Accounting and bookkeeping in Hungary are regulated by the Accounting Act and the statutes issued by the Ministry for National Economy. In addition to the Accounting Act, some special rules apply to financial institutions, insurance companies, state budget organisation and municipalities. Hungarian accounting regulations are harmonised with international accounting principles.
The Act applies to all business associations, but does not apply to individual entrepreneurs, civil law partnerships, building communities or Hungarian commercial representations of businesses registered abroad.
Accounting records and the financial report have to be prepared in Hungarian and in accordance with accounting principles.
Business associations are required to prepare a business report on each business year, the form of which depends on the net turnover, the balance sheet total, the number of employees and the limits thereof.
Businesses have to support their reports with double-entry bookkeeping.
Double-entry bookkeeping requires a structure of the bookkeeping system harmonised with the effective requirements on the chart of accounts.
International enterprise resource planning systems may be used in Hungary but they have to comply with local rules.
Required structure of the chart of accounts
Account classes 1–4 contain balance sheet accounts, and within this, classes 1–3 for assets accounts and class 4 for liability accounts. These classes of account ensure that the data to prepare the balance sheet are available.
Account classes 5 and 8–9 contain the data for profit and loss statement and after-tax profit for the year. Account classes 5–8 contain costs and expenses; class 9 is where sales and other revenues and proceeds from financial transactions are reported.
Certain accounting principles must be observed in the course of the preparation of the financial statements and the keeping of books, including, in particular:
- going concern principle,
- principle of completeness,
- 'true and fair view' principle,
- principle of clarity,
- principle of consistency,
- principle of continuity,
- principle of matching,
- principle of prudence,
- principle of gross accounting,
- principle of item-by-item valuation,
- principle of accruals,
- principle of content over form,
- principle of materiality,
- principle of cost-benefit.
The business organisation is required to store the report on the business year, the business report, all supporting inventories, assessments and general ledger statement, chief account book and any other record fulfilling the requirements of the law in a legible format for a minimum of 8 years.
The records directly or indirectly supporting bookkeeping accounting (including general ledgers, analytic and detailed records) must be stored in a legible form for a minimum of 8 years in a format retrievable on the basis of the bookkeeping comments.
Accounting documents issued in electronic form have to be kept in electronic form in a manner, which ensures that all data of the documents can be retrieved without delay and prevents subsequent manipulation.
Documents may be forwarded for bookkeeping and processing purposes to other locations but have to be presented within 3 workdays if requested by the tax authority.
If the accounting record necessary for the authority’s review is only available in a foreign language (other than English, German or French documents) and the facts of taxation may not be clarified otherwise, the taxpayer might be required to present the tax authority with the official translation of the documents in Hungarian.
The general formatting requirement of the accounting record is references to the relevant bookkeeping accounts, the date when they were recorded in the bookkeeping system and proof thereof. The business organisation can meet these requirements also in a way that it physically or logically assigns the data, information and certificates to the original records unambiguously and without the possibility of subsequent modification. Such logical assignment may take place in the form of electronic records.
The business year is the period about which the report has to be prepared. In general cases, the period of the business year is the same as the calendar year.
The business year may differ from the calendar year in the following cases:
- with the exception of credit institutions, financial businesses, insurance companies, the entities involved in the consolidation
- international type institutions of higher education.
The length of the business year is 12 month subject to the exceptions prescribed by law. The balance sheet date of the business year may only be modified after three business years for which there are accounts or a change in the parent company, subject to the amendment of the Statutes accordingly. From 1 January 2019, consolidated companies may change their business year at the time of joining consolidation also for which, of course, an amendment of the deed of foundation is necessary.
As part of the accounting policy, the following is to be recorded in writing:
- the rules,
- requirements and
Characteristic of the entity that determine what the entity considers
- material, significant,
- immaterial, insignificant
- income, cost or expenditure of exceptional amount or frequency
and also defines which selection and qualification options provided under the law to use and under what conditions and why the practice used has to be changed.
The following must be prepared as part of the accounting policy:
- inventory and stocktaking rules for assets and liabilities,
- evaluation regulations for assets and liabilities,
- the internal regulation for calculating net cost,
- the regulation on management of funds.
The accounting policy has to be incorporated in writing within 90 days of the establishment of the business association.
In the case of amendment of laws, the relevant changes have to be incorporated in the accounting policy within 90 days of the entry into force of the amendments.
Business associations are required to prepare a report on every business year in Hungarian . The annual report must give a true and fair view of the holdings of the economic entity and its contents (assets and liabilities),its financial standing and profit or loss.
The currency of the report must be the currency specified in the deed of foundation and this currency must also be applied for bookkeeping.
The form of the report depends on the net turnover, the balance sheet total, the number of employees and the limits thereof.
Types of report:
- annual financial statements,
- simplified annual financial statements,
- consolidated annual financial statements,
- simplified financial statements.
