The term statutory audit may sound like something that only applies to large corporations. But beware, medium-sized 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.
If we were to simplify it as much as possible, we would say that an audit is an examination of the financial statements by an independent professional, i.e. 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 also many other types of audits, such as internal audit (conducted by employees 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 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.
You may already be beginning to suspect that the 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. With this auditor you have to conclude an audit contract, which is ideally concluded at the end of the year, so that the auditor has time to prepare everything. Then the documents are handed over, which are the financial statements, reports, summaries, contracts, etc. This is followed by the audit itself, 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 firms. 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. Finally, you can also look at the price, although this should definitely not be the only criterion.
According to the Auditors Act, the auditor must act impartially and professionally at all times. He is bound by confidentiality and is responsible for his work. Remember, therefore, 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.
If you’re not sure whether you’re subject to a statutory audit, use our online legal advice service to quickly and reliably confirm whether you need to be audited or whether you’re not.
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 the 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 or more. 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? Use our legal advice service – we’ll explain everything clearly and without unnecessary complexity.
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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 10 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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