Hungarian entities now have more time to prepare for the full implementation of International Financial Reporting Standards regulation.
Since 1 January 2016, Hungarian Accounting law has allowed Hungarian companies to use the International Financial Reporting Standards (IFRS) instead of statutory regulation. This staged transition to IFRS saw minor rule changes implemented on 16 June 2016. Affected companies are required to implement IFRS from 1 January 2017.
The following entities may (or may choose not to) draw up their annual reports in accordance with IFRS:
||From 1 January
||From 1 January
|Entity whose securities are listed on a regular market of any Member State of European Economic Area||possibility||obligatory|
|Company owned directly or indirectly by a parent company which prepares its consolidated annual report in accordance with IFRS||possibility||possibility|
|Entity authorised under the Concession Act for the pursuit of an activity subject to concession, or entitled to enter into a concession contract, or classified as a concession company||possibility||possibility|
|Entity supervised by the National Bank of Hungary||not applicable||possibility|
|Company who manages state or local government asset, property||not applicable||not applicable|
|Non-profit business associations||not applicable||not applicable|
|Insurance companies||not applicable||possibility|
|Company subjected to statutory audit||not applicable||possibility|
|Hungarian branch of a foreign company which is exempt from the statutory audit||not applicable||possibility|
|Credit institution, financial enterprise equivalent to credit institution under prudential requirements||not applicable||obligatory|
|Mutual association provided for in the Act on the Business of Insurance||not applicable||not applicable|
|Pension fund, health fund, mutual aid fund||not applicable||not applicable|
The regulation determines the following additional terms to implement the IFRS:
- an audit report of a statutory registered auditor or audit firm qualified for the application of the IFRS is required in proof of preparedness for transition to the IFRS
- entities shall report their transition to the IFRS to the state tax authority, the Central Statistics Office and the National Bank of Hungary (if the activity of the company is supervised by the National Bank of Hungary). The reporting deadline is at least 90 days before the transition, but in 2016 as the first obligation, it was 15 January 2016
- entities shall report some of their equity details based on the statutory and the IFRS regulation to the state tax authority, within 15 days of the transition date.
Based on the differences between the Hungarian Accounting law and the IFRS, the method and the steps of the transition should be prepared with care.
Here are some points for entities to consider before making a decision on the change:
- business processes should be restructured
- accounting system chosen and implemented must support the accounting based on the IFRS, and also local taxation
- an IFRS-qualified accountant as an employee or accounting company is necessary to fulfil bookkeeping tasks and taxation
- new accounting policies are required
- permanent and temporary taxable amounts could be calculated based on the differences, eg. depreciation of fixed assets, calculation and title of provisions, calculation and booking method of revenues, valuation of assets and liabilities, calculation of subsidies, classification of leasing
- special tax base modifying items were adopted in the Hungarian tax laws to handle the difference of statutory and IFRS' profit before taxation
- the first financial report prepared according to the IFRS needs comparative data and information from the previous year and years.
companies adopting the IFRSs will benefit from the simplified reporting and consolidating process in respect of the international groups. Based on the similar valuation and accounting principles, the individual reports will be comparable and the preparation of the consolidated reports will take less time and cost.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.