financial closure

Financial closure in times of COVID-19

Author: Veronika Žáčková
financial closure
Financial closure is a legal obligation that companies must meet not only in the successful times but also in those challenging ones we are experiencing in 2020. How should the impact of covid be reflected in these financial closures and what should not be forgotten when preparing them for 2020?

What is the purpose of the financial statements?

The financial statements are one of the essential and comprehensive information about the company, which is available to a wide range of users from banks, investors to the tax office. Its aim is to provide information not only on the profit or loss for accounting period, but also on the status of assets and liabilities of the company. The information in the financial statements must be legally reliable, comparable, understandable and judged by materiality.

What are the impacts of Covid on the financial statements?

The company should, either in the annex or in the annual report, describe in detail the impact of the covid pandemic on its economic situation, even if there have been no significant impacts on the company's operations and continuity.

The most common negative impacts of a pandemic, which must be described in the annex, include:

  • Production outages;
  • Supply chain interruptions;
  • Lack of personnel;
  • Reduced sales, profits or productivity;
  • Closures of facilities and shops;
  • Delays in planned business expansions;
  • Inability to obtain the necessary funds
  • Increased volatility in the value of financial instruments;
  • Limited tourism, restrictions on journeys that are not necessary, as well as sports, cultural and other leisure activities.

How to prepare financial statements correctly

An important advance of the financial closure is the inventory. It establishes the actual balances of assets and liabilities and records them in the inventories. All components of assets and liabilities are subject to inventory.

Entities may commence the inventory not earlier than four months before the balance sheet date and complete the inventory no later than two months after the balance sheet date, and are required to demonstrate the inventory for 5 years after the inventory pursuant to Section 29 (3) of Act 563/1991 Coll. about accounting.

Inventory can be physical determining the actual balance of property by counting, measuring and weighing, such as stocks and petty cash. Based on the findings is made the physical inventory list.

Ascertained inventory differences, i.e. surpluses and shortages, are recognized in profit or loss in the accounting period for which the inventory is checked.

Secondly, the documentary inventory is used to find out the actual state of assets and liabilities for which physical inventory, such as receivables and payables, cannot be performed. In doing so, the actual situation is determined on the basis of various documents for example invoices and preparing breakdowns of individual components of assets and liabilities.

The financial closure includes a final audit of accounting and booking specific cases at the balance sheet date. The most common closing operations are:

  • Depreciation of fixed assets - the value of the assets is not reflected in the costs as a one-off acquisition and is gradually reflected in the costs in the form of depreciation. Provisions – temporary diminution in the value of assets is expressed through provisions whose creation is based on the principle of prudence. In particular, accounting provisions for bad debts are created.
  • Prepayment, accruals, reserves - accounting for these items meets the accrual principle of accounting. We charge costs and revenues to the period to which they relate materially and in time. It is necessary to consider whether provisions for onerous contracts should be created as well as for potential restructuralization of the company if there is a risk of bankruptcy.
  • Exchange rate differences - assets and liabilities denominated in foreign currencies are translated to Czech crowns at the balance sheet date using the exchange rate announced by the Czech National Bank.
  • Profit / loss in the approval process - at the balance sheet date, an account must be settled in retained earnings, unpaid losses or otherwise. The General Meeting decides how to deal with it during the current period of the year.
  • Deferred tax - an accounting tool used to capture the principle of fair and fair presentation of facts in accounting. Deferred tax liabilities are incurred by entities that make up the consolidated group and entities that prepare the financial statements in full. Other units report it and account for it voluntarily.
  • Income tax payables - entities report a tax due as at the balance sheet date. The amount should agree to the tax liability in the corporate income tax return. If its actual amount is not known at the balance sheet date, an entity may calculate a provision for income tax that is recognized in the balance sheet in the same way as the actual income tax liability deducted by paid advances for income tax during accounting period.

What are the deadlines for preparation, approval and publication of financial statements

The financial statements are usually in the form of the so-called regular, i.e. once every 12 months, when its processing closes the annual accounting period.

The final version of the financial statements is presented and approved at the General Meeting, which is legally required by the statutory body once a year. The statutory body (executive director and the board of directors) is generally responsible for the accounting and the resulting financial statements, i.e. for the results presented therein.

The financial statements must be approved no later than six months after the last day of the previous financial year. Therefore, if the financial statements are prepared as of December 31, 2019, the General Meeting must be convened by June 30, 2020 and the financial statements approved.

Pursuant to Act No. 191/2020 Coll., Lex covid justice, the deadline for approving the financial statements for 2019 is postponed until 3 months after the end of the extraordinary epidemiological measure, ie until 31 December 2020. This new law also brings a number of changes, in particular the possibility of holding meetings of the institutions by videoconference and extending the term of office of members of the institutions.

Unfortunately, if you fail to approve and publish the financial statements for the year 2019 by 31 December 2020 in the Commercial Register, you risk a fine of up to 3 % of the gross value of assets from the tax office.

We remind you that small and micro-enterprises that are not required to have their financial statements audited need not still publish a profit and loss statement unless required to do so by special legislation. If an entity presents selected information from its financial statements, it shall state that it is only selected information from the financial statements and also state information about where the financial statements are stored. Other units are required to publish all the balance sheet, profit and loss account, annex and, if audited, the annual report and the auditor's report.

In case the financial statements or statement of assets and liabilities and the annual report are not published within the above-mentioned period, a fine may also be imposed on the company by the Registration court.

As can be seen above, the closing operations, as well as deadlines that need to be met, are numerous and nothing should be forgotten, otherwise, you risk significant fines. If you need assistance in this matter, we are fully at your disposal.


At the end of this article, we would like to wish you a merry Christmas and a happy New Year 2021 full of success and health!

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Veronika Zackova
Veronika Žáčková
Accounting Manager

Accounting services