The deficiencies typically result from failure to comply with the following standards:
- the enterprise shall prepare its annual financial report in Hungarian
- the bookkeeping can only be done in Hungarian
- enterprises doing double-entry bookkeeping are obliged to keep bookkeeping records in which the transactions are shown clearly, continuously, in a closed system
- enterprises are obliged to use the statutory Standard Chart of Accounts, on the basis of which they will establish a system of accounts that fully guarantees the preparation of the financial report
- the annual financial report shall be prepared in the structure and presentation specified in the Accounting Act on the basis of the data of the duly conducted double-entry bookkeeping
On this basis, the chart of accounts and general ledger used by the group of companies, which are based on other accounting and reporting frameworks, not in Hungarian and not set up within a closed accounting system do not comply with the statutory accounting requirements.
In addition to the fact that this procedure fails to comply with statutory requirements, it also gives rise to difficulties in tax inspections and audits.
The tax authority and the Chamber of Hungarian Auditors call the attention of the enterprises to take measures as quickly as possible in view of their responsibility for compliance to remedy the deficiencies mentioned above and act in compliance with the statutory requirements.
If the tax authority believes that potential tax inspections are hindered for the reasons mentioned above, it may call on the enterprises to eliminate the deficiencies and set up and present a system that complies with the regulations.
Any person who infringes the documentation system or violates the annual reporting, bookkeeping and auditing obligations prescribed in the Accounting Act or in the regulations adopted under its authorization, and thereby:
- causes an error that is construed as having a significant impact on true and fair view; or
- prevents the overview or inspection of his financial situation in the given financial year;
is guilty of a felony punishable by imprisonment not exceeding three years. [Subsection (1) of Section 403 of the Criminal Code]
Any private entrepreneur and any other operator not covered by the Accounting Act, who violates his record keeping and documentation obligation prescribed by law, and thereby prevents the overview or inspection of his financial situation shall be punishable in accordance with Subsection (1). [Subsection (2) of Section 403 of the Criminal Code]
‘Error construed as having a significant impact on true and fair view’ shall mean if the total of all errors (whether negative or positive) for a given financial year and the impacts thereof – increasing and decreasing the profit or loss or the equity – exceeds twenty per cent of the net sales revenue shown in the financial report for the financial year when the error was made, as well as twenty per cent of the balance sheet total. [Subsection (4) of Section 403 of the Criminal Code]
If the total of all errors (whether negative or positive) for a given financial year and the impacts thereof – increasing or decreasing the profit or loss or the equity – exceeds five hundred million forints shall be treated as an error construed as having a significant impact on true and fair view in all cases. [Subsection (4) of Section 403 of the Criminal Code]