Accounting news. Accounting news. February Deloitte Czech Republic. Czech Accounting US GAAP

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1 Changes in Accounting news Deloitte

2 Changes in Changes in On 17 December 2015, the Finance Ministry published in Financial Bulletin No. 6/2015 changes in Standards for reporting entities that maintain their accounting records under Regulation No. 500/2002 Coll., which provides implementation guidance on certain provisions of Act No. 563/1991 Coll., on Accounting, as amended, for reporting entities that are businesses maintaining double entry accounting records ( Czech Accounting Standards (CAS) for Businesses ). Changes in CAS for Businesses are made in response to the amendment to the Accounting Act dated 10 September 2015 and the amendment to Regulation No. 500/2002 Coll., for Businesses dated 2 October We discussed the amendments to both regulations effective as of 1 January 2016 in greater detail in our Accounting News from October 2015 to January Reporting entities will apply the revised wording of CAS for the first time in the reporting periods starting on 1 January Principal Reasons for Changes in CAS for Businesses The entire text containing changes in CAS for Businesses as published in the Financial Bulletin is fairly extensive, totalling 32 pages. The principal reasons for changes in CAS for Businesses can be organised into the following groups: 1. Changes in the arrangement and organisation of the Accounting Act and Regulation No. 500/2002 Coll. In addition to factual changes, numerous paragraphs and sections of the Act and the Regulation were renumbered which resulted in changes in CAS which often make reference in their text to the Act or the Regulation. 2. New arrangement and designation of balance sheet and profit and loss account items Primarily as a result of the amendment to Regulation No. 500/2002 Coll., changes were made in the terminology, names of certain accounting groups and arrangement of financial statements (changes in the order of line items, their combination or splitting) which led to adequate changes in most of CAS for Businesses. 3. Changes in accounting policies in the Regulation Key changes in accounting policies that were also reflected in the amendment to CAS: The recognition of start-up costs in the balance sheet was cancelled, Change in the policy of accounting for changes in internally produced inventory (Section 22 of the Regulation). Inventory additions or disposals will not be accounted for as income but through the relevant expense account in group 58 Change in internally produced inventory and own work capitalised;. Change in the policy of accounting for capitalisation of internally produced inventory and fixed assets (Section 23 of the Regulation). Capitalisation will not be accounted for as income but as a reduction of expenses with a credit entry to the relevant account in group 58 Change in internally produced inventory and own work capitalised; Change in the policy of accounting for gifts in the operating area received gifts will not be accounted for as an increase in equity but as other operating income; and Extraordinary expenses and income were cancelled and the amounts will be reported as part of operating or financial expenses and income.. 2

3 Changes in 4. Issuance of a new standard with the transfer bridge for 2016 In view of the major changes in the amendment to the Accounting Act and the Regulation, the issuance of new standard 024 that contains the transfer bridge enabling the preparation of the financial statements for the reporting period starting in 2016, has been eagerly awaited. We will discuss this standard in greater detail in the following text. New CAS No. 024 Comparative period for the period starting in 2016 The objective of this new standard is to provide basic guidance on the preparation of financial statements for periods starting in 2016 in: a) Transferring the closing balance sheet balances to the opening balance sheet balances; and b) Presenting the balance sheet and profit and loss account items (both structured by the nature and function of expense methods) to ensure the comparability of the amounts of those items for the current and prior periods. As of the first day of the 2016 reporting period, the reporting entity will: a) Prepare a chart of account in terms of Section 46 a of Appendix No. 4 to the Regulation; and, b) Prepare a transfer bridge in terms of Point 3 of CAS No. 024 (see below). Transfer bridge Point 3 of CAS No. 24 includes detailed schedules for The balance sheet; The profit and loss account structured by the nature of expense method; and The profit and loss account structured by the function of expense method Each schedule includes: Designation of financial statement line items valid as of 1 January 2016 (new); Comparable designation of financial statement line items valid as of 31 December 2015 (existing); and Explanatory notes to selected line items. We specifically highlight the following changes in the transfer bridge for the balance sheet: Existing line B.III.6. Acquisition of non-current financial assets was released into the relevant lines of non-current financial assets according to the nature of the acquired assets; Other transfers were made in the Non-current financial assets category; Major changes were in the Current financial assets category; and 3 In the transfer and presentation, reporting entities shall proceed in view of the materiality of the reported information. A new category Convertible debt securities was introduced, giving rise to changes in short-term and long-term payables. CAS No. 024 shall be cancelled as of 31 December 2016.

