Transformation in accounting

There is no denying that as one of the leading firms on the accounting services market, we (also) need to be at the forefront of digitalisation and robotisation, whilst being guided by prudence, awareness and proportionality. This is because it is not clear what is worth investing in with regard to technological development and robotisation.  For example, it recently transpired that OCR technology (text recognition) has become almost obsolete in the accounting profession thanks to online developments by the Hungarian tax authority (NAV) for processing domestic invoices. So global and local trends and paths need to be monitored, but delaying decisions can also have serious consequences, with the risk of falling permanently behind.

Our profession is undoubtedly undergoing a major transformation. The accountant of the future (and almost of the present) will no longer record data since bank transactions and client invoices are entered automatically, the data content of supplier invoices is downloaded from the NAV online database, and general ledger accounting items (salaries, depreciation, foreign currency revaluations, accruals and deferrals, taxes, etc.) can largely be entered and run in the accounting software.

At the same time, clients legitimately expect us not to lose our focus on personalisation and personal attention.

Robotisation in back-office systems

So how can we keep the personal touch, but also meet the demands of the times in using artificial intelligence, robotisation and the deployment of technology?

The answer is simple: we don’t put AI and robots on the front line, we let them operate more widely and under tight control in our back-office systems.

Today, most of our business divisions are already using, or have the potential to use, some form of artificial intelligence.

What specific development paths are emerging for WTS Klient Hungary?

• In addition to Excel macros, Power Pivot and Power Query, our outsourcing, financial advisory and controlling services have for years been backed by artificial intelligence-driven BI software (business intelligence), which can be integrated with both our in-house accounting systems and our clients’ ERP (enterprise resource planning) systems. In up-to-date accounting, the accounting dimensions employed alongside general ledger figures provide the basis – thanks to intelligent database use – for a dynamic dashboard interface that replaces the use of Excel-based controlling reports. Of course, in addition to financial information, structured information from other database-generating areas of the company, such as production or HR, can also be displayed on this interface to provide the client’s management with the comprehensive information they need to make decisions.

• One of the in-house software solutions used by our accounting division provides a complex document workflow and invoice approval system for complete, integrated and digital processing of supplier invoices. The solution, which also employs artificial intelligence, downloads our clients’ domestic invoice data from the NAV’s online system, and matches the data with the invoice or e-invoice data uploaded in scanned format to the client portal. The software automatically transfers the invoice image and data content to the invoice filing and authorisation system, from where it is sent to the accounting module in a pre-recorded format after digital client approval.

• In our tax advisory division, we are also considering the potential of robotisation and artificial intelligence in an increasing number of areas. These solutions can help in the area of compliance services, pre-screening certain financial comparables, tracking changes in legislation or monitoring tax liabilities. (For more information on these solutions please read the article by András Szadai.)

• In our own recruitment activity, artificial intelligence integrated into our HRM (human resource management) software supports our preboarding process by ranking candidates. The built-in artificial intelligence is trained with keywords and uses parameters to process and evaluate the information in incoming CVs. This kind of robotisation is of huge assistance to our HR department when processing large amounts of data.

Internal or external developments

As mentioned in one of our previous articles, today there are ready-made software solutions – so-called off-the-shelf solutions – for almost any need. But you can also choose to have your own solutions designed by external developers or by your own development team. There is no one-size-fits all solution, it is up to the company leaders and IT managers to figure out what best fits the means and objectives of the company. Mixed solutions are often viable too.

WTS Klient Hungary currently uses the above AI-enabled solutions not as part of in-house developments but by purchasing or leasing off-the-shelf software. That said, we are taking the necessary steps with technological improvements, efficiency gains and business automation through internally-driven RPA (robotic process automation, robotisation) and digitalisation year on year.

WTS Klient Hungary has been supporting the accounting and taxation managers of international companies for more than 25 years. Our professionals experienced in the areas of taxation, process design and IT solutions and well-versed in the world of automation and robotisation can assist you with harmonising diverse needs and designing digital systems affording you an advantage over your competitors. Our IT / Business Automation staff look forward to hearing from you if you need IT solutions to optimise your company’s processes.

A Practical applications of artificial intelligence and robotisation bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

A production hall or machinery funded from grants as well as wage support are all factors contributing to future success, but at the same time, they mitigate the required financial funding for investments or costs in the present. In our article we would like to explore this duality, in other words, the difference between the financial accounting of grants and their impact on profit/loss. Moreover, thanks to a recent change in the law, from this year the two processes will be separated even more markedly in Hungary.

What motivates a company to claim grants? 

The question sounds trivial, and the answer too simple. It’s nothing other than money. Any grants, whether provided for developmental goals or to cover costs, contribute to the company’s financing resources in the short term. Interestingly, the impact of grants on profit/loss typically differs, or may differ significantly, from its positive impact on the company’s cash flow.

Increase in financial resources and their impact on the balance sheet 

Grants are often connected to pre-financing. In a crisis, a 100% advance on grants is common practice as a form of quick assistance. With investment subsidies, subsidies for experimental developments or support to cover wage costs, the company often receives a certain percentage of the grant in advance. Grant advances must be recognised in the company’s financial statements under liabilities until the financial report on the received funding is approved by the funding organisation. It is not unusual in Hungary to break down a funding period into milestones. In such cases, the funding is approved at every milestone, and the milestone after which the advance is deemed settled must be determined, i.e. after which milestone does the related liability cease. This means, that the pre-financing of a grant is recognised as debt in the balance sheet of the company’s annual financial statements until the final approval regarding the implemented funded investment or the settled costs is received.

What role do grants have in terms of profit and loss? 

According to the accounting logic for the profit and loss accounting of grants, the funded costs must equal the grants received in a given year, so the impact on profit/loss is zero. This approach is called the matching principle in the Hungarian Act on Accounting, the point of which is that incomes and costs should relate to the period in which they are incurred for economic purposes. In reality this means that the grant income only neutralises the impact of costs that would otherwise be incurred. The prorated income released from deferred income is matched against the depreciation of the completed investment, just as the grant income is matched with the funded wage costs in the given year.

Rules for accounting grant income unified 

Ensuring the principle of matching prompted changes in grant accounting in recent years. These changes are the following:

• From 2016, in the case of grants awarded to cover costs, financial settlement by the balance sheet preparation date is no longer a condition for income recognition, it is enough just to complete the settlement with the funding organisation by that date.

• From 2019, a new element also for grants awarded to cover costs is that the grant income can be accounted against accrued income if the entity can prove it will comply with the conditions set forth for receiving the funding, and it is likely that it will receive the funding.

• One change in 2022, but already effective from 2021, allows for development grants to be accounted against accrued income, provided the entity can prove that it complies with the conditions and it will likely be awarded the funding.

This essentially unifies the accounting of the two types of funding and, overall, the principle of matching can be applied in both cases.

This welcome amendment to the law will result in a complete separation of financial and profit and loss accounting. Any grant advances potentially recognised in the form of pre-financing are treated separately from any income through accruals not yet recognised.

It is important to add that the legislator sees the principle of matching only as an option, not as an obligation. In the accountant’s mind, the question immediately arises as to whether the principle of prudence is more important than the principle of matching because of the uncertainty in the realisation of income, i.e. whether the grant received should be shown together with the cost it was awarded to cover. Of course, this should always be considered in the light of the circumstances. 

International comparison 

The International Financial Reporting Standards (IFRS) also offer a solution to the thinking outlined above. IAS 20 — Accounting for Government Grants and Disclosure of Government