Knowledge base

When changing accountants, the new accountant takes over the opening and year-to-date data, reviews the previous bookkeeping where necessary, and corrects any errors before carrying them forward. It is worth choosing a date that does not fall at the peak of the closing period.

Under the rules in force, the documents directly supporting the bookkeeping have to be kept for at least eight years. The financial statements and the accounting records also have to be kept for the prescribed period.

Accruals and deferrals make sure that income and costs appear in the period they economically belong to, regardless of when the cash moved. For example, an annual insurance premium paid in advance is spread across the months.

These are postings that are not tied directly to a cash movement or an invoice but are internal accounting entries: depreciation, accruals and deferrals, provisions, reclassifications and closing adjustments. They are typically recorded at the close, based on the accountant’s professional judgement.

The notes explain and supplement the figures in the balance sheet and the profit and loss account: they set out the material elements of the accounting policy, the valuation methods and the important information behind the numbers. They help the reader genuinely understand the company’s position.

The annual financial statements consist of the balance sheet, the profit and loss account and the notes; larger companies also add a business report. Together they give a full picture of the company’s assets, financial position and results.

During the monthly close the accountant reconciles the bank accounts, checks the VAT analysis, reconciles the customer and supplier ledgers, records depreciation, deals with the accruals and prepares the returns. This is what keeps a company up to date and working from reliable figures.

A bookkeeping service provider is the person or organisation that keeps a company’s books and prepares its financial statements on a business basis, for a fee. The person actually doing the work has to be a registered chartered accountant or a certified auditor. An accounting firm is typically a bookkeeping service provider.

A period-end close is the closing and reconciliation of the bookkeeping for a period (a month, a quarter or a year): determining the general ledger balances, reconciling the sub-ledgers with the general ledger, and dealing with the missing items (accruals, depreciation). This is what gives a reliable basis for the financial statements and the reports.

A posting run is the process in which the data of a sub-system is transferred to the general ledger in summary form. Typical examples are the payroll posting (the result of the payroll run into the general ledger) and the depreciation posting from the fixed asset register.

A provision is cover recognised for obligations that are expected in the future but are still uncertain in amount or timing at the reporting date (for example the likely loss from pending litigation). A provision makes sure the financial statements show the position prudently, including the expected risks.

Coding is the step in which the accountant assigns a transaction to the appropriate general ledger accounts, on the debit and the credit side. This is what translates a real event into the language of accounting, and it decides whether the item appears on the correct balance sheet or profit and loss line.

Depreciation is the planned, gradual recognition of the value of fixed assets as a cost over their useful life. It reflects the fact that an asset (a machine, a vehicle, a building) wears out over the years, and this is shown in the financial statements year by year.

Double-entry bookkeeping is the method in which every transaction is recorded on two sides (debit and credit). Companies keep double-entry books, and this is what the balance sheet and the profit and loss account are built on.

The accounting inventory is the schedule that supports the balance sheet items at the reporting date, item by item. Under Hungarian law every balance sheet item has to be supported by an inventory, either by a physical count (stock) or by reconciliation with the records (receivables).

The accounting policy is the internal set of rules in which the company records how it applies the options available under the Accounting Act: the valuation methods, the recognition of depreciation, the materiality limits. It ensures consistent bookkeeping that can be compared from year to year.

The balance sheet is a snapshot of the company’s assets at the reporting date: on one side the assets (what the company has), on the other the liabilities and equity (where the funding comes from). The two sides always add up to the same total.

The customer sub-ledger is the detailed record of receivables by partner: who owes the company, how much, and by when. It is the basis for managing receivables, monitoring overdue items and assessing any impairment.

The general ledger contains the bookkeeping in summary, at account level; the sub-ledgers break the same data down in detail (by partner, by asset, and so on). The two have to agree: the total balance of a sub-ledger equals the balance of the related general ledger account.

The profit and loss account shows how the company’s result developed over a period, as the difference between income and expenses. It shows whether the company was profitable or loss-making in the given year.

The supplier sub-ledger is the detailed record of payables by partner: who the company owes, how much, and by when. It has to be reconciled with the general ledger balance, and it is the basis of payments and of managing overdue debts.

The size of the company determines the form: the smallest prepare micro-entity simplified financial statements, small and medium-sized companies prepare simplified annual financial statements, and larger ones prepare annual financial statements. Size is determined by the balance sheet total, the revenue and the headcount.

Where the financial year matches the calendar year, the financial statements have to be filed and published electronically by 31 May of the following year. Missing the deadline can lead to a penalty and, ultimately, to the cancellation of the tax number.

A registered chartered accountant is a qualified professional listed in the official register of bookkeeping service providers, and is therefore entitled to prepare financial statements. The entitlement comes with a registration number and mandatory continuing education, and the name and the number have to be shown on the financial statements.

