One of the key elements of the new regulation is the significant increase of the thresholds for the specific types of financial reports. Much more than before, approximately 90% of the Hungarian businesses may apply the simplified annual report form, but the thresholds for consolidated financial reporting obligations are also significantly increased as well. Therefore, due to the amendments many companies can prepare their annual financial statements on better terms and with less administration. The statutory content of the Notes and the Business Reports to the financial statements were also amended.
The following table lists the conditions for the application of the various types of financial reports. A form may be opted if any two of the three conditions are met:
Changes concerning dividend distribution
Another important change is the termination of the balance sheet result category from the financial statements. As of 2016, the dividend shall always be distributed from the freely available retained earnings free for distribution that already includes the after tax profit or loss of the previous business years. So in the 2017 financial year, the maximum distributable dividend may be the sum of retained earnings already increased by the after tax profit of 2016. The above described changes significantly affect the payment and accounting of dividends.
According to the former rules, decision about dividend distribution is to be made after the preparation and adoption of the annual report on the member’s or shareholder’s meeting. Then the financial reports need to be prepared again after the dividend decision. From 2016, the decision on dividend shall not be booked back, but will be accounted for in the actual year.
Thereafter, negative retained earnings will directly limit dividend distributions, as dividend will only be considered from the after tax profit of the year that exceeds the negative retained earnings. Therefore, businesses have to check at the end of the previous year whether the internal capital structure allows the payment of dividends, and negative retained earnings need to be settled (if possible) before the dividend decision.
Changes in the balance sheet and income statement items
The unpopular double-sided format of the profit and loss statements is abolished. The extraordinary item categories in the financials are ceased, the contents are reclassified as other or financial results. Due to conceptual changes new B/S and P/L rows are added in the financials. For example, the concept of a substantial ownership share is appeared, and investments in other companies have to enlist in new rows. Deeper division of the annual statements and consolidated reports will affect mainly large companies.
Comparability of the report
Year 2015 should still be closed according to the old rules. However, in order to ensure comparability with the 2016 financials, the 2015 data should the rotated according to the new rules as well.
We would also like to remind you to the renewal obligation of the accounting policies that should be made within 90 days from the changes.
The competent accounting team of LeitnerLeitner is ready to assist in solving problems related to the changes in the Act on Accounting. Please contact us on 2015/2016 accounting rollover, in relation to the management of the capital structure and entrust us to prepare or update your accounting policies.
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