Changes to the Hungarian Accounting Act Expected in 2023

Examining the threshold for the preparation of abbreviated annual financial statements for a company created by separation

If the data for the two financial years preceding the financial year concerned are unknown or incomplete, the projected data for the year concerned and, where applicable, the annual data for the preceding financial year should be taken into consideration for the balance sheet total, annual net sales revenue and average number of employees of the company established by a separation.

The projected data for the year concerned should also be taken into consideration when determining the audit requirement for a company established by a separation if the data for the previous two financial years are unknown or incomplete.

Participating interest in health, social, cultural, and educational institutions

A participating interest in a health, social, cultural, and educational institution should be recognized as other long-term participating interest if it does not meet the definition of equity securities in the Hungarian Accounting Act. For the determination of cost, the same rules described in the Accounting Act apply as for equity securities in an economic entity. The value of participating interest may also be shown in the balance sheet at the value of the equity shown in the balance sheet of the last annual financial statements of the institution concerned.

Financial leasing obligation

For financial leases, the amount recognized as other long-term liabilities shall not include the repayments due in the following year.

Derogation from the Hungarian Accounting Act when preparing abbreviated annual financial statements

An economic entity that prepares abbreviated annual financial statements may depart from the requirements of the Hungarian Accounting Act to present a true and fair view, but in this case the economic entity shall disclose the derogations and the reasons for them in the supplementary notes.

These changes will first apply to the financial statements for the financial year beginning in 2023 but may also be applied to the financial statements for the financial year 2022.

The economic entity that prepares its annual financial statements and consolidated financial statements in accordance with IFRS, shall also apply the requirements for reporting amounts paid to governments.

To comply with Directive 2021/2101 of the European Parliament and of the Council, a new chapter will be added to the Hungarian Accounting Act, a report on corporate income tax (CIT Report), the provisions of which will also apply to the above entities.

CIT Report

The ultimate parent entity shall prepare such a CIT report if, for two consecutive financial years, its consolidated annual revenue exceeds HUF 275,000 million at the balance sheet date. A stand-alone company not included in a consolidation is also required to prepare a CIT report if its reported annual revenue exceeds the above threshold. Companies that are exclusively established or have a permanent place of business or a permanent business activity in Hungary and report in accordance with Directive 2013/36/EU of the European Parliament and of the Council are exempt from this reporting obligation. If the parent company is not subject to the law of an EU Member State, the subsidiary or branch shall prepare the CIT report if the revenue reported in the consolidated financial statements for two consecutive years reaches the threshold set by law.

The report should present all information relating to the activities, including those of all related companies included in the consolidation. The report shall be drawn up on a standard form and machine-readable electronic reporting format and shall be filed and published at the same time as the annual financial statements.

The auditor’s report shall include a statement as to whether the company was required to prepare and publish a CIT report and if so, whether it was done in accordance with the law.

The new reporting requirements will apply for the first time for the financial year starting on or after 22 June 2024.