National GAAP

Good day,

In our company, we are dealing with a very difficult situation. On the one hand, section § 19 paragraph 9 of the Czech Accounting Act, states that we have to account under IFRS. On the other hand, Instruction D - 295 says:

“According to § 23 paragraph 2 point. a) Act No. 586/1992 Coll. on Income Tax, as amended (hereinafter the "Law on Income Tax"), to determine the income tax base is based on operating results, and always without influence IAS. A taxpayer who prepares financial statements under IAS for the purposes of the Income Tax Act applies to determine the results of its operations by special legislation, namely Law on Accounting and Decree that the Act provided:

“Decree No. 500/2002 Coll., Which implements certain provisions of the Act on accounting for entities that are businesses accounting using double-entry accounting, as amended ...

“It follows that a taxpayer referred to in the provisions of § 19 paragraph 9 of the accounts during the year accounted for in accordance with the Act on Accounting under IAS for tax purposes, however, must identify and report profit before tax for line 10 tax return for income tax according to Czech accounting standards.”

Of course, the advice you often hear is that this can be done by, during the period, accounting under IFRS and the end of the period making adjustments to accounts to match the Czech accounting regulations.

Our advisor proposes to do this by taking the closing balances of the accounts pursuant to IFRS and bridging them to balances that would have been if Czech legislation was used.

However, the question arose. How to prove that these bridges provide the right answer when, the transactions are never recorded as per Czech regulations?

Just for fun, you can go through these two comparisons (from PwC in Cz and Eng, and from E&Y in Cz).  Neither of them is particularly exhaustive, but at least you’ll get an idea (item by item) of what you’re up against.

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