The annual financial statements and the consolidated annual financial statements consist of a balance sheet, profit and loss account statement and supplementary notes. A business report must also be prepared simultaneously with the financial statement but it is not published together with the financial statements.
A company using double-entry bookkeeping may prepare a simplified annual report if any two values of the following three limits are not exceeded in two consecutive years on the balance sheet date:
- balance sheet total: HUF 1 200 million,
- annual net revenue: HUF 2 400 million,
- average number of employees during the business year: 50.
The simplified annual report does not include cash flow and business report.
The template of the cash flow statement was changed in the Act on Accounting from 1 January 2019 but there was no change in the obligation of preparing cash flow statements.
A consolidated annual report and a consolidated business report are required by any business that qualifies as a parent company in its association with one or more businesses, except if any two values of the following three limits are not exceeded in two consecutive years on the balance sheet date prior to the business year:
- balance sheet total: HUF 6 thousand million,
- annual net revenue: HUF 12 thousand million,
- average number of employees during the business year: 250.
A business qualifies as a parent company if it has a controlling influence on another business either directly or indirectly through a subsidiary because it has one of the following:
- the majority (over 50 percent) vote of the owners (shareholders) on the basis of its proprietary share, or
- owns the majority of the votes on the basis of agreements with other owners (shareholders),or
- as an owner (shareholder) of the company, it is entitled to elect or recall the majority of the executive officers or the members of the supervisory board, or
- regardless of the property share, the proportion of the votes or the right to elect or recall senior officers, it has a decisive control in the company.
In the case of an enterprise preparing its annual report in accordance with the international accounting standards, a member of the chamber of auditors may only be commissioned to perform audit tasks if the auditor or audit firm in question has IFRS qualification.
In this case the enterprise has to make sure that the tasks performed under accounting services are managed and controlled and the annual report and the consolidated report are prepared by a person, who is included in the IFRS section of the register of accounting service providers or who is a member of the chamber of auditors with IFRS qualification.
The consolidated report has more detailed data on the balance sheet and profit and loss statement than the annual report. The consolidated annual reports consist of the consolidated balance sheet, the consolidated profit and loss statement and the consolidated annexes. The consolidated annual report has to present a true and fair view of the aggregate assets, financial and income situation of the businesses involved in the consolidation.
No consolidated annual report and consolidated business report are required from a parent company that is a subsidiary of another, superior parent company and its superior parent company prepares its consolidated annual report (and consolidated business report) in accordance with the Accounting Act, Council Directive no. 83/349/EEC of 13 June 1983 and Decree no. 1606/2002/EEC of 19 July 2002 of the European Parliament and the Council. In this case, however, the consolidated annual report and the consolidated business report of the superior foreign parent company, as well as the relevant auditing report, must be published in Hungarian. The exempt parent company is required to have the above documents published within 60 days of the approval of the consolidated annual report of the superior foreign parent company.
The following entities prepare their financial statements in accordance with IFRS:
- whose securities are traded at a regulated market of any European Economic Area member state,
- credit institutions and other financial enterprises subject to prudential regulations equivalent to those applicable to credit institutions.
The following entities may prepare their financial statements in accordance with IFRS:
- whose direct or indirect parent company prepares its consolidated financial statements in accordance with IFRS,
- insurance companies,
- financial enterprises, payment institutions, electronic money issuers, investment enterprises, the central securities depository, the central counterparty, the stock exchange, employer pension schemes, financial market intermediaries and insurance intermediaries included in the consolidated financial statements prepared in accordance with IFRS based on the parent company’s decision as well as funds and fund managers subject to the Act on Collective Investment Trusts and their Managers and on the Amendment of Certain Financial Regulations operating under the supervision of the National Bank of Hungary acting in its capacity as the supervisor of the financial intermediary system,
- entities subject to mandatory audit,
- the Hungarian branches of enterprises registered abroad.
Businesses obligated to publish their report can fulfil their obligation by sending the annual report or the simplified annual report together with the decision on the utilisation of the profit/loss after taxation, and the independent auditor’s report by businesses obligated to perform auditing, through the Online Reporting and Form Completion System (“OBR”) at the website of the Service of Company Information and Electronic Company Registration of the Ministry of Justice (hereinafter Company Information Service) by the last day of the fifth month following the balance sheet date of the given business year to the Company Information Service. From 1 January 2018, all business organizations must have an electronic contact for which the state provides the storage space service "Cégkapu".
The parent company must deposit the consolidated annual report together with the independent auditor’s report until the last day of the sixth month from the balance sheet date of the consolidated annual report. The electronically compiled report package has to be submitted to the Company Information Service by a person authorised to represent the business already registered at ‘Ügyfélkapu’, the Hungarian public administration portal. Therefore, one of the authorised representatives of the business association has to request ‘Ügyfélkapu’ registration at one of the certificate offices or has to issue a power of attorney to one of the following persons already registered with ‘Ügyfélkapu’:
- legal counsel, attorney at law, law office, Community lawyer,
- tax expert, certified tax expert, tax consultant,
- employee or member of a business association authorised to provide accounting, bookkeeping or tax consulting services or any other organisation.