4 Changes in From the transfer bridge for the profit and loss account structured by the nature of expense method it is apparent that the structure of the profit and loss account has changed more substantially than the balance sheet structure. We specifically highlight the following changes: : The existing sum line items Gross margin and Added value have no comparable new items, they are not transferred; According to Section 22 of the Regulation, the recognition and presentation of changes in internally produced inventory changes. The standard provides more specific guidance on how the existing income item Change in internal produced inventory needs to be presented to ensure comparability. According to Section 23 of the Regulation, the recognition and presentation of own work capitalised changes. The standard provides more specific guidance on how the existing income item Own work capitalised needs to be presented to ensure comparability. Existing line G Change in reserves and provisions relating to operating activities and complex deferred expenses is cancelled and replaced with the following four line items: (i) E.1.2. Adjustments of intangible and tangible fixed assets temporary (ii) E.2. Adjustments of inventory There are fewer changes in the transfer bridge for the profit and loss account structured by the function of expense method, the following are worth mentioning: The area Income from non-current financial assets equity investments and Income from other non-current financial assets ; and New item VII. Other financial income includes part of the current six line items, similarly as new item K Other financial expenses. Key changes in other CAS for Businesses All standards without exception were affected by the changes. Certain standards saw only formal changes arising from the renaming of financial statement line items or the changed number of the relevant paragraph in the amendment to the Accounting Act or the Regulation while other standards were revised more substantially. The majority of these changes relate to the changes in accounting policies in the Regulation stated in point 3 above. We recommend reviewing the amended CAS for Businesses in detail. The full wording of the amendment to CAS for Businesses can be found at or here. 4 (iii) E.3. Adjustments of receivables (iv) F.4. Reserves relating to operating activities and complex deferred expenses Items were reclassified into new items Income from non-current financial assets equity investments and Income from other non-current financial assets. New item VII. Other financial income includes part of the current six line items, similarly as new item K Other financial expenses.

5 Closing Out 2015 Changes in This article provides a high-level overview of the new and revised Standards and Interpretations that are effective for December 2015 calendar yearends and subsequent accounting periods. Entities are, however, generally permitted to adopt the new and revised Standards and Interpretations in advance of their effective dates (refer to individual Standards and Interpretations for additional details).this article provides a summary of s and interpretations that an entity may elect to apply for the year ended 31 December A word of caution regarding early adoption of Standards and Interpretations in the case of entities that prepare financial statements according to as adopted by the European Union (EU). Standards, Interpretations and amendments to the existing standards, which were not endorsed for use in the EU, cannot be applied by the entities preparing their financial statements in accordance with as adopted by the EU. Where applicable, we have made reference to past issues of Accounting News dealing with the specific Standard or Interpretation in greater detail. These past newsletters are also available at As always, entities should refer to the Standards and Interpretations themselves to identify all of the changes that may affect their particular circumstances. Even where there is no intention to implement a Standard or Interpretation in advance of its effective date, entities need to be aware of new Standards and Interpretations as they are issued, in order to comply with the requirement included in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to disclose in their financial statements the potential impact of Standards and Interpretations in issue but not yet effective. This requirement is valid irrespective of whether a Standard or Interpretation have already been endorsed in the EU. We therefore recommend reviewing further newly issued amendments to standards and interpretations that will be approved by the date of the issuance of a company s financial statements. We will be providing updates on these developments on and in our Accounting News. The effective dates of s issued by the IASB and s as adopted by the EU can be different. New and Revised Standards and Interpretations The following tables provide a list of new and revised Standards and Interpretations in issue at 20 January 2016 that are either effective, or available for early adoption, for 31 December 2015 calendar year-ends. 5 Where a Standard or Interpretation is adopted in advance of its effective date, disclosure of that fact is generally required. All of the newsletters referred to may be found on here

6 Changes in Effective for 31 December 2015 year-ends Amendments to Standards Various Interpretation Annual Improvements to s Cycle Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news 1. July January 2015 January 2014 Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news IFRIC 21 Levies 1. January June 2014 July

7 Changes in Available for early adoption for 31 December 2015 year-ends New Standards Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news 9 Financial Instruments 1 January 2018 Not endorsed for use in the EU yet December 2009 November 2010 September 2012 January 2014 September Regulatory Deferral Accounts 1 January 2016 Will not be endorsed for use in the EU 15 Revenue from Contracts with Customers March January 2018 Not endorsed for use in the EU yet July Leases 1 January 2019 Not endorsed for use in the EU yet 7

