Amendment to the Polish Accounting Act – What Does It Mean for Entrepreneurs?

Will Your Company Be Eligible to Apply Simplified Accounting Rules?

A significant number of entities are likely to take an interest in the implementation of the Delegated Directive of the European Commission (EU) 2023/2775 of October 17, 2023, concerning the adjustment of size criteria for micro, small, medium, and large enterprises or groups. The regulations raise the financial thresholds that determine the status of an entity. In addition to the categories of micro and small entities already familiar under the Accounting Act, additional categories will be introduced: medium-sized entities and large entities.

Detailed data is presented in the table below.

In addition to the entities listed in the table, the amendment provides for the existence of large entities, defined as those that do not meet the criteria for inclusion in the lower categories.

For What Period Should Threshold Exceedance Be Assessed to Determine Entity Status?

The thresholds should be evaluated over a two-year period and based on two out of three criteria. In practice, this means that an entity will be classified into a specific category if, for two consecutive years — i.e., the financial year for which the financial statements are prepared and the preceding financial year — it does not exceed two of the three thresholds. Entities starting their operations or maintaining accounting records as specified by the Act will consider the financial year in which they commenced their operations or began keeping records.

Conversely, the loss of status will occur if, during the financial year for which the financial statements are prepared and the preceding financial year, the entity exceeds at least two of the three thresholds specified for its category. The loss of status will take effect for the current financial year.

The above conditions for obtaining and losing entity status will be outlined in a more transparent manner within the provisions of the Act, incorporated into a glossary for the Accounting Act. Instead of the current provisions in Article 3, sections 1a–1d, the status of micro and small entities will be determined solely by threshold values. As a result, for example, entities previously classified as small under Article 3, section 1c, point 2 of the Act (e.g., individuals voluntarily maintaining accounting records) will be included in the general classification of entities if they meet the defined threshold values for such entities.

What is the Reason for Changing the Thresholds?

The increase in the aforementioned threshold criteria is a response to the high inflation experienced in the European Union in 2021 and 2022. Its goal is to prevent smaller entities from being subjected to excessive burdens and requirements due to inflation.

What Benefits Will the Amendment Bring for Micro and Small Entities?

Classification into a specific category — as is the case today — results in the ability to apply simplified accounting practices. Micro and small entities (with certain entity-specific exclusions) can, upon a relevant decision by the approving body, prepare financial statements according to Appendix 4 (for micro entities) or Appendix 5 (for small entities), thereby utilizing simplifications.

Moreover, the draft amendment to the Accounting Act includes proposed regulations that are not directly aimed at implementing EU law but are indirectly a consequence of raising the thresholds in the Delegated Directive.

One such change is a 25% increase in the thresholds for net revenue from sales and total balance sheet assets, the fulfillment of which allows micro and small entities (with certain entity-specific exclusions) to apply the following simplifications:

• qualifying finance lease agreements based on criteria specified by tax law instead of the Accounting Act,
• waiving the recognition of deferred tax assets and liabilities,
• not applying the relevant regulation of the Minister of Finance concerning financial instruments,
• using a simplified method for calculating the cost of production.

Which Entities Will Be Obligated to Maintain Accounting Records?

The amendment to the Accounting Act proposes a 25% increase in the threshold for net revenue from sales, exceeding which requires entities to maintain accounting records. This means that the threshold for mandatory accounting record-keeping will be set at 2.5 million euros. It is important to note that this limit applies exclusively to revenue from the sale of goods and products, excluding revenue from financial operations, as is currently the case under the existing legal framework.

Thanks to this change, smaller entities will be able to benefit from simplified accounting methods for a longer period. This will significantly reduce administrative burdens and lower the costs associated with maintaining full accounting records, providing smaller businesses with more room to focus on developing their operations.

Will Your Company Be Required to Audit Financial Statements?

The draft Accounting Act, following the Delegated Directive, proposes a 25% increase in the thresholds exceeding which entities are required to have their annual financial statements audited.

What Will the Thresholds for Mandatory Auditing Be After the Changes?

The obligation to audit annual financial statements applies to entities that exceeded two of the three thresholds mentioned above in the previous financial year. The 25% increase in threshold values will result in more entities avoiding the obligation to undergo an audit, leading to financial savings for companies. The end of the year is an excellent time for entities to review their financial data and check whether, and to what extent, their company is approaching the thresholds.

