From the year
2005, IFRS were given as a legal framework for the reporting of listed
companies in all E.U. countries (including the Czech Republic and the Republic
of Lithuania). One of the aims of this paper is to show principal differences
in reporting under IFRS and Czech GAAP. The reason for choosing the Czech
Republic is given by the unwillingness of the Czech Ministry of Finance to
harmonize the national GAAP with IFRS (e.g. Slovak GAAP – Slovak Republic was
the part of former Czechoslovakia – complies with IFRS in the majority of the
balance sheet items reported). The “target user” of the financial statements in
the Czech Republic is still the tax authority, not the investor or owner.
Moreover, unlike international standards, the Czech accounting regulations lack
a glossary of definitions for basic elements of financial statements, which is
why we shall use the definitions applied in IFRS standards, namely in the
Framework. Reliable measurement is expected from all entries involved.
Concerning the
initial recognition under Czech laws, the Accounting Act (Section 24)
identifies the following valuation alternatives:
·
historical costs, i.e. the cost of
acquisition of the assets concerned, including the costs related to the
acquisition itself;
· replacement/reproduction cost, i.e. the cost for
which the assets would be obtained at the time of the accounting statement;
· production costs, which include all direct costs expended on
the manufacturing or other activity and that part of indirect costs, which is
related to the manufacturing or other activity involved;
· nominal value, i.e. the face value.
In the Czech
Republic, items are usually measured at historical costs, while donated or
gratuitously procured assets are measured by replacement costs, which are the
approximate equivalent of the reproduction cost as defined by IFRS. Under
certain circumstances, the realizable value and the fair value also may be used
as the measurement bases for financial accounting. On the other hand, the Czech
regulations virtually ignore measurement methods based on present value35,
which are required for measurement of long-term receivables, long-term payables
and financial assets held to maturity (under IFRS).
Under Section
18 of the Accounting Act, the financial statements comprise: balance sheet,
profit and loss statement, and notes. At the same time, Section 18 also
contains the following unfortunate sentence “the financial statements may also include a cash-flow
statement and the statement of changes in equity”. This means that under Czech
laws, the cash-flow statement is not an obligatory component of the financial
statements, not even for the accounting entities, which are liable to statutory
audit34. On the other hand, international standards stipulate that
the above statements be an integral part of the financial statements. The
subsequent text deals mainly with the balance sheet and the profit and loss
statement (income statement).
