Many businesses regard accounting policies as a mandatory administrative task: they are prepared when the company is established or when the accountant is changed, then filed away and not reviewed again for years.

However, during a tax authority audit, the Hungarian tax authority (NAV) may examine not only whether a business has the mandatory accounting policies in place, but also whether its day-to-day operations are actually in line with them.

In a previous article, we have already discussed the role of policies governing the operation of businesses. In this article, we review why their mere existence is not sufficient during a NAV audit and what risks may arise if a company does not operate in accordance with its own policies in practice.

What do we mean by accounting policies?

Accounting policies are the internal documents that define a company’s accounting operations. The collective term includes the accounting policy itself, as well as the related accounting policies.

The accounting policies required under the Hungarian Accounting Act are:

The accounting policy plays a central role among these documents: it defines the principles, methods and decisions on which the company’s entire bookkeeping and financial reporting system is based. The other accounting policies set out the detailed rules for practical implementation, including how the company keeps its books in accordance with accounting principles, how it values its assets and liabilities, how inventory-taking is performed and how cash and other funds are managed.

The purpose of accounting policies is not only to ensure legal compliance but also to make accounting processes uniform, transparent and consistent. Therefore, it is not enough simply to prepare them: they must also be followed in day-to-day operations.

The accounting policy: the most important legal requirement

The Hungarian Accounting Act requires entities in Hungary to establish an accounting policy in which they define, among other things:

  • the accounting principles applied;
  • the solutions selected from the options provided by law;
  • materiality and significance thresholds;
  • the valuation procedures applied;
  • the cases in which amendment of the accounting policy is required.

The accounting policy is therefore not a general document but an internal set of rules tailored to the company’s operations, which must be applied consistently in bookkeeping and financial reporting.

This document forms the foundation of the accounting policies system, to which the internal policies governing specific areas are connected.

Who is responsible for preparing the accounting policy?

The Hungarian Accounting Act clearly states that the person authorised to represent the entity is responsible for preparing and amending the accounting policy.

Since the accounting policy is the core document of the company’s accounting regulatory framework, this responsibility effectively extends to the establishment and maintenance of the entire accounting policies system.

This means that while accountants and accounting advisers can provide significant professional assistance in preparing, reviewing and updating the accounting policy and related policies, the legal responsibility remains with the company’s management or legal representative.

For this reason, it is particularly important not only to prepare these policies but also to review them regularly and update them whenever legislative changes or changes in the company’s operations make this necessary.

When must accounting policies be prepared or amended?

According to Hungarian legislation, a newly established entity must prepare its accounting policy and related policies within 90 days of its incorporation.

If the Hungarian Accounting Act is amended and the changes affect the company’s accounting policies, the necessary amendments must be implemented within 90 days after the legislative changes enter into force.

However, this does not mean that policies need to be reviewed only in the event of legislative changes. There are many situations in which it is advisable for a company to do so in its own interest.

When should accounting policies be reviewed?

Reviewing accounting policies may be particularly justified if:

  • the company starts a new activity;
  • manufacturing operations are launched;
  • a webshop or new business line is introduced;
  • foreign currency transactions appear;
  • a new accounting or ERP system is implemented;
  • the company changes its accounting decisions (for example depreciation methods, value thresholds or materiality limits);
  • document management or cash management processes undergo significant changes.

Accounting policies must always reflect the company’s actual operations. If business practice changes, the policies must be adjusted accordingly.

Why is it not enough simply to have accounting policies?

Under the Hungarian Act on the Rules of Taxation, a business may be subject to a default penalty if it does not act in accordance with the policies prepared under the Accounting Act.

In other words, NAV may examine not only whether a business has the mandatory policies, but also whether those policies reflect actual operations and whether accounting practices are consistent with the procedures set out in them.

Practical examples

According to the law, any information is considered material if its omission or misstatement could influence the decisions of users of the financial statements. Such discrepancies may include situations where:

  • a full inventory count is required annually under the policy, but is not actually carried out;
  • the accounting policy prescribes a particular valuation method, while bookkeeping follows a different procedure;
  • the company fails to comply with the cash handling procedures specified in the cash management policy.

In these cases, the issue is not merely that the policy has become outdated but that the company is not even following the rules it has established for itself.

What may NAV examine during an audit?

During a tax audit, the following questions may arise, among others:

  • does the company have the mandatory accounting policies;
  • do they comply with the applicable legal requirements;
  • do they reflect the company’s actual operations;
  • are bookkeeping practices and documentation procedures consistent with the policies;
  • are inventory-taking, valuation and cash management carried out in accordance with the policies?

The most common mistakes

Based on our experience, the most common issues relating to accounting policies include:

  • the accounting policy has not been reviewed for years;
  • the document refers to legislation that is no longer in force;
  • the company’s operations have changed significantly, but the policy has remained unchanged;
  • the value thresholds set out in the policy are not applied in practice;
  • a template from another company has been adopted, resulting in incorrect company data or irrelevant provisions remaining in the document.

As the above examples demonstrate, preparing accounting policies is not a one-off administrative obligation. In addition to supporting legal compliance, accounting policies also help ensure that a company’s operations remain transparent, consistent and properly documented in the event of a tax audit.

KONYVELES_szamviteli_tanacsadas
ACCOUNTING ADVISORY

The accounting experts of WTS Klient Hungary provide assistance with the preparation, review and updating of accounting policies. Our goal is not only to ensure compliance with legal requirements but also to ensure that the policies genuinely reflect the company's operations and can be applied effectively in everyday practice. If you would like to have your existing policies reviewed, or if your new business requires an accounting policy and related policies, feel free to contact us.

This article is for general information purposes only and should not be considered as advice.

Accounting Act accounting advisory accounting policies accounting policy accounting services bookkeeping financial statements policies tax audit