On the strength of the basic principles and valuation procedures recorded in the Hungarian Act on Accounting, accounting policies most suited to the company’s characteristics and circumstances must be drawn up and set forth in writing. Yet many companies in Hungary face difficulties right at the outset. How should they start? What are accounting policies? What are the mandatory elements to be included in accounting policies, who should prepare them and by what deadline? Decision makers have many questions, and we will try to answer them here.
What is the deadline for preparing accounting policies?
New entities in Hungary are required to draw up their accounting policies as well as related policies and procedures within 90 days of their establishment. If the laws are amended, any changes must be incorporated into the accounting policies within 90 days of entering into force. There is also a deadline of 90 days for updates or amendments required as a result of changes in the activities or valuation procedures of the entity.
Who is responsible for preparing the accounting policies?
The person authorised to represent the entity is responsible for the preparation, authenticity and amendment of the accounting policies. Of course, the person/organisation performing the accounting or financial tasks plays a key role in preparing the document, in close cooperation with the management of the entity, as the accounting policies mainly regulate tasks and procedures related to accounting and financial settlements.
What do the accounting policies include?
The accounting policies contain the rules, regulations and methods tailored to the company that define what is considered material, immaterial, significant or insignificant from an accounting and valuation perspective, and what are deemed exceptional income, costs or expenses in terms of size or occurrence. In the accounting policies the entity determines which of the selection and rating opportunities set forth in the law are applied, and under which conditions, as well as the reasons justifying a change in the procedures used.
Policies and procedures forming part of the accounting policies are as follows:
- policy for valuing assets and liabilities
- policy for stock-taking and inventory of assets and liabilities
- internal purchase and production cost calculation policy (Companies preparing simplified financial statements and simplified annual financial statements are exempt from this obligation, as well as companies where the net sales revenues less cost of goods sold and mediated services in any given financial year does not exceed HUF 1 billion (roughly EUR 3 million), or total costs by cost type do not exceed HUF 500 million (roughly EUR 1,5 million). If these thresholds are exceeded then from the following financial year the company has to determine the purchase and production costs of own products manufactured or services rendered using the ex post calculation method according to the internal purchase and production cost calculation policy.)
- cash management policy
- documentation policy
When drafting the accounting policies, company managers in Hungary need to make decisions on the following key issues among others:
- bookkeeping method
- choosing the balance sheet format
- choosing the format of the income statement
- further segmentation of the balance sheet and the income statement, if necessary
- mandatory content of the supplementary notes
- accounting principles applied
- bookkeeping system
- accounting close
- audit, if such is not legally binding
- schedule for preparing and filing financial statements, responsibilities
- recording and reversing impairment
All in all, the company management decides on various elements when preparing the accounting policies as there are various options to choose from when determining content. However, the accounting policies need to be drafted in a manner which ensures that compliance with the relevant rules results in financial statements that provide a true and fair view, and as required, meet the information needs of management and support internal or external audits.
If you are preparing or updating your accounting policies now, we are here to help. Over the past twenty years we have prepared or reviewed accounting policies for hundreds of companies. Our bookkeeping team looks forward to hearing from you by email, or just give us a phone.