Accounting entity size categories: where do you fit in?

The size of the entity determines what the company is legally required to do. A small newsagent has fewer obligations than an industrial giant with hundreds of branches. Find out which category your business falls into and what not to forget.

What is the purpose of categorising accounting units?

The classification of accounting units (CUs) and the resulting rules are based on the Accounting Act (AoA) and the related Decree 500/2002 Coll:

  • preparation and publication of financial statements in a certain scope,
  • auditing the financial statements,
  • preparation of an annual report,
  • the preparation of cash flow statements and changes in equity.

For example, large corporations are required to prepare an annual report, whereas small businesses are generally not. There are four sizes of accounting units: micro, small, medium and large.

What is an accounting unit? An accounting entity is any natural or legal person that keeps accounts. This includes, for example, enterprises, some self-employed persons or organisational units of the state.

How is the size of an accounting unit determined?

The size of an accounting unit is based on 3 criteria:

  • total assets (net asset value on the balance sheet),
  • annual aggregate net turnover (net accounting turnover from the profit and loss account),
  • average number of employees (calculated according to the CSO methodology).

Your business falls into a size category based on how many of the conditions for that category it meets. If it exceeds (or ceases to exceed) 2 or more of the specified thresholds in the table below twice in a row at the balance sheet date, it moves into a higher (lower) category.

Some CUs are then automatically classified as large CUs, regardless of whether the criteria are met. These are entities of public interest (banks, insurance companies, companies issuing investment securities, etc.) and selected entities according to the Accounting Act (e.g. state authorities).

Breakdown of accounting units by size

Category of CU Total value of assets Annual aggregate net turnover Average number of employees
micro up to CZK 9 mil. up to CZK 18 mil. up to 10
small up to CZK 100 mil. up to CZK 200 mil. up to 50
medium up to CZK 500 mil. up to CZK 1 billion up to 250
large over CZK 500 mil. over CZK 1 billion over 250

When is the size of an entity assessed?

The size of an entity is usually assessed at the balance sheet date. The law states that if a CU exceeds the above values on two consecutive balance sheet dates of its regular financial statements, it will change its category from the beginning of the following financial year (by analogy, the opposite is also true, i.e. when it stops exceeding the limits).

In the first accounting period after its incorporation or commencement of operations, the CU follows the rules for the category into which it is likely to fall at the first balance sheet date.

How does categorisation work in practice?

The enterprise operates in the market as a micro-entity from 2021. In 2021 it did not exceed any of the thresholds. However, it has gradually grown and as at 31 December 2022 it already owned net total assets of £9.5m. It had a net annual turnover of CZK 20 million. CZK and 7 employees (thus exceeding 2 of the 3 thresholds for micro-enterprises). If it exceeds the specified values of assets and turnover also on 31 December 2023, it will become a small accounting unit from 1 January 2024.

When must an entity be audited?

The financial statements of certain CUs are subject to verification by an independent auditor who will check that the documents give a true and fair view.

According to the Accounting Act (§20), the audit of financial statements is compulsory for medium-sized and most large entities and those that are required to do so by specific legislation. Micro-accounting units, on the other hand, are usually not audited.

The situation is more complex for small accounting units. The State first assesses whether the CU has reached these limits:

  • total assets of at least 40 million CZK.,
  • annual net turnover of at least CZK 80 million,
  • average number of employees min. 50.

Other rules depend on the type of entity. Joint stock companies and trusts that reach at least one of the specified values twice in a row are required to have their financial statements audited. For other small SOEs, the rules are more relaxed - they must pass an accounting audit if they meet at least two of the criteria twice in a row.

Preparation of the annual report

In addition, all entities that are subject to a statutory audit (+ those that are required to do so by a specific law) must produce an annual report. This includes financial information and, in the case of large entities, prescribed non-financial information.

Overview of the obligations of accounting entities by size

Now you know where your company falls and whether it is subject to a statutory audit. Let's summarise which accounting obligations apply to you.

Categories of business entities Scope of bookkeeping Scope of the financial statements Is it subject to audit? Does it produce statements of cash flow and changes in equity? Does it produce an annual report? Does it publish a profit and loss account?
micro simplified, if the CU meets the legal conditions abbreviated according to the decree no no no no
small unaudited simplified if the CU meets the legal conditions abbreviated according to the decree no no no no
small audited full full yes yes yes, with financial information yes
medium full full yes yes yes, with financial information yes
large full full yes yes yes, with financial and non-financial information yes

In general, entities with statutory audits also keep full accounts and prepare full financial statements and an annual report. On the other hand, CUs that do without an audit have fewer obligations.

Thesimplified scope of accounting is used by some micro and small CUs (unaudited) and they follow the rules according to §13a of the ZOU. Most unaudited CUs prepare abbreviated financial statements (specific items of the abbreviated financial statements vary according to the category of the CU).

The size of the entity also has an impact on the information that the CU provides in the notes to the financial statements and their order. This is governed by §39-39(c) of the Decree.

Accounting for companies in simple terms

Are you looking for a reliable partner to handle your company accounting for you? We are happy to take care of everything. Just contact us using the form below.

Contact information

Write to us and we’ll get back
to you within 24 hours.

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.


Tax & Accounting Service
Tax & Accounting Service

Do away with the administration, don't pay more than…

Do away with the administration, don't pay more than is needed, and focus 100% on your business. Our capable team will…

Learn more Learn more

News from our blog