Are you subject to the 2021 financial statements audit obligation?

Let's see if your entity is subject to the audit obligation.

• What is audit?
• Why voluntary audit
• Who has the audit obligation
• Deadlines for financial statements audit
• Penalties for failure to comply with the audit obligation 

What is audit? 

Audit verifies that the financial statements of an entrepreneur give a true and reliable view of the state of their business. Audit may be statutory, i.e., an audit of the financial statements and annual report as defined by the Accounting Act, or voluntary, which is carried out at the discretion of an accounting entity that is not required to have its financial statements audited under the Act.

An auditor is a natural person (statutory auditor) or a legal person (audit firm) registered in the list of statutory auditors kept by the Audit Oversight Authority and authorised to carry out statutory audit. The auditor of an entity is approved and dismissed by the general assembly or the members' meeting. Where a company has a contract with an auditor for a longer period of time, the approval of the auditor for the whole period is sufficient; it is not necessary to carry out the approval again for each individual accounting period. The audit contract should only be entered into by the accounting entity after the auditor has been approved by the general assembly or the members’ meeting. In the event of resignation or dismissal of the auditor, the entity must inform the Audit Oversight Authority in writing within one month of the resignation or dismissal of the auditor in the course of an audit, explaining the reasons which led to the resignation or dismissal. The dismissal must be duly substantiated and a difference of opinion on the application of the procedures for the preparation of financial statements or on the application of auditing procedures may not be a reason for the auditor’s dismissal.

Why voluntary audit? 

Audit can be beneficial even in accounting entities that are not required by law to carry out audit. It can be initiated by shareholders or potential buyers in order to scrutinise the financial condition of the company in planned business transactions when establishing international cooperation. The results of voluntary audit help to declare a company's credibility to financial institutions or in the public procurement process. Voluntary audit can also be initiated by employees themselves in order to make sure that accounts are kept in accordance with the applicable legislation without the risk of accounting errors and tax arrears.

Who has the audit obligation? 

The following entities have the obligation to audit their financial statements:

1. a commercial company and a cooperative that meets at least two of the conditions defined in Article 19(1) of the Accounting Act as at the date of preparation of the financial statements and at the same time for the immediately preceding period. An amendment as of 1 January 2020 also introduced this obligation for public partnerships and limited partnerships which for the first time verified the obligation to audit the financial statements for the accounting period beginning on 1 January 2020 at the earliest.
2. a commercial company and a cooperative whose securities are traded on a regulated market;
3. an accounting entity with financial statements prepared in accordance with international accounting standards (e.g., bank, trust company, insurance company, reinsurance company, pension management company, supplementary pension company, companies that meet the size criteria of Article 17a of the Accounting Act);
4. an entity to which this obligation is imposed by a special regulation (e.g., a foundation or a non-profit organisation that exceeds specified conditions, a municipality);
5. an entity that is a parent accounting entity and prepares consolidated financial statements in accordance with Article 22 of the Accounting Act;
6. a legal person under Article 50 of the Income Tax Act (recipient of a share of the income tax paid) whose annual share of the tax received exceeds EUR 35,000 for the accounting period in which the funds were used.

A commercial company and a cooperative referred to in point 1 above shall be obliged to have its financial statements drawn up for the accounting period beginning on 1 January 2021 at the earliest audited if it simultaneously fulfils at least two of the size criteria for both the current and the immediately preceding period.

For the obligation to audit the financial statements of a commercial company and a cooperative for an accounting period beginning no earlier than 1 January 2021, the following size criteria shall apply:

• The total amount of the assets exceeded EUR 3,000,000, the amount of the assets being the amount of the assets ascertained from the balance sheet at their valuation unadjusted by adjusting entries, provisions and corrections (gross assets);
• Net turnover exceeded EUR 6,000,000;
• The average number of employees was higher than 40.

At the same time, the accounting entity monitors the conditions for the immediately preceding accounting period beginning no earlier than 1 January 2020, for which the following size criteria apply:

• The total amount of the assets exceeded EUR 2,000,000, the amount of the assets being the amount of the assets ascertained from the balance sheet at their valuation, unadjusted by adjusting entries, provisions and corrections (gross assets);
• Net turnover exceeded EUR 4,000,000;
• The average number of employees was higher than 30.

If a commercial company and a cooperative fulfils at least two of the conditions applicable to the 2021 accounting period and at the same time at least two of the conditions applicable to the 2020 accounting period, it is obliged to have the financial statements drawn up for the 2021 accounting period audited by an auditor.

In assessing the criteria in accounting entities with a financial year, it is necessary to take into account the transitional provisions according to which the accounting entity checks the criteria applicable for 2021 in the financial year that started during 2021, and uses the criteria for 2020 when checking the financial statements for the financial year that started after 1 January 2020.

In the table below, we present the criteria for assessing the audit obligation in 2019-2022 in a clear form:

Auditing of financial statements by an auditor does not apply to organisational units of foreign companies that are registered in the Commercial Register. Natural persons do not have the obligation to be audited even if they meet the size criteria under the Accounting Act.

Deadlines for financial statements audit 

Financial statements must be audited within one year of the end of the accounting period in which the audit obligation arose. In addition, within this deadline, the auditor's report must be deposited in the register. The auditor's report must be deposited in the register in the state language, but may also be deposited in a foreign language at the decision of the accounting entity.

Penalties for failure to comply with the audit obligation 

In the event of a failure to have the financial statements and annual report audited by an auditor, the entity shall be guilty of an administrative offence pursuant to Article 38(1)(d) of the Accounting Act, for which it may be fined 2% of the total amount of the assets disclosed in the balance sheet drawn up for the relevant accounting period at the valuation adjusted for the items referred to in Article 26(3), up to a maximum of EUR 1,000,000.