When is auditing obligatory?

The Accounting Act obliges all undertakings to be audited, but they may be exempted from this obligation depending on a certain threshold.
Auditing is not obligatory if the net income of the undertaking does not exceed 300 million forints in the preceding two-year average and for the previous two years the average number of employees did not exceed 50.

Exemptions may, however, not be applied by certain organizations, and are subject to audit, inter alia:

• mutual savings banks,
• consolidated companies,
• by Hungarian branches of nonresident companies,
• public-interest entities,
• companies that are permitted, under special circumstances, to derogate from the provisions of the Accounting Act pursuant to Subsection (4) of Section 4 for the purposes of true and fair view.

Public-interest entities in accordance with the law: as specified in point 19 of Section 2  of Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors. For more details see http://www.mkvk.hu/tudastar/konzultacio/319

Auditing of the financial statements must be repeated once the auditor of the company has received an “unsatisfactory” qualification in the quality control of the public oversight or the auditor’s report is withdrawn. The audit shall be re-performed within 90 days from the date of order.

Example 1:

In 2017, the company’s revenue is HUF 100 million, the average number of employees is 10. In 2018, the company’s revenue is HUF 600 million, the average number of employees is 15
The average revenue for the previous two years: (100 + 600) / 2 = HUF 350 million > HUF 300 million
Average number of employees: (10 + 15) / 2 = 12.5 people < 50 people
The average revenue of the company mentioned in this example is over HUF 300 million, so from 2019 the company is subjected to obligatory audit.

Example 2:

In 2017, the company’s revenue is HUF 100 million, the average number of employees is 10
In 2018, the company’s revenue is HUF 400 million, the average number of employees is 15
The average revenue for the previous two years: (100 + 400) / 2 = HUF 250 million < HUF 300 million
Average number of employees: (10 + 15) / 2 = 12.5 people < 50 people
The average revenue of the company mentioned in this example does not exceed HUF 300 million, so from 2019 the company is not subjected to obligatory audit.
» What if the average revenue of the two years is exactly HUF 300 million?

The Accounting Act exempts the company form the obligation of auditing if its revenue does NOT exceed HUF 300 million in the average of two years, so this company is not subjected to an obligatory audit.

» In case of foreign currency bookkeeping, at what rate data should be converted to HUF?

Revenue included in the annual financial statements is to be converted to HUF at the official exchange rate (euro, dollar, etc.) published by the Central Bank of Hungary (MNB) for the given reporting date.

» What if the company was founded within two years?

In such a case, the data of the fractions of years must be annualized and the obligation is to be examined accordingly. So, if the company was founded in 2019, it is obliged to audit if its annualized revenue exceeds HUF 300 million or the average number of employees 50 people.
Example 3:

The company was founded on 1 September 2019. In 2019 its revenue is HUF 150 million.
So the company earned HUF 150 million in 4 months, which means that if it would have been operating all year, then 150 / 4 x 12 = 450 > 300
Thus, the company has to have its financial statements of 2019 reviewed by an auditor.

Example 4:

The company was founded on 1 September 2018. In 2018 its revenue was HUD 100 million. In 2019, its revenue is HUF 120 million.
150 / 4 x 12 = 450 + 120 = 570 / 2 = 285 < 300
This company is no longer subjected to obligatory audit in 2019.

Example 5:

The company was founded on August 1, 2018. In 2018, its revenue was HUF 100 million.
In 2019, its revenue is HUF 400 million.
100 / 5 x 12 = 240 + 400 = 640 / 2 = 320 > 300
This company is required to be audited in 2019, as in the absence of the previous two years, data for the current year shall be taken into account.

Please note that certain legislation may require certain companies to have their annual/abbreviated annual financial statements or other financial reports audited, such as asset balances of company conversions, grants, etc.
These cases have not been examined in our present article.

Who appoints the auditor?

The auditor is always appointed by the principal body of the company. The appointment is made by the decision of the owner in a general meeting or general assembly (principle body) depending of the form of the enterprise.
The resolution of the general meeting or general assembly contains the terms and conditions and the remuneration of the contract with the auditor based on the provisions of the new Civil Code and authorizes the management to conclude the contract. According to the new Civil Code, the parties have 90 days to conclude a contract.

The terms and conditions and the remuneration of the contract to be concluded with the auditor may be included in the resolution as shown in the example below:
The Members / Shareholders appoint BPO-AUDIT Könyvvizsgáló és Vezetési Tanácsadó Kft. as auditor until the approval of the Company’s financial statements of the year 2019, but not later than May 31, 2020.
BPO-AUDIT Könyvvizsgáló és Vezetési Tanácsadó Kft.
(Address: 1146 Budapest, Zichy Géza u. 5. III. em. 1-2.; company registration number: Cg.01-09-728938)
Registration number at the Chamber of Hungarian Auditors: 002331
Personally responsible auditor appointed by the auditing company: Miszori Ildikó
Membership number at the Chamber of Hungarian Auditors: 003327
Remuneration of the auditor: HUF XXX + VAT / year

Who can be appointed as auditor?

An audit company or natural person registered in the Chamber of Hungarian Auditors may be appointed as auditor, which is a member of the Chamber of Hungarian Auditors. If an enterprise appoints an audit company as an auditor, the natural person personally responsible for the audit shall also be indicated who is also a member of the Chamber of the Hungarian Auditors.
In addition, for certain audits, a specially qualified auditor should be appointed, such as for financial institutions and budgetary organizations and in case of annual financial statements compiled according to IFRS’s.

The Registry of the Chamber of Hungarian Auditors is available for everyone on the Chamber’s website.
You can check our company on the following link: http://www.mkvk.hu/tarsasag?id=2614

By clicking on the below links you can check the membership of our auditors on the official website of the Chamber of the Hungarian Auditors:

Miszori Ildikó
Killik László

Your company is obliged to audit, or not?

Please do not hesitate to contact us and we will help you decide free of charge whether your company is obliged to audit or not and if it is, then from when it is obliged and what are the costs of an audit.