Slovakia introduces classification by size for accounting entities

The Act No. 431/2002 Collection of Laws (Coll.) on Accounting amended by the Act No. 352/2013 Coll. (hereinafter the Act on Accounting) has introduced classification of accounting entities according to their size.

What is the change?

The amendment has brought measures which may reduce the obligations arising from accounting mainly in regard to financial statement preparation, as well as decrease bookkeeping costs for small businesses. It could simultaneously keep the reporting value of the bookkeeping in accordance with the accounting principles for double-entry bookkeeping pursuant to the laws of the European Union. 

The Act has introduced a definition of a micro-accounting entity according to which a company, a cooperative, a natural person and a land association can become a micro-accounting entity provided that:

a) they decide to proceed as a micro-accounting entity with respect to the accounting period during which they were incorporated, or

b) as of the financial statement preparation date and for the preceding accounting period, they did not exceed two of the following conditions:

  • their total assets did not exceed €350,000 
  • their net turnover did not exceed € 700,000
  • their average number of employees did not exceed 10, or

c) they exceeded two of the conditions referred to in (b) in one of two successive accounting periods but were considered a micro-accounting entity in the first of these two accounting periods.

An accounting entity becomes a micro-accounting entity upon their decision and provided that they meet the above-mentioned conditions.

An accounting entity may become a micro-accounting entity within the accounting period in which they were incorporated. With regard to bookkeeping and reporting - and this also applies to other accounting entities - they have to proceed as micro-accounting entities during the entire period until they fail to meet the conditions. In practice this means that it depends on an accounting entity whether they will use this possibility. However, they may decide to cease being a micro-accounting entity only if they fail to meet the stated criteria in at least two consecutive accounting periods.

Upon meeting the basic conditions - that is, the size criteria - the companies considered as micro-accounting entities defined in the Commercial Code are as follows:

  • all companies such as public company, limited partnership, limited liability company and a joint stock company
  • cooperatives
  • a natural person who conducts business or other self-employed activity using double-entry bookkeeping; they may, but do not have to, be registered in the Commercial Register
  • land associations.

The classification of a micro-accounting entity does not apply to banks, branches of a foreign bank, public interest entities, insurance companies or branches of a foreign insurance company (Section 17 of the Act on Accounting) - that is, accounting entities preparing their financial statements according to the International Financial Reporting Standards (IFRS). 

The criteria necessary to be considered are detailed below.

  • Total assets are gross assets. It is the sum of the fixed assets, current assets and other assets before deducting accumulated depreciation/amortisation and value adjustments. Therefore, the data considered are the data stated in the balance sheet on the date of the regular financial statement - for example, as of 31 December 2013, it is the data stated in the row 1, column 1.  
  • Net turnover is defined as income from the sale of products, merchandise, services provided, and other income related to ordinary activities of the accounting entity after deducting discounts.
  • the average number of employees is the arithmetic average of the daily number of employees for the reference period converted to full employment. The conversion is carried out on the basis of employment contract periods, exceptionally on the basis of hours actually worked. The number of employees does not include persons with agreements on work performed outside employment, private entrepreneurs and their business partners who do not have an employment contract, members of a board of directors, a management board and a supervisory board, members of an audit committee as well as other administration body of a legal entity, and other persons who are not employed in the company.

Changes in the Act on Accounting applicable to micro-accounting entities

The changes arising from the Act on Accounting applicable to micro-accounting entities are below.

  • When being acquired, securities, derivatives and equity shares shall not be valued at fair value.
  • On the date of the financial statement preparation, assets and liabilities shall not be valued at their fair value, and assets shall not be valued under the equity method. The exception is applicable only to the evaluation of assets and liabilities in companies or cooperatives being dissolved without liquidation, when they have to be valued at market value, by a qualified estimate or an expert opinion. On the date of the financial statement preparation or when acquiring assets and liabilities, these shall not be valued at their fair value. 
  • Upon initial recognition, securities and shares shall be valued at acquisition value. The accounting entity shall not follow the Sections 8, 9, 11, 12 and 18 in their bookkeeping as to the date of the financial statements preparation.
  • An accounting entity which recorded securities and shares at fair value or by the equity method shall, as of the first day of an accounting period in which they became a micro-accounting entity, record the balance in the account 414 - Differences from Revaluation of Assets and Liabilities by an opposite accounting entry as its formation was recorded. A change in fair value of securities, which was, as to the date of a financial statement preparation, recorded in relevant accounts of costs or revenues, shall be recorded in the account 428 - Retained earnings from previous years or in the account 429 - Accumulated losses from previous years. The Section 16 (32, 33) defines a different method of recording derivate for micro-accounting entities.
  • The Section 17 (2) defines the methods of recording in regard to the sale of a company or its part in the bookkeeping of the seller who is a micro-accounting entity (a micro-accounting entity records in the accounts of operating costs and revenues, not in the accounts of extraordinary costs and revenues).  
  • The Section 72 (2) defines the recording of property damage caused by exceptional occurrences, for example due to a natural disaster. In this case, the accounts of operating costs and revenues should be used for recording.

The content of micro-entity financial statements includes all the basic data necessary for the user. A micro-accounting entity shall proceed according to the measure of the Ministry of Finance of the SR from 11 December 2013, No. MD/15464/2013-74 for the first time when preparing financial statement as to 31 December 2014. In general, reporting of a micro-accounting entity will be easier and it will provide a more concise scope of information in notes.

Why is it changing?

The purpose of the amendment to the Act on Accounting was the adoption of the legislative measures in order to reduce the administrative burden.

Who does it affect?

For entrepreneurs using double-entry bookkeeping, not-for-profit accounting entities as well as for natural persons.

Read more about doing business in Slovakia

Ondrej  Mihočka
Technical update

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