The preparer is the suitably qualified professional responsible for putting the company’s annual financial statements together, whose name and registration number have to be shown on them. This responsibility is separate from the auditor’s: the preparer compiles the financial statements, and the auditor gives an independent opinion on them afterwards.

An engagement usually has four phases: planning (understanding the company and the risks), interim audit (during the year, reviewing the processes), year-end audit (detailed testing of the financial statements) and closing (issuing the report and giving feedback to management). The timetable is set out in the engagement contract.

The auditor is appointed by the company’s supreme body (members’ meeting or general meeting), for a fixed term, naming the personally responsible auditor, and the appointment is also recorded in the company register. The rules on independence and conflicts of interest have to be observed when making the appointment.

At companies with significant inventories the auditor attends the physical stock count: checking how the count is organised, taking their own sample to recount quantities, and watching the year-end cut-off. The purpose is to confirm that the inventory shown in the financial statements really exists, in the quantities stated.

External confirmation is a procedure in which the auditor asks an independent third party directly for written confirmation of a balance. Typical cases are the confirmation of customer and supplier balances, bank confirmations and confirmation from the legal representative. It is reliable because the evidence comes directly from the source, independently of the company.

The ISAs are the internationally accepted professional rules of auditing, which also have to be applied in Hungary. They set out how an audit has to be planned, performed and documented, so that the report rests on consistent, high-quality foundations.

There is no standard price list and no per-head price, because the amount of work is determined by the size and the complexity of the company: the balance sheet total, the revenue, the number of transactions, the subsidiaries, the reporting framework (Hungarian rules or IFRS), and whether this is a first-year or a recurring engagement.

Independence means the auditor is impartial and has no relationship with the audited company that would influence the opinion. This is why an auditor may not perform work that they would later have to check themselves: the same firm cannot provide the bookkeeping and the audit for the same company at the same time.

A legal letter is a written confirmation requested from the company’s lawyer about pending or threatened litigation and disputes, and the contingent liabilities arising from them. It is how the auditor makes sure the financial statements properly deal with the possible obligations arising from legal risks.

The management letter is a written summary issued at the end of the audit, on request, in which the auditor sets out the findings and the recommendations on internal controls. Beyond the mandatory opinion, it gives business-minded feedback to help improve how the company operates.

The management representation letter is management’s written confirmation to the auditor that it has provided all material information and that responsibility for the financial statements lies with management. It forms part of the audit evidence and is usually requested before the report is issued. It supplements the other procedures; it does not replace them.

An audit is an independent, expert examination of the financial statements: an assessment of whether they present the company’s assets, financial position and results in line with the accounting rules, free from material misstatement. The result is the auditor’s report, in which the auditor gives an independent opinion. The work is carried out under the International Standards on Auditing (ISA).

Audit risk is the risk that the auditor gives an incorrect opinion on materially misstated financial statements. During planning the auditor assesses the risks and concentrates the procedures where the likelihood and the impact of an error are greatest.

Materiality is the threshold above which a misstatement could influence the decisions of the users of the financial statements. The auditor sets a materiality level during planning and measures the differences found against it. It is not a fixed number but a figure based on professional judgement and scaled to the size of the company.

Since testing every single item is not possible, the auditor examines a representative sample of items and draws conclusions about the population as a whole. The size and composition of the sample are determined by risk and materiality.

The auditor’s report is the outcome of the audit: the auditor’s written, independent opinion on whether the financial statements give a true and fair view. This is the document that owners, banks and authorities accept as evidence that the financial statements are reliable.

A statutory audit is required by law. A voluntary audit is carried out at the request of an owner, a bank or an investor, for example for a loan application, a capital raise or the owner’s own comfort, even where the company is not required by law to have one.

An audit gives an independent opinion on closed financial statements, within a statutory framework. Due diligence takes place before a transaction (an acquisition or an investment) and reveals the risks of the target according to the client’s requirements. It has no prescribed form and it delivers a risk report rather than an opinion.

The interim audit takes place during the year and reviews the processes, the internal controls and the major transactions, which spreads the workload. The year-end audit is the detailed testing of the closed financial statements, together with the reconciliations and the confirmations.

Going concern assumes that the company will continue operating for the foreseeable future. The auditor examines whether any circumstance (such as sustained losses or loss of capital) casts doubt on this and, if so, has to say so in the report. The assumption is one of the basic premises of the financial statements.

There are four basic types: an unqualified (clean) opinion, where the financial statements are reliable; a qualified opinion, where there is a specific, identifiable misstatement or limitation; an adverse opinion, where the financial statements essentially do not give a true view; and a disclaimer of opinion, where the auditor could not obtain sufficient evidence.