The increase in thresholds will also mean that some entities previously subject to the audit requirement may no longer be obligated to undergo an audit. The absence of an audit requirement in the second year of an audit agreement may serve as a basis for terminating the agreement with the auditing firm, unless otherwise stipulated in the signed contract. Both the audited entity and the auditing firm are required to notify the Polish Audit Oversight Agency (PANA) of the contract termination.

How Will the Calculation of Sales Revenue Change for Determining Audit Thresholds?

In the amended Act, the revenue threshold refers solely to net revenue from the sale of goods and products. Revenue from financial operations has been excluded from this category. Entities generating significant revenue, such as interest income, can breathe a sigh of relief – these amounts will no longer impact whether the entity is required to have its annual financial statements audited. This change stems from the harmonization of the concept of net revenue from sales as used for various purposes in the Act, such as determining audit thresholds, the obligation to maintain accounting records, criteria for utilizing simplified accounting and reporting, and for presentation purposes. The definition of revenue from sales will also be included in the glossary of the Accounting Act.

In connection with this standardization, the draft also proposes a new method of determining the operating result. Revenue from the sale of materials will be presented as revenue from other operating activities rather than as revenue from core operating activities. Similarly, the cost of sold materials will be presented as other operating costs. According to the explanatory memorandum for the draft, materials are tangible current assets acquired for internal use. Consequently, their sale, similar to the sale of fixed assets, is not considered part of the entity's core activities.

Will Your Company Be Required to Report ESG?

It can be observed that most of the changes discussed so far regarding simplifications are dedicated to entities we already know, namely micro and small entities. So why introduce the category of medium-sized entities? The addition of this category was primarily made to address the requirements introduced as a result of the implementation of the second EU directive mentioned at the beginning — Directive (EU) 2022/2464 of the European Parliament and of the Council of December 14, 2022, amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC, and Directive 2013/34/EU regarding corporate sustainability reporting, hereinafter referred to as the "CSRD Directive."

The objective of the CSRD Directive is to "protect, preserve, and enhance the EU's natural capital and safeguard the health and well-being of citizens from environmental risks and impacts."

The amended Act provides for the standardization of the type of reporting standards. The content of the report is defined by the European Sustainability Reporting Standards (ESRS).

Additionally, the revised regulations expand the scope of the information to be reported, specify the method, format, and form of reporting. The information must be presented in a separate section within the entity's management report.

Moreover, the amended regulations introduce mandatory assurance of reported information by certified auditors.

It is noted that the largest enterprises have been preparing for ESG reporting for quite some time. These companies have established specialized teams responsible for reporting, implemented appropriate processes, and, in many cases, are engaged in advanced work on integrating sustainability into their business strategies. They have already conducted double materiality assessments, hired experts, and invested in technological tools to support data collection and aggregation for reporting purposes.

In contrast, for smaller companies that will be required to report in the coming years, preparing sustainability reports may pose a significant challenge. Survey research indicates that the current level of competence and readiness of these entities for ESG reporting is insufficient. Many business owners are concerned about the costs associated with preparing reports and ensuring their assurance, as well as with changes in organizational structure and business strategy required for reporting.

The Next Predicted Wave of Changes That Will Transform Accounting

The changes resulting from the discussed draft are not the only ones introduced this year concerning the Accounting Act.

To recap, it is worth mentioning the amendment arising from Directive 2021/2101, which imposes the obligation to prepare, publish, and make available a new report — the Corporate Income Tax Report — on all large multinational enterprises. The new regulations came into force on May 8, 2024. However, due to the necessary adjustments in the National Court Register (KRS), they will first apply to the Corporate Income Tax Report for the financial year beginning after June 21, 2024.

Should We Expect a Comprehensive Amendment to the Act?

I believe such an initiative would be highly appropriate.

In the coming years, the following changes are anticipated:

• systematization of accounting regulations (e.g., incorporating National Accounting Standards as annexes to regulations),
• data storage and protection (including solutions based on "cloud" technologies),
• introduction of detailed guidelines for investments and financial instruments,
• specification of conditions allowing for reclassification between investment properties, fixed assets, and inventory.