Act C of 2000 on Accounting (hereinafter: “Accounting Act”) includes the conditions which must be satisfied for a business organisation to adopt IFRS when preparing its financial statements, and also defines the companies that have to prepare their financial statements according to IFRS.
1) Which companies may choose to compile their financial statements according to IFRS, and to whom may the introduction of IFRS apply?
The following may prepare their financial statements according to IFRS:
a) businesses whose direct or indirect parent company prepares its consolidated financial statements according to IFRS,
b) insurers,
c) financial companies, payment institutions, institutions issuing electronic money, investment companies, central depositories, central counterparties, the stock exchange, occupational pension institutions, money market intermediaries and insurance brokers included in consolidated IFRS financial statements based on parent company decisions, as well as funds and fund managers subject to the law on the forms and managers of collective investments and the modification of certain laws on financial matters, all of whom are subject to supervision by the National Bank of Hungary acting as supervisor of the financial intermediary system;
d) business organisations obliged to be audited,
e) Hungarian branch offices of foreign-registered companies.
2) Which companies have to prepare their financial statements according to IFRS?
The following prepare their financial statements according to IFRS:
a) businesses whose securities are traded on the regulated market of any member state of the European Economic Area,
b) credit institutions, and financial companies equivalent to credit institutions operating under prudential regulations.
3) Which companies may not prepare their financial statements according to IFRS?
The following may not prepare their financial statements according to IFRS:
a) businesses performing state or municipal asset management,
b) non-profit business organisations,
c) mutual insurance associations as per the Act on Insurance Activities,
d) pension funds, health funds and mutual aid funds.
4) Rules on switching to IFRS financial statements
One precondition for switching to IFRS financial statements, i.e. for introducing IFRS, is that the business organisation has to have an auditor’s report certifying its preparedness for the transition. Such an auditor report may be issued only by an IFRS-certified auditor, or by an audit firm who is a member of the chamber of auditors,
The date of the transition to IFRS financial statements is the first day of the financial year of the first IFRS financial statements.
The business organisation must report the transition to IFRS to the national tax authority 30 days prior to the transition at the latest. The auditor’s report certifying its preparedness for the transition has to be attached to this report.
A business organisation subject to the supervision of the National Bank of Hungary acting as supervisor of the financial intermediary system has to report its transition to IFRS financial statements to the National Bank of Hungary, alongside the national tax authority, no later than 30 days before the date of the transition; the auditor’s report certifying its preparedness for the transition also has to be attached.
A business organisation established without a legal predecessor, which compiles its financial statements according to IFRS, has to comply with the aforementioned reporting obligation 90 days after the company registration at the latest.
After switching to IFRS financial statements, the business organisation may only return to preparing financial statements according to Hungarian accounting standards in the cases and at the dates regulated by the Accounting Act, so introducing IFRS has to be considered thoroughly when transition is only a choice, not an obligation.
You can read about the strategic aspects of IFRS transition here, about its initial accounting steps here, and about its tax implications here.
