Valuation of shares in the financial statements of Czech companies

The paper is focused on the reporting of financial assets, specifically dealing with the shares in the financial statements of accounting entities operating in the Czech Republic. The reporting method used for the reporting of shares is dependent on the accounting entity's intention: either it can hold these assets in the company for a long time or it can acquire them for speculative purchases and sales. Another factor influencing the reporting of shares is the influence of that particular equity share in another accounting entity. Under this classification the financial assets are, in the Statement of Financial Position, reported as different items. The paper describes the possibilities of valuation of these items according to the legislation valid in the European Union and in accordance with the valuation methods used in the Czech Republic. We identified the legally permitted methods that were preferred and used by the analyzed companies. These methods influence the explanatory ability of the financial statements. Czech legislation offers several different methods of valuation of financial assets at the end of the accounting period. The first method that can be used is the historical cost method, which implements the prudence principle; the second one is the fair value method with an impact on equity or with the impact on the profit of the current accounting period; and the third one is the equity method. Nevertheless, it is very difficult to objectively determine which of the valuation methods is the most accurate one. In other words which one will lead to a presentation of the true and fair view of the financial position and financial performance of the accounting entity. Though it is possible to use a lot of new modern measurement models, for the valuation of shares the companies prefer measurement in historical cost. Each of the methods has its advantages and limitations and the company must take them all into consideration. The main aim of the paper is to find out which the aforementioned methods is most commonly used in the Czech Republic and to subsequently analyze the impact of the most used method on the profit or loss of the company. For the purposes of this paper, we analyzed the top 100 companies (http://www.czechtop100.cz/) operating in the Czech Republic. Our data came from the Collection of Documents in the Business register at http://or.justice.cz/.