From 2017, any company obliged to be audited in Hungary may now choose to apply IFRS bookkeeping and reporting. So bookkeeping according to the international standards which were so far only mandatory for listed companies and credit institutions has now become an option for a wide range of enterprises. There are many businesses, even sme-s, whose net sales revenues exceeded HUF 300 million (approx. EUR 960,000) on average in the two financial years preceding 2017. This means an audit is mandatory for these companies from 2017 at the latest, but now they also have a choice to adopt IFRS. The question is, who should choose this option?
Attention company executives! IFRS bookkeeping is not a perfect fit for everyone…
If your company is not the subsidiary of an international group operating according to IFRS requirements, then the IFRS transition will only mean that instead of the Hungarian Accounting Act, IFRS requirements will now determine how economic events should be booked. Financial statements prepared this way can only be compiled by an IFRS-certified chartered accountant, and in this system the management can re-learn the accounting requirements they previously understood, or thought they understood. It is cold comfort that the data of a competitor operating in another country and keeping its books according to IFRS will be more comparable to the data in your records.
Even groups which prepare IFRS financial statements and consolidate their Hungarian subsidiaries, may decide to dismiss or postpone the transition to IFRS at their Hungarian units for taxation or other strategic considerations.
However, if the transition does not have any taxation or strategic disadvantages, the accounting staff at the subsidiaries keeping their books under IFRS can consider themselves the clear “winners” because the extra workload derived from bookkeeping in two reporting systems will disappear.
Be careful with deadlines and consider your choices thoroughly!
If you prepare for the transition during the summer doldrums you could easily come under pressure as the end of the year draws near. Although a softer rule means it is now enough to report the transition 30 days prior to the annual reporting date, you will need time to allow of at least one of your staff to obtain an IFRS-certified chartered accountant qualification, and you will have to make your previous year’s figures comparable as well. It is also worth reviewing the need to restructure your integrated IT system well in advance, so you do not miss out on necessary IT developments or find them incomplete. Instead of decreasing the extra workload, you could easily find yourself in a situation where you manually have to produce the financial statements that you previously generated automatically.
You should also check with your auditor whether they are IFRS-certified, and if they can set aside some time for you before the end of the year. For comparability purposes, enterprises in Hungary operating with calendar years have until 30 November to submit their notification on the transition together with the audit report on their IFRS financial statements containing the matching of the figures for the previous year.
Let’s take a look at the transition from a taxation perspective too. Legislators strove to secure budgetary revenues with a transitional rule, but they left a choice in the case of valuing assets that affects the level of corporate tax. So timely and detailed preparations may be advantageous here as well.
It was not coincidental that we issued our summary on switching to IFRS in the period right after the closing of the previous year. We are convinced that this is the right time to start preparing for the transition.
Tax, legal, consulting
The three service units included in the logo of our company, i.e. tax, legal and financial accounting aspects, are the keys to a successful IFRS transition. In my strategy introduction I only touched on these aspects to raise awareness. My colleagues will endeavour to explain the individual detailed rules in the following articles. It’s definitely worthwhile reading them too.
You can read about the initial accounting steps of IFRS transition here, about its tax implications here, and about its legal aspects here.