An engagement may not be terminated without proper grounds. The law expressly states that a disagreement over the opinion expressed in the auditor’s report is not sufficient grounds for removal, which protects the auditor’s independence. The termination of the engagement has to be reported to the competent body.

As a general rule, an audit is mandatory if the company exceeds both thresholds in two consecutive financial years: the annual net revenue threshold and the average headcount threshold. (It is worth checking the thresholds in force for the given year.) In addition, an audit is always mandatory for public interest entities and in certain regulated sectors.

Only an auditor or audit firm registered with the Hungarian Chamber of Auditors. The appointed auditor is always a named chamber member, who is also personally responsible for the work.

The basic annual holiday is 20 working days, increasing with age and with the number of children. Public holidays are due in addition. Granting the holiday is the employer’s obligation, in consultation with the employee.

The maternity benefit (csed) and the child care fee (gyed) are cash benefits linked to having a child and tied to insured status. Csed covers the period after the birth and gyed the child care period that follows, under the conditions set out in law.

The minimum wage is the lowest mandatory salary, while the guaranteed wage minimum applies to jobs that require at least secondary qualifications or vocational training. Both are set annually by the government. (It is worth checking the amounts for the given year.)

The notice period is the time for which the employment continues after notice has been given; its length depends on the time spent in employment. Severance pay is a one-off payment due on termination by the employer, after a defined period of service. Both are governed by the Labour Code.

A wage premium is the additional pay due for work outside normal working hours or in special circumstances: overtime, night work, shift work, and Sunday or public holiday premiums. Their rates are set by the Labour Code.

Employment cost consists of the gross salary and the employer charges on top of it. Personal income tax and the social security contribution are deducted from the employee, while the employer pays the social contribution tax on the gross salary. (It is worth checking the rates for the given year.)

A social security benefit paying agency is an employer that determines and pays out the cash health insurance benefits (sick pay, maternity benefit, child care fee) to its own employees, in place of the authority. It makes the administration faster and more accurate for the employees.

An employment relationship is the relationship created between employer and employee under the Hungarian Labour Code, established by a written employment contract. The contract has to contain at least the job, the base salary and the place of work.

This is the situation where a foreign employer employs a Hungarian worker in Hungary without having a company here. The Hungarian tax and contribution obligations have to be met through a Hungarian tax authority registration and Hungarian payroll, so compliant employment is possible without setting up a company.

Personal income tax is the tax on an individual’s income; in Hungary it is a flat 15%. It is deducted from the salary and paid over by the employer. Certain reliefs (such as the family allowance or the relief for young people) can reduce the amount payable.

Sick pay is the cash health insurance benefit payable for a period of incapacity for work, whose amount and duration are determined by the social security rules. At an employer that operates a paying agency, the benefit is administered by the agency itself.

Simplified employment is the favourably taxed, simplified form of seasonal agricultural or tourism work and casual work. The employer can employ someone through a simple notification and a fixed charge, without the detailed payroll administration.

The cafeteria is the system of benefits given on top of salary, from which the employee can choose. Some elements (such as the SZÉP card) are taxed favourably, which makes them better value for the employee than the same amount of gross salary. The taxation of these benefits can change from year to year.

The gross salary is the amount set out in the employment contract, before deductions. The net salary is what the employee actually receives: personal income tax and the social security contribution are deducted from the gross. The difference between the two is the charge borne by the employee.

The monthly return known as the 08 return (in a given year, the form marked with the year and 08″) is the monthly

The personal income tax return is the individual’s annual income tax settlement. In Hungary the tax authority prepares a draft return from the data available to it, which the individual accepts or supplements. For certain types of income (foreign income, for example) the individual has to take care of the return themselves.

The probationary period is a period that can be stipulated at the start of the employment, during which either party can terminate the relationship with immediate effect and without giving reasons. Its length is limited by the Labour Code and it has to be stipulated in the employment contract.

The employer has to register the employee with the tax authority before work begins, and to deregister them when the employment ends. This registration is what establishes the employee’s insured status and entitlement to benefits.

The attendance record is the record of working time: it documents when and how much the employee worked. It is the basis of the payroll and of employment law compliance, because pay, overtime, holiday and absences all follow from it. Keeping a record of working time is a statutory obligation of the employer.

The social contribution tax is the charge borne by the employer, payable on the employee’s gross salary. It is not deducted from the employee: the employer pays it on top of the salary. It is one of the main elements of employment cost.

The social security contribution is the charge deducted from the employee, which funds pension, health insurance and labour market benefits. It is deducted from the gross salary, and it is what gives the employee entitlement to social security benefits.

