• Home
  • News & Insights
  • Non-financial reporting in the fight against corruption and bribery in the Czech Republic

Non-financial reporting in the fight against corruption and bribery in the Czech Republic

January 2017 – As of 1 January 2017, companies and parent companies of large groups that are public-interest entities and, at the same time, employ on average more than 500 employees in the course of an accounting period, are obliged to publish information in their annual reports regarding environmental, social and employee issues, respect for human rights and the fight against corruption and bribery. The obligation to report on non-financial issues applies to accounting periods that begin in 2017, but does not affect 2016 annual reports.

Legal regulation

The obligation to publish non-financial information is imposed by the amendment to Act No. 563/1991 Coll., on accounting (the “Amendment”), which implements Directive 2014/95/EU of 22 October 2014 as regards the disclosure of non-financial information and diversity information by certain large undertakings and groups (the “Directive”). The Directive, which is intended, in particular, to enhance and coordinate information about companies’ activities as well as to identify adverse effects and to prevent them amends Accounting Directive 2013/34/EU of 26 June 2013.

Obliged entities

The Amendment applies to public-interest entities, i.e. companies that are tradeable on a stock exchange, credit institutions and insurance companies with turnover of at least CZK 1,000,000,000, or, as the case may be, companies that have a balance sheet of at least CZK 500,000,000 and report 500 or more employees in the relevant accounting period. The same criteria apply with respect to groups of companies – in which case the parent company should publish information for the entire group.

Information to be published

The Amendment imposes the obligation to publish the following information in the annual report, consolidated annual report or in a separate report of the company, as applicable:

  1. a brief description of the group’s or company’s business model;
  2. a description of measures that are applied by the company or the group in relation to these issues, including applied due diligence procedures to identify, prevent and resolve potential adverse effects;
  3. a description of the results of these measures;
  4. a description of main risks that exist in relation to the issues in question and that are related to the group’s or the company’s activities, including the manner in which the company or the group manages such risks; and
  5. a description of non-financial key performance indicators that relate to the relevant business activities of the company or the group.

The above non-financial information should cover areas where the risk of adverse effects on the company or group in respect of their activities is high. However, this does not mean that the companies are obliged to create systems of measures for each of the areas covered by the Amendment. However, if no system of measures is introduced for a certain area, the company must duly justify this fact in the annual report. The Amendment also allows companies to not publish the non-financial information in exceptional cases which pertain to the future development of the company or the group and issues that are under discussion. However, this procedure must be justified by the members of the managing body or the supervisory body of the company or the group. This might increase company willingness to implement relevant policies or, alternatively, where such policies already exist, the obligatory disclosure may help companies strengthen their market image.

To conclude, the Amendment defines the types of non-financial information that the respective companies must now publish, but it does not specify the particular requirements as to the manner of publishing. Nor does it set out specific procedures to be followed by the companies. Moreover, the explanatory report to the Amendment also fails to stipulate more specific instructions; it only refers to “international standards”. This approach is undoubtedly intended to preserve flexibility and discretion within companies, but they should expect to face difficulties in application, when attempting to comply with the requirements of the Amendment. Thus, the only indication might be the non-binding guidelines on the methodology for preparing annual reports that the European Commission is to publish this spring.

For more information contact Jitka Logesová, Partner and head of Kinstellar’s Compliance, Risk and Sensitive Investigations practice, at .

    • SHARE