8 Changes in Amendments to Standards 10, 12 and IAS and IAS Amendments to 10, 12 and IAS 28 Investment Entities - Applying the Consolidation Exception Amendments to 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to 11 Accounting for Acquisitions of Interests in Joint Operations Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after 1 January 2016 Not endorsed for use in the EU yet No effective date Not endorsed for use in the EU yet Accounting news February 2015 October January January 2016 June 2014 IAS 1 Amendments to IAS 1 Disclosure Initiative 1 January January 2016 February 2015 IAS 12 IAS 16 and IAS 38 IAS 16 and IAS 41 IAS 19 IAS 27 Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants Amendments to IAS 19 Defined Benefit Plans: Employee Contributions Amendments to IAS 27 Equity Method in Separate Financial Statements 1 January 2017 Not endorsed for use in the EU yet 1 January January 2016 June January January 2016 September July February 2015 January January January 2016 September 2014 Various Annual Improvements to s Cycle 1 July February 2015 January 2014 Various Annual Improvements to s Cycle 1 January January 2016 November

9 Changes in IASB issued new leasing standard On 13 January 2016, the International Accounting Standards Board (IASB) published a new standard, 16 Leases. The new standard brings most leases on-bal ance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the distinction between operating and finance leases is retained. 16 supersedes IAS 17 Leases and related interpretations and is effective for periods beginning on or after 1 January 2019, with earlier adoption permitted if 15 Revenue from Contracts with Customers has also been applied. We will bring detailed information about 16 in the next issue of the Accounting News. 9

10 Changes in IASB issued amendments to IAS 12 On 19 Jan 2016, the International Accounting Standards Board (IASB) issued amendments to IAS 12. The amendments, Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12), clarify how to account for deferred tax assets for unrealised losses on debt instruments measured at fair value. The amendments consist of some clarifying paragraphs and an illustrating example. Changes The amendments in Recognition of Deferred Tax Assets for Unrealised Losses clarify the following aspects: Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument s holder expects to recover the carrying amount of the debt instrument by sale or by use. The carrying amount of an asset does not limit the estimation of probable future taxable profits. Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences. An entity assesses a deferred tax asset in combination with other deferred tax assets. Transition requirements and effective date The amendments are effective for annual periods beginning on or after 1 January Earlier application is permitted. 10

11 EU Endorsement Process Changes in In December 2015, the European Commission endorsed the following three documents: Amendments to IAS 1 Disclosure Initiative; Amendments to IAS 27 Equity Method in Separate Financial Statements; and Annual Improvements to s Cycle. Amendments to IAS 1 Disclosure Initiative were issued by the International Accounting Standards Board (IASB) in December The amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their financial reports. You can find more information about these Amendments to IAS 1 in our Accounting News from February Annual Improvements to s Cycle were issued by the IASB in September These annual Improvements include amendments to the following four standards: 5 Non-current Assets Held for Sale and Discontinued Operations 7 Financial Instruments: Disclosures (with consequential amendments to 1) IAS 19 Employee Benefits; and IAS 34 Interim Financial Reporting. You can find more information about the Annual Improvements to s Cycle in our Accounting News from November Úpravy jsou účinné v EU pro roční období začínající dne 1. ledna 2016 nebo později. 11 Amendments to IAS 1 are effective in the EU for annual periods beginning on or after 1 January Amendments to IAS 27 Equity Method in Separate Financial Statements were issued by the IASB in August The amendments allow an entity to apply the equity method in accounting for its investments in subsidiaries, joint ventures and associates in its separate financial statements. The amendments are effective in the EU for annual periods beginning on or after 1 January You can find more information about these Amendments to IAS 27 in our Accounting News from September Amendments to IAS 27 are effective in the EU for annual periods beginning on or after 1 January 2016.

12 Changes in The European Financial Reporting Advisory Group (EFRAG) updated its report showing the status of endorsement of each, including standards, interpretations, and amendments, most recently on 19 January As of 20 January 2016, the following IASB pronouncements are awaiting European Commission endorsement for use in the EU: Standards 9 Financial Instruments (issued in July 2014) 15 Revenue from Contracts with Customers (issued in May 2014) Amendments Amendments to 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (issued in September 2014) Amendments to 10, 12 and IAS 28 Investment Entities: Applying the Consolidation Exception (issued in December 2014) Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses (issued in ) Click here for the Endorsement Status Report Leases (issued in )

