Thousands of Small Czech Companies to Be Exempt from Mandatory Audits Starting in 2026

Beginning in 2026, the thresholds for mandatory company audits in the Czech Republic will be raised. As a result, small businesses will no longer be required to have their financial statements audited. While companies have welcomed the proposal, the Chamber of Auditors of the Czech Republic warns that it could have several negative consequences. Let’s take a closer look at the upcoming changes.

Who Is Currently Required to Undergo an Audit

At present, mandatory audits of regular or extraordinary financial statements apply to large companies (excluding individual accounting entities that are not public interest entities) and to medium-sized companies in the Czech Republic.

Small companies must undergo an audit if they are joint-stock companies or trusts under the Civil Code and, on the balance sheet date of the financial year being audited and the previous financial year, they exceed or have already reached at least one of the following criteria:

• Total assets of CZK 40,000,000
  
• Annual net turnover of CZK 80,000,000
  
• An average of 50 employees during the financial year
  

A mandatory audit also applies to other small accounting units if, on the balance sheet date of both the current and previous financial years, they exceed at least two of the above thresholds.

If a company exceeds – or no longer exceeds – two or more of these limits for two consecutive years, it moves into a higher or lower category accordingly.

Small Businesses Will No Longer Be Subject to Mandatory Audits

Changes to mandatory audit requirements were originally expected to come with the new Accounting Act, introduced by the Ministry of Finance in autumn 2022. However, after two and a half years, the draft law has still not been submitted to the government and is unlikely to be approved before the end of the current parliamentary term. Nevertheless, a smaller amendment to the Accounting Act is now being proposed, aiming to introduce similar changes.

Under this amendment, companies classified as small accounting entities would no longer be subject to mandatory audits. The obligation to conduct audits would remain only for organizations falling under the categories of medium-sized and large entities. The proposed change reflects the fact that audits place a significant administrative, time, and financial burden on accounting entities — with the cost of a single audit ranging from several hundred thousand to millions of crowns, depending on the size and complexity of the company.

Current audit thresholds have remained unchanged for roughly 15 years. As a result, more and more companies are required to undergo audits, even when they provide no real added value. The proposed amendment seeks to address this by exempting small businesses from the audit requirement.

It is estimated that up to 10,000 companies currently required to conduct audits will no longer have to do so starting in 2026.

The Categorization Thresholds Will Also Increase

In addition to changes to the audit obligation, the categorization thresholds for accounting units are set to increase. For medium-sized accounting units, which will still be required to undergo audits, the annual asset threshold will rise from CZK 100 million to CZK 120 million, and the annual turnover threshold from CZK 200 million to CZK 240 million.

This adjustment is based on and transposes Commission Delegated Directive (EU) 2023/2775 of 17 October 2023. Overall, the thresholds for classifying a company into the appropriate category will increase by approximately 25% in euros. This reflects cumulative inflation in the euro area and the European Union between 1 January 2013 and 31 March 2023, which amounted to 24.3% in the euro area and 27.2% in the EU, according to the explanatory note.

The employee threshold for medium-sized accounting units will remain at 50. As before, an entity will be classified based on meeting at least two out of the three criteria. This change is expected to increase the total volume of income and assets subject to audit by up to three times.

Companies Welcome the Changes

The changes to the mandatory audit requirements are being welcomed by entrepreneurs. During the drafting of the new law, the Chamber of Commerce of the Czech Republic had already advocated for narrowing the scope of companies subject to mandatory audits.

“Although we do not question the benefits and importance of mandatory audits as such, it should be remembered that mandatory audits undoubtedly create an additional and considerable burden for companies. Not only does the audit itself represent a financial cost, but it also requires significant interaction with the company, preparation of documents for the auditor, etc. Small companies usually find it more difficult to cope with such a burden than large ones, as they have more limited financial resources and personnel,” explained Roman Renda, an analyst at the Czech Chamber of Commerce.

Josef Jaroš, Chairman of the Board of Directors of the Association of Small and Medium-Sized Enterprises and Tradesmen of the Czech Republic, also welcomed the changes. “If a small company needs to have its financial statements audited for any reason, it can do so voluntarily. Otherwise, it may be required to do so, for example, in the case of bank financing or at the request of a company owner who is not actively involved in its management,” added Josef Jaroš.

Auditors Don’t Like the Changes

In contrast, the reduction in the number of companies required to undergo audits has been criticized by the Audit Chamber of the Czech Republic, which estimates that around 10,000 companies with a combined turnover of CZK 3 trillion will be able to avoid audits. The Chamber believes that the proposed radical change will lead to numerous negative consequences that are not mentioned in the proposal and should be weighed against the expected cost savings.

“These negative consequences are also highlighted in foreign studies and the experiences of countries that have considered or implemented increased thresholds, only to later reverse them and reduce the limits again (such as Sweden, Denmark, Italy, etc.),” the Audit Chamber stated on its website in response to the proposal.

According to the Audit Chamber, reducing the number of audits will result in decreased transparency in the business environment (including a decline in the disclosure and quality of financial statements), lower tax collection (due to more aggressive tax optimization), reduced investor protection, worsened access to financing, and increased reputational risk for the Czech Republic in international assessments — for example, in the areas of corruption perception and the fight against money laundering and terrorist financing.

From a societal perspective, there will be virtually no cost savings. The financial and administrative burden will merely shift from the unaudited companies to the users of financial statements — other businesses, creditors, banks, or the state in tax collection — in other words, to society as a whole, the Chamber concluded.

At 360WEDO, we closely monitor all regulatory changes and help our clients navigate them with confidence. Whether you’re unsure how the new audit thresholds affect your company or need support with compliance and reporting, our experts are here to guide you. Contact us for tailored consulting and accounting solutions.

https://www.podnikatel.cz/clanky/tisice-mensich-firem-se-od-roku-2026-vyhnou-povinnemu-auditu