The SZÉP card is the most common fringe benefit: a card loaded by the employer and usable for defined purposes (catering, leisure, accommodation), which is taxed favourably. Its annual limit and its conditions are set out in law.

The frequency of VAT returns depends on the size and the turnover of the company: it can be monthly, quarterly or annual. The tax authority sets the frequency on the basis of turnover, and both the return and the payment of the VAT have strict deadlines.

Late payment interest is an interest-type charge on tax paid late. The default penalty is a sanction imposed for failing to meet a filing, data reporting or other obligation. Both can be avoided by keeping precisely to the deadlines.

In a tax audit the tax authority examines whether the returns and the records are correct, requests documents and makes findings. The company has to cooperate and provide data by the deadlines; it is worth leaving the representation and the communication to the accountant or the tax adviser.

A dividend is income paid to an owner out of the company’s after-tax profit. For an individual owner it is subject to personal income tax (15%) and, up to a certain limit, to the social contribution tax as well. The dividend is decided by the supreme body, when the financial statements are approved.

A double taxation agreement is a treaty between two states that determines which country may tax a given income, so that the same income is not taxed in both. It matters particularly in cross-border employment and for international groups.

A fixed establishment is a VAT and tax law concept: a lasting presence (such as an office or a warehouse of one’s own, run with staff) that already creates an independent tax liability in the country concerned. If a foreign company’s activity creates a fixed establishment in Hungary, plain VAT registration is no longer enough.

A posting is the temporary performance of work in another country by an employee, at the employer’s instruction. From a tax and social security point of view the key question is where the liability arises, which is settled by the double taxation agreements and the EU coordination rules (for example the A1 certificate).

A self-revision is the option for a company to correct an error it has found in a return it filed earlier, before the tax authority notices it. A self-revision avoids the default penalty, although a self-revision surcharge may arise.

The EU VAT number is the identifier needed for cross-border transactions within the European Union. It is what allows a company to carry out exempt intra-Community supplies or acquisitions with partners in other Member States, under the reverse charge rules.

KATA is the itemised, simplified tax of small taxpayer sole traders. Since the 2022 reform it has been heavily restricted: as a rule only full-time sole traders who invoice private individuals, and not companies, can choose it. The conditions have to be assessed under the rules in force.

Tax residency determines which state has the right to tax a given income. A tax resident individual is generally taxed in Hungary on their worldwide income, while a non-resident is taxed only on income from Hungarian sources. Residency is decided by the place of stay, the centre of vital interests and the double taxation agreements.

The company car tax is payable on passenger cars, and typically affects cars used by a company or on which costs are charged. Its amount depends on the engine power and the environmental classification of the vehicle.

Corporate income tax is a flat 9%, one of the lowest in the European Union. A company pays it on its profit (its tax base), and the tax base is calculated from the accounting result with the adjusting items set out in law.

On B2B sales (to business partners) the VAT is often accounted for by the buyer under the reverse charge rules. On B2C sales (to consumers) distance selling can be handled through the OSS scheme. A Hungarian registration is typically needed where the company holds a warehouse or stock in Hungary.

The global minimum tax is an international set of rules that prescribes a minimum effective tax rate of 15% for large multinational groups. It affects groups with high revenue and aims to curb aggressive tax planning. The great majority of Hungarian domestic SMEs are not affected.

The local business tax is paid to the local municipality; its base is essentially the net revenue, reduced by certain costs. The rate is set by the municipality, below a statutory cap (typically 2%).

OSS is an EU scheme that allows the VAT on distance sales to consumers in other Member States (B2C) to be settled from the seller’s own Member State, in a single return, above a single combined threshold of EUR 10,000 a year. It means a webshop does not have to register for VAT separately in every country of destination.

Under the reverse charge, the VAT is accounted for by the buyer rather than the seller: the buyer determines and declares the tax payable, which is at the same time deductible. It typically applies to intra-Community B2B transactions and to certain domestic transactions (such as some construction services).

KIVA is an optional, simplified tax that replaces corporate income tax and the social contribution tax. It can be favourable mainly for growing small and medium-sized businesses with high payroll costs, because it treats wage charges more favourably. The eligibility conditions are worth checking year by year.

The standard VAT rate is 27%. Reduced rates apply to certain goods and services (typically 5% and 18%), for example to some foods, medicines and services.

The transfer price is the price applied in transactions between related parties (for example members of a group). Under the rules it has to correspond to the price that would be usual between independent parties (the arm’s length price), and above certain thresholds transfer pricing documentation is mandatory.

If the company carries out taxable activity in Hungary (selling or storing goods here) but has no fixed establishment here, it needs a Hungarian VAT number, without setting up a company. As soon as the activity creates a fixed establishment, establishment (a branch office or a subsidiary) is required.