Hungarian legal regulations allow companies to keep their accounting records abroad in integrated consolidated systems, or to use a specialised global service centre in order to cut costs or maintain their financial competitiveness. Previously, we wrote about the benefits and pitfalls of doing bookkeeping abroad, and we also listed the things a company should consider before deciding to do its bookkeeping abroad. Now let’s examine what to look out for when preparing Hungarian financial statements from foreign general ledgers.
What do we need Hungarian professionals for?
Today we see companies with foreign parent entities increasingly opting to have their bookkeeping handled abroad. In such cases, these companies use the services of Hungarian accounting firms and/or tax advisory firms to ensure the Hungarian financial statements from foreign general ledgers are also prepared without errors. In other words, based on the general ledger prepared in the integrated system, Hungarian experts help to compile financial statements that comply with Hungarian rules, and “translate” processes carried out abroad to ensure they comply with Hungarian legislation.
It is important to note that even in the case of bookkeeping abroad, i.e. when preparing Hungarian financial statements from foreign general ledgers, the company’s accounts can only be prepared by a chartered accountant registered in Hungary. If the company compiles annual financial statements under IFRS, these can also only be prepared by a chartered accountant registered in Hungary as an IFRS specialist.
If the Hungarian company is subject to an audit, then the audit of the Hungarian entity can only be performed by an audit firm or auditor registered in Hungary.
Tax returns, annual financial statements and all other reports have to be prepared and submitted to the various Hungarian authorities in Hungarian, so these tasks are often performed by the engaged Hungarian accountant or tax advisory firm based on the information provided to them from the integrated system abroad.
What to look out for before preparing Hungarian financial statements from foreign ledgers?
In the six points below we have summarised what should be checked in general ledgers received from accountants abroad before preparing Hungarian financial statements from foreign general ledgers.
1. The integrated systems of foreign companies mostly follow the accounting policies of the parent entity, and are accounted for according to IFRS or US GAAP rules. It is essential to clarify at the outset what approach was used to prepare the ledger.
2. Some integrated systems (e.g. SAP) are able to manage several general ledgers at the same time, thus it is possible to take Hungarian accounting and taxation rules into account alongside IFRS or US GAAP rules.
3. The content of the received general ledger should be clarified and interpreted row by row so it can be treated properly according to Hungarian rules and the content classified in the appropriate rows of the accounts.
4. Items that are permitted under IFRS or US GAAP, but not according to Hungarian accounting standards, should be eliminated.
5. The accounting of depreciation and the capitalisation of tangible assets are both key issues from both an accounting and taxation point of view, so it is worth asking for and learning about the accounting policies applied before preparing the financial statements.
6. Reconciling the tax account with the received general ledger is also an essential task, as we often encounter situations where – for example – the payment of tax advances or the accounting of taxes are not found in the right place in the foreign general ledger.
Our article highlights just a few points that definitely should be taken into account before preparing Hungarian financial statements from foreign general ledgers. There are of course a number of other factors to consider to ensure that tax returns and financial statements comply with relevant Hungarian provisions. If you need an expert in this field, our accountants experienced in preparing Hungarian financial statements from foreign general ledgers will be happy to help.