Introducing functional currency, ESG reporting or changing the definition of net turnover

As we have already informed you on our website (including in this article), the intention of the government is, among other things, to introduce functional currency into accounting and ESG reporting. At the same time, an update of some concepts is being planned (such as net turnover), which are not discussed much, but may have an impact on other obligations of the accounting entity. These amendments, if adopted in the legislative process, will probably come into effect from 1 January 2024, or from the first day of the accounting period beginning in 2024.

Functional currency – a new concept to be introduced in accounting. The entity will be able to keep its accounts in the reporting currency, which according to the proposal is the Czech currency (as before), or in the so-called functional currency. Transferring to functional currency is an option, not an obligation, and the functional currency proposed for the time being is EUR, USD or GBP, provided that the majority of the entity’s transactions are recorded in that foreign currency. The change is only possible on the first day of the accounting period. Switching back to reporting in CZK or another functional currency is not possible. A change is possible only if there is a de facto change in the entity’s reported transactions (the chosen currency ceases to be the functional currency).

ESG reporting – the so-called sustainability report. This will be a separate section of the annual report. The purpose of this report will be to provide the information needed to understand the sustainability implications of the entity’s activities and to understand the impact of sustainability on the development, performance and position of the accounting entity. These include impacts on the environment, the social environment, human rights and compliance with them, etc.  

Net turnover – the current definition of net turnover is recorded as revenue less sales discounts. A new definition of net turnover is proposed as revenues from the sale of goods and services for the accounting period. In other words, it will only be revenues that are an integral (main) part of the company’s activities, not “incidental” revenues. The value of net turnover is one of the criteria for determining the category of the accounting entity or the obligation to have the financial statements audited, i.e. it will be necessary to pay more attention to other regulations that are linked to the amount of turnover.  

The individual changes are, for the time being, a proposal of the Chamber of Deputies related to the consolidation of public budgets. We will keep you informed about further development.

Author: Milan Pašek, Petra Čechová