Monday, 4 January 2016

DOING BUSINESS IN HUNGARY: THE BASICS - Financial reporting and auditing

Leitner + Leitner Tax Kft. is one of the most influential advisory firm in CCE on the field of Hungarian and international tax issues, while Leitner + Leitner Audit Kft. provides high quality services to its clients on the field of accounting, year-end closing and payroll; as a separate division we also engage statutory audit services and financial advisory for special transactions. LeitnerLeitner is a reliable partner in national and international taxation and economic issues. If you are planning to, or already doing business in our country, we recommend to consider our services.







LeitnerLeitner offers high quality assistance in accounting and auditing:
  • Comprehensive accounting (HAS, IFRS)
  • Payroll accounting, related human resources advisory and administration
  • Control of accounting performed outside the country within the Group (SSC)
  • Preparation and updating of accounting policies and other accounting regulations
  • Services related to invoices and invoicing software
  • Tax and financial review (DD)
  • Off/On-site accounting training tailored to your company
  • Audit in accordance with Hungarian (HAS) and international standards (IFRS, US GAAP)
  • Consolidation
  • Transformation audit for mergers, de-mergers
  • Business processes optimisation
  • Conducting internal controls
  • Accounting advisory services
In this guideline, we will provide detailed information about the basics of accounting, financial reporting and auditing in Hungary. Please don't hesitate to contact us in case you have further questions about the discussed topics.

Accounting in Hungary

In Hungary the Accounting Act No. C of 2000 provides the framework for financial reporting and aims to harmonize the Hungarian regulation with the International Accounting Standards as well as with EU-wide regulations. It applies to all operators participating in the economy, regarding whose operation other participants of the national economy require information, e.g. to all economic entities meaning enterprises, branches of non-resident companies, healthcare, social and educational institutions, etc. The Accounting Act does not apply to private entrepreneurs, civil law companies, building societies and to the Hungarian commercial representation offices of non-resident business associations. Some special requirements for the various groups, e.g. government agencies, attorneys at law, banks are defined in individual government regulations.
Economic entities must maintain continuous accounting records about their activities using the double-entry bookkeeping and also have to draw up an accounting policy, in accordance with the provisions of the Accounting Act, in Hungarian – with special exceptions.

Principles
Accounting principles outlined in the Accounting Act include the following principles: going-concern, completeness, true and fair view, clarity, consistency, continuity, matching, prudence, grossing-up, individual valuation, accrual method of accounting, substance over form, materiality and cost-benefit. Books are required to be kept in Hungarian and the accounting principles of a company must be consistent from year to year. In exceptional cases a deviation from the provisions of the Accounting Act is allowed where the application of the relevant rules fail to provide a true and fair value.

Financial year
The financial year for which a financial report is to be prepared shall regularly coincide with the calendar year. However, the financial year may differ from the calendar year for example due to international background, provided that the different financial year is justified by the operation of the entity (e.g. consolidated companies).

Reporting requirements

In general, the financial report must be underpinned by double entry bookkeeping whereas the books must be kept in Hungarian. The financial account may be an annual account, a simplified annual account, a consolidated annual account or for small enterprises a simplified report.

Simplified annual account
A simplified annual account may be prepared by entities that fulfil two of the following three criteria over two consecutive fiscal years (the thresholds are effective from 4 July 2015):
  • balance sheet total is less than HUF 1.2 billion,
  • the annual net sales revenues do not exceed HUF 2.4 billion
  • the annual average number of employees does not exceed 50.
Simplified report
As of 2014 micro entities (also newly established companies) not subject to statutory audit may also opt for an even more simplified annual account if their financial year coincides with the calendar year and if they fulfil two of the following three criteria over two consecutive fiscal years:
  • balance sheet total is less than HUF 100 million,
  • the annual net sales revenues do not exceed HUF 200 million
  • the annual average number of employees does not exceed 10.

Full annual report
Entities not fulfilling the above criteria must prepare a full annual account, which consists of balance sheet, profit and loss account, notes, cash flow and business plan.

Consolidated annual account
Parent companies having dominant influence over another entity (either directly or through its subsidiary) must prepare both a consolidated annual account and a consolidated annual report with some exceptions defined by the Accounting Act.

Specialities
Special requirements for individual groups, e.g. government agencies, foundations or churches, regarding reporting are defined in individual government regulations.

Deposit requirements

Companies with double-entry bookkeeping registered in the register of companies shall deposit the annual account or simplified annual account approved by the body entitled thereunto and, in case of statutory audits of accounting documents together with the independent auditor’s report containing an audit certificate or qualified audit certificate, as well as the decision on the appropriation of the after-tax profit within 5 months from balance sheet date of the financial year in question. The annual accounts or simplified annual accounts deposited shall be of the same form and content (text) as the one examined by the auditor.

A parent company shall deposit its consolidated annual account approved by the body entitled thereunto, together with the independent auditor’s report containing an audit certificate or qualified audit certificate, within 6 months from the balance sheet date of the consolidated annual account. The consolidated annual account deposited shall be of the same form and content (text) as the one examined by the auditor.

The data contained in the reports deposited shall be made available to the general public, and any person may receive information and may make copies thereof.

The Hungarian branches of EU-based companies, or companies based in other countries where the requirements for accounting, depositing, auditing are similar to the EU shall deposit the annual account, simplified annual account approved by the parent company, together with the independent auditor’s report containing an audit certificate or qualified audit certificate, as well as the decision on the appropriation of after-tax profits within 60 days from the acceptance of the financials.

Audit requirements

The purpose of an audit is to ascertain that the annual account, simplified annual account, or consolidated annual account of a company has been drawn up in accordance with the provisions of the Accounting Act and, accordingly, provides a true and fair view of the financial position and of the operations of the company (and that of the companies included in the consolidation).

The auditing of accounting documents shall be statutory for all companies with double-entry bookkeeping except for companies fulfilling both of the following conditions:
  • the company’s annual net sales (calculated for the period of one year) did not exceed 300 million forints on the average of the two financial years preceding the financial year under review, and
  • the average number of employees of the company of the two financial years preceding the financial year under review did not exceed 50 persons.
The above exception may not be applied:
  • by companies with double-entry bookkeeping, where an audit is obligatory required by law;
  • by public-interest entities;
  • by mutual savings banks;
  • by consolidated companies;
  • by Hungarian branches of non-resident companies;
  • by companies that are permitted, under special circumstances, to derogate from the provisions of the Accounting Act for the purposes of true and fair view.
In all cases when an audit is not statutory on the basis of the Accounting Act or another legislation, the company shall be free to decide whether to employ an auditor to review its accounting documents or not.

Where the auditing of accounting documents is statutory, the supreme body of the company must appoint a registered statutory auditor or audit firm.

If you need a reliable partner in tax advisory, accounting, payroll or auditing, don't hesitate to contact us!

LeitnerLeitner

Address: 1027 BUDAPEST, Kapás utca 6-12.
Telephone: +36 1 279 2930
Fax: +36 1 209 4874

Email: office@leitnerleitner.hu