As the end of the year approaches it is becoming more important to clarify issues regarding the preparation of financial statements. Those who have yet to do so need to examine the rules regarding the type of financial statements and for auditing. These issues are primarily important for companies that have recently grown or downsized significantly.
When is an audit of financial statements mandatory?
Depending on the size of the entity, audits are generally compulsory for international companies. The owners have this information when establishing the company, and the auditor is appointed on this basis. If this issue is not completely clear, then when assessing this obligation we need to examine some statutory indicators. By law a company does not have to be audited if in the previous two years its average net sales revenue did not exceed HUF 300 million (approx. EUR 1 million) and the average headcount over the same period was no more than 50 people.
For newly established entities the audit obligation has to be analysed on the strength of expected figures. Yet based on the listing provided for in the law, some companies are still not exempt, regardless of their indicators. Audits are mandatory in all cases for consolidated companies and in certain instances for the Hungarian branches of foreign-registered entities. An auditor must be appointed before the balance sheet date of the company’s financial year. It is also worthwhile examining whether the mandate of any previously appointed auditor is still valid, and whether it needs to be extended.
What about the type of financial statements?
The type of annual financial statements defines the scope of information to be published, and thus the administrative tasks related to compiling financial statements too. An entity can prepare simplified annual financial statements if two out of three defined indicators do not exceed the following thresholds in two consecutive financial years:
- total assets no more than HUF 1,200 million (approx. EUR 3.9 million),
- annual net sales revenue no more than HUF 2,400 million (approx. EUR 7.8 million),
- average headcount in the financial year no more than 50 people.
For new entities we need to study the expected figures.
What is also important is that the Act on Accounting lays down certain exceptions for companies eligible to choose simplified annual financial statements, but who in spite of their indicators are not permitted to prepare such statements. These conditions also need to be examined. The data content of simplified annual financial statements is narrower, and so using them is less of a burden for the companies involved. Aside from annual and simplified annual financial statements, companies can prepare micro-enterprise simplified annual financial statements too if the statutory conditions are complied with. In this case there is not even an obligation to prepare supplementary notes, and so even less time is needed to compile financial statements.
Publishing financial statements
By publishing financial statements companies disclose their figures on the online reporting portal (available in Hungarian), which means information on companies’ operations becomes public. Besides being a significant obligation, we can learn a lot about the workings of other companies, for example when establishing new business relations.
