accountable for their work. So remember that the auditor is an independent person who must not have a conflict of interest. In fact, his job is not to “help you pass”, but to impartially verify the veracity of your financial statements.
Think the audit doesn’t apply to you, so you just don’t do it? Watch out. You could get into trouble. Failure to comply with a statutory audit can lead to:
You can do a quick checklist to find out if the statutory audit applies to you:
If you answer “yes” to two of these questions, you should address the audit. Ideally with an accountant, tax advisor or lawyer.
Often, problems only come up when a company applies for a loan, an investor comes in or the IRS audits the books. Only then will it be discovered that the audit should have been carried out in previous years.
For example, an e-commerce company assumed for several years that it did not need an audit. However, when applying for bank financing, the bank found that the company had exceeded the legal limits for the second year. The company then had to deal with the audit retrospectively under time pressure, which meant higher costs and complications in the loan approval process.
If you’re unsure whether the mandatory audit applies to you, use our online legal advice service to quickly and reliably confirm whether you need to have an audit or whether you are not subject to the obligation.
Even if an audit seems like a scarecrow at first glance and involves a certain administrative burden, it can also be beneficial for your company. An independent verification of the figures will not only help you when negotiating with investors or banks, but also for internal process control. We can help you navigate this area too – in a human, understandable and, above all, reliable way.
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From 2024, the conditions for statutory audit of financial statements have changed – the limits on assets, turnover and number of employees have increased, putting thousands of smaller companies out of its reach. An audit is a verification of the financial statements by an independent auditor and aims to increase the credibility of the accounts with the tax authorities, investors and business partners. The audit obligation arises if a company meets two of the three conditions in two consecutive years: assets over 40 million euros and assets over 40 million euros. CZK, a turnover of over 80 million CZK, and an asset value of over 40 million CZK. CZK, more than 50 employees. The audit must be carried out by an auditor registered in the list of the Chamber of Auditors of the Czech Republic, and the result is an unqualified, qualified or adverse opinion. If you omit the audit, you risk not only fines but also loss of credibility. Not sure if the audit applies to you? Take advantage of our legal advice – we’ll explain everything clearly and without unnecessary complexity.
No. The audit obligation depends on the size of the company, turnover, assets and number of employees.
The auditor is usually approved by the general meeting or other competent body of the company.
The price varies according to the size of the company and the scope of accounting. For smaller companies, it is often in the tens of thousands of crowns.
Yes, but firms often run into a shortage of available auditors. Therefore, it is better to deal with the audit in advance.
There is a risk of fines, complications with the Collection of Deeds and problems when dealing with the bank or investors.
Yes. For example, if it finds a conflict of interest or does not receive the necessary documents.
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Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 15 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 15 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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