In the first part of our two-part series on interim closing, we reviewed the advantages of an interim closing and highlighted why it is worth considering even when it is not mandatory. In this second part, we examine the situations where Hungarian law requires a company to prepare an interim balance sheet before the annual closing.
Although an interim closing is advisable even when not compulsory, there are cases where it is not optional for the company. The preparation of an interim closing and an interim balance sheet may be prescribed by law. In such cases – unless otherwise provided by law – the interim balance sheet must be prepared for the date determined by the company, taking into account all economic events since the last financial statement.
How to prepare an interim balance sheet?
The interim balance sheet must be compiled in accordance with the rules applicable to the annual financial statements, based on analytical and general ledger records, supported by inventory, and in a way that allows subsequent verification. It must include year-end valuation adjustments (such as depreciation, impairment, provisions, accruals). The key difference between year-end and interim closing is that in the latter case, analytical and general ledger records cannot be closed; they must be maintained continuously.
For the purpose of substantiating equity, the interim balance sheet can be taken into account for up to six months following the balance sheet date.
Mandatory cases for interim balance sheet
As we indicated in our previous article, an interim closing is required if the company must prepare an interim financial statement or if an interim audit takes place.
An interim balance sheet must be prepared in the following cases if there is no annual financial statement prepared within six months:
- Payment of dividend advances: dividend advance can only be paid from retained earnings supplemented by the after-tax profit shown in the interim balance sheet, provided that the amount of equity – reduced by tied-up reserves and positive valuation reserves – does not fall below the registered capital even after considering the interim dividend amount.
- Repurchase of own shares / capital increase: The repurchase (acquisition) of own shares, partnership shares, or redeemable shares is subject to the condition that the last available or the interim balance sheet shows sufficient coverage from retained earnings supplemented by after-tax profit, excluding amounts considered for interim dividend.
- Company restructuring (merger, dissolution): In case of restructuring, companies must prepare draft statements of assets and liabilities and inventories of assets and liabilities, followed by their final versions, instead of the normal annual financial statement.
- Voluntary liquidation or winding up: At the start of voluntary liquidation, an activity closing financial statement must be prepared, and upon completion, a final liquidation closing statement must be drawn up.
- Trusts: During trust asset management, asset distribution can only occur up to the amount of the initial capital. For interim asset distribution, data from the interim balance sheet are required.
Audit of interim financial statements
If the company is subject to statutory audit, the financial statement containing the interim balance sheet must also be audited.
Preparing an interim balance sheet and financial statement is not merely an administrative task; in certain situations, it is a legal obligation under Hungarian law. Knowing and complying with these requirements is essential for lawful operation and sound financial decision-making. It is therefore advisable to prepare in advance and seek expert assistance when necessary. The accounting experts at WTS Klient Hungary are ready to support you in this matter!
This article provides general information and does not constitute advice.