13 Changes in New Publications by Deloitte Model Financial Statements under as adopted by the EU for the year ended 31 December 2015 in Czech and English The version of the model con solidated financial statements under s as adopted by the EU prepared by the Prague office of Deloitte is available on in both the Czech and English languages. This version should be used by the entities that prepare financial statements in compliance with s as adopted by the EU for the year ended 31 December The main difference between s issued by the IASB and s as adopted by the EU as of 31 December 2015 is in the effective date of some amendments to s and new interpretations. The global version of model con solidated financial statements for the year ended 31 December 2015 is available on The model financial statements are intended to illustrate the pres entation and disclosure requirements of s as adopted by the EU. They also contain additional disclosures that are considered to be best practice, particularly where such disclosures are included in illustrative examples provided with a specific Standard. The publication includes: Section 1 Overview of new and revised s issued as at An overview of new and revised s adopted by the EU that are mandatorily effective for the year ended 31 December An overview of new and revised s adopted by the EU that are not yet mandatorily effective but allow early application for the year ended 31 December An overview of new and revised s issued by the IASB but not yet adopted by the EU. Section 2 Model financial statements of International GAAP Holdings Limited for the year ended 31 December 2015 under s as adopted by the EU. 13

14 Changes in the measurement assets and financial liabilities Changes in On 5 January 2016, the FASB issued a new Accounting Standards Update The new update brings amendments to the U.S. GAAP guidance on the classification and measurement of financial instruments. The changed standard substantially revises an entity s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The update also changes some disclosure requirements related to the fair value of financial instruments. The changes are the result of the convergence initiative between and and its main objective is to enhance quality of information in the financial statements for decision makers. Some of the main changes resulting from the ASU are discussed below. Changes Related to Classification and Measurement of Equity Investments The changes in the standard require that equity investments (excluding those accounted for under the equity method or those that result in consolidation) to be measured at fair value, with changes in fair value recognised in net income. An entity may choose to measure at cost equity investments for which fair value is not readily determinable, minus impairment, if any, plus or minus the change as a result of an observable price change. The guidance replaces the current requirements for the entities to classify equity securities with readily determinable fair values into different categories (i.e. trading, available-for-sale). The updated guidance also simplifies the impairment assessment of equity investments for which fair value is not readily determinable as such that it requires an entity to perform a qualitative assessment to identify impairment, similar to current guidance on qualitative assessment for long-lived assets. If such qualitative indicators are identified, the entity is required to measure the investment at fair value. 14

15 Changes in Certain Presentation and Disclosure Changes The update then requires separate presentation of the financial instruments and financial liabilities by measurement category on the balance sheet or in the notes to the financial statements (securities, loans, receivables) which should result in providing more clear information about an entity s involvement in financial instruments for decision makers. For financial liabilities that an entity has elected to measure at fair value in accordance with the fair value option guidance in ASC 825, the changes require an entity to present separately in other comprehensive income the portion of the change in fair value that results from a change in instrument-specific credit risk. For public business entities (PBEs), the amendments eliminate the requirement to disclose the method(s) and significant assumptions used to estimate fair value for financial instruments measured at amortised cost and require, for disclosure purposes, the use of an exit price notion in the determination of the fair value of financial instruments measured at amortised cost. This change results in better comparability of financial statements as there will be no longer the entry price method as another fair value method used by certain entities. Effective Date and Transition The new standard will become effective for PBEs for fiscal years beginning after 15 December 2017, including interim periods therein. For all other entities, including not-for-profit entities and employee benefit plans within the scope of ASC 960 through ASC 965 on plan accounting, the new standard will be effective for fiscal years beginning after 15 December 2018, and interim reporting periods within fiscal years beginning after 15 December Upon adoption, entities will need to calculate and make a cumulativeeffect adjustment to the statement of financial position as of the beginning of the first reporting period when it becomes effective. The guidance on equity securities without readily determinable fair value will be applied prospectively to all equity investments that exist as of the date of adoption of the standard. Early adoption is permitted. Convergence with Although the changes result from the convergence project, the changes adopted by the FASB are only targeted changes to current GAAP as opposed to full convergence with 9 after evaluating costs and benefits of both options. The new guidance will achieve convergence in several areas, while some, rather minor, differences will remain. 15 For non-pbes, the amendments remove the requirement to disclose fair value of financial instruments measured at amortised cost on the balance sheet, which should result in lower costs associated with the preparation of the data. For more information see the FASB.org or in our HeadsUp na iasplus.com.

16 Contact If you have any questions regarding any of the articles in this publication, please contact one of the following audit experts: Changes in David Batal Anna Bezděková and Martin Tesař Soňa Plachá Gabriela Jindřišková Deloitte Advisory s.r.o. Nile House Karolinská 654/ Praha 8 - Karlín Česká republika Tel.: Fax: Subscribe to dreport and other newsletters and invitations here Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, tax, consulting, financial advisory and legal services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s more than 200,000 professionals are committed to becoming the standard of excellence Deloitte Česká republika