Amendments to the Accounting Act from January 1, 2016

As a result of the amendment, the form of the balance sheet and profit and loss statement will change from the 2016 business year. As the previous year’s data shall be included in the financial statements of 2016, in the interest of comparability, the “inversion” of the financial statements of 2015 is necessary.

After the 2016 opening of the ledger, only the assets and liabilities related to affiliated companies and undertakings with which the company is linked by virtue of participating interest are to be booked.

Changes to terms [Accounting Act 3.§]

• A new term and a new balance sheet item is the major participating interest, which represents more than 20 percent participation in other undertakings (i.e. not the proportion of the votes count!) and is included in participations in affiliated undertakings and other participations in the balance sheet:
  

  NEW BALANCE SHETT ITEMS

  A)
  III. Financial fixed assets	Long-term major participating interest [Accounting Act 27 § (3a)]
  	Long-term loan to a company linked by virtue of major participating interests [Accounting Act 27 § (3b)]
  B)
  II. Receivables	Receivables from companies linked by virtue of major participating interests [Accounting Act 29 § (3a)]
  III. Securities	Major participating interests [Accounting Act 30 § (2a)]Associates are removed from affiliated companies, so in the future parent companies, subsidiaries and joint ventures will be considered to be affiliated companies. Classification, as before, must be based on the proportion of voting (and not the ownership ratio).

• Associates are removed from affiliated companies, so in the future parent companies, subsidiaries and joint ventures will be considered to be affiliated companies. Classification, as before, must be based on the proportion of voting (and not the ownership ratio).
• From 2016 businesses with significant participation and directly or indirectly at least 20 percent of the votes (significant influence) are considered to be associated companies. So most of them will be recognized by their significant participation.
• The definition of undertakings with which the company is linked by virtue of participating interests: companies in which the entrepreneur does not have significant participation and is not affiliated or associated undertakings.
• The scope of public-interest entities significantly expands [Accounting Act 3. §(15)].
• The name of certain profit and loss statement lines did not change, but their content did: Impairment of long-term loans has been included in the impairment of shares, securities and bank deposits. It is paradoxical that the Impairment of loans is a financial expense, but if it becomes an uncollectible receivable, the loss must be recognized among Other expenses.

The recognition of goodwill has substantially changed

The accounting treatment of goodwill has completely changed. From 2016 positive or negative goodwill can be recognized only in the course of the acquisition of a company with transfer of assets, if the consideration payable for the acquisition of a company, its line of business, establishment or store chain is higher or lower than the market value of certain itemized assets less the value of liabilities assumed and entered into inventory item by item. Share deal providing a qualified majority no longer results in goodwill entered into inventory; the full payment for the shares shall be recognized as participation. [Points 1-2 of Subsection 5 of Section 3 of the Accounting Act]

The unlimited useful life applied so far for goodwill will cease. In the future, write-offs are mandatory at least in 5 years but not later than in 10 years, and the reversal of recognized extraordinary depreciation will not be possible [Subsection (4) of Section 45 of the Accounting Act) and (Subsection (4) of Section 52].

Changes to payment of dividends

In the future, received (due) dividends and dividends payable will be recognized in the fiscal year in which the decision thereof has been made. (Dividends payable received as liabilities for the previous year is not applicable.) Because of this, use of retained earnings for dividends has been taken out from the profit and loss statement and the term profit for the current year ceased: the profit and loss statement includes only the reconciliation of profit after tax.

Under the new rules, the source of dividends will be the free accumulated profit reserve completed with previous business year’s profit after tax, which – on a discretionary basis – can be supplemented with the dividend received (due) recognized in the year of the decision thereof, between the balance sheet date and the balance sheet preparation date.

The maximum rate of dividend that can be disbursed changes compared to the past in case the company’s accumulated profit reserve is negative on the balance sheet date; positive accumulated profit reserve cannot be taken into account in the calculation. One solution could be to post capital reserves to offset the negative accumulated profit reserve before closing the financial year. However, this requires that the owners have to take a decision on this before the balance sheet date. [Accounting Act 39. §(3)-(4)]

The free accumulated profit reserve supplemented with previous business year’s profit after tax can be paid as dividends if the amount of equity less fixed reserve and positive revaluation reserve does not decrease below the amount of subscribed capital even after taking account (payment) of the dividend.

Extraordinary profit or loss category ceases

Extraordinary profit ceases and accordingly the category of profit on ordinary activities. [Accounting Act 39 § (3) and (3a), 84. § (1)], items recognized here will be included in Other revenues, Other expenses and Revenues and expenses on financial transactions.

Changes in financial statements

• Limit values for abbreviated annual and consolidated financial statements change; the scope of those preparing abbreviated annual financial statements has expanded:

• The rules for the transition to certain types of financial statements have been standardized: if 2 out of the 3 indicators do not exceed the limit in two consecutive years, the transition to the new type of financial statements is possible in the third year.
• The data content of the supplementary notes and the annual report has been extended. In contrast, the data content of the supplementary notes to the financial statements has been reduced and itemized in the law.
• From 2016 “Type B” of the profit and loss statement is not available.

Accounting policy regulations

The accounting policy shall inter alia comprise what the economic entity considers material and significant, immaterial or insignificant from an accounting point of view, or income, expense or expenditure of exceptional size or incidence [Subsection (4) of Section 14 of the Accounting Act]

The amount and nature of income, expense or expenditure of exceptional size or incident specified in the accounting policy shall be disclosed in the supplementary notes.  [Subsection (4a) of Section. 88 of the Accounting Act]

The amendments to the Accounting Act affect inter alia the scope of issues to be regulated in the accounting policy, which need to be in place within 90 days after the amendment becomes effective.