The person submitting the report package has to certify that the enclosed documents are identical to the approved financial statements prepared on paper and to undertake the obligation to store one copy of each paper-based document for a period of 10 years.
The Company Information Service then sends the submitted electronic form, the enclosed sheet, the profit and loss statement and the annexes to the national tax authority. On the basis of the data in the electronic form received, the national tax authority verifies the publication of the report and the date thereof, and if the authority concludes on the basis of the electronic forms that the business failed to publish the report then the authority shall impose a default fine of up to HUF 500 000 and shall call upon the business to fulfil the missing requirements within a 30 day deadline. Should the business fail to do so upon the first warning, the tax authority shall impose a default fine of up to HUF 1 million and repeatedly call upon the business to publish the report within a 60 day deadline. Once the deadline expires, the national tax authority shall cancel the company's tax number without suspension and initiate the procedure to declare the business as terminated.
The provisions of Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors shall apply to auditing services and other services providing assurance services. In addition to this legal regulation, the other legal regulations on the operation and reporting obligations of the business associations contain several specific provisions with regard to the auditing activity.
Business associations operating on the basis of double-entry bookkeeping are required to appoint an auditor. In accordance with the Accounting Act, the appointment of an auditor is not mandatory if both of the following conditions are met:
- the annual net sales (calculated for the period of one year) did not exceed HUF 300 million on the average of the two financial years preceding the financial year under review,
- the average number of people employed by the undertaking did not exceed 50 people on the average of the two financial years preceding the financial year under review.
The company is not exempted from the auditing obligation in the business year following the current year if its tax liabilities (as per the Act on the Rules of Taxation) overdue by more than 60 days as of the balance sheet date of the current year exceed HUF 10 million.
In case of companies established without legal predecessor the above limits must be observed based on estimates and based on the results of the first business year or on the annualized results of the first business year.
However, exemption based on the above value limits does not apply to the companies the audit of which is prescribed by law (for example: credit institutions),savings banks, consolidated enterprises, Hungarian branch offices of enterprises having their seat abroad and companies which have diverged from the provisions of the Accounting Act using the option provided in the Accounting Act in order to ascertain the provision of a true and fair view of their operation.
The auditing activity has to be carried out in line with Hungarian legal regulations and in accordance with the Hungarian National Auditing Standards effective since 1 January 2012 , approved and issued by the Hungarian Chamber of Auditors in harmony with International Standards on Auditing (ISA).
Audits may only be conducted in Hungary by individuals who are current members of the Chamber of Auditors. Audits may also be conducted by audit companies and persons having audit license, but even if an audit company is selected the responsible auditor must also be selected and appointed.
The Chamber also determines specific qualifications for the auditors of business associations in certain areas of activities. A special audit license is required for auditing credit institutions, investment service providers, investment and venture capital funds, insurance and pension funding institutions, issuers of securities, budgetary institutions and fund service providers.
In addition to the above, from 15th December 2016, IFRS financial statements may only be compiled by bookkeeping service providers registered for IFRS services and auditors having IFRS qualification and may only be attested by auditors having IFRS qualification.
The auditor’s appointment aiming at the performance of audit activities based on the legal regulation may be for a fixed term of maximum five business years if the auditor performs such activity in respect of a business association of public interest. With regard to the same business association of public interest the auditor may not undertake another mandate aiming at the performance of statutory audit activities based on the legal regulation within 2 business years upon the expiration of the mandate.
The aforementioned must be applied to the auditor personally responsible for the performance of audit activities based on the legal regulation if the mandate regarding the performance of the audit activity based on the legal regulation has been concluded with the audit company in respect of a business association of public interest.
In case of business associations of public interest as per the legal regulations the quality control of the auditor performing audit in accordance with the legal regulation is performed by the Authority for Public Oversight of Statutory Auditors as from 1st July 2013. In other cases the quality control committee set up in accordance with the internal regulations of the Chamber of Hungarian Auditors shall exercise control over the activity of the auditors. Pursuant to the legal amendments effective from 1 July 2013, the quality control of the auditors of business associations of public interest as well as certain parts of the compliance control over the Chamber of Auditors will be performed by a new public oversight authority. Thus, dual quality control of audit activities and a dual system of oversight over the Chamber of Auditors are established. The Authority for Public Oversight of Statutory Auditors operates the quality control system in co-operation with the Hungarian Chamber of Auditors and its activity extends to chamber auditors and audit firms. The operation of the Authority for Public Oversight of Statutory Auditors is regulated in a decree issued by the Ministry for National Economy [Decree 28/2013 (VI.29.) of the Minister of National Economy], which prescribes the preparation of an annual work plan based on which the authority performs its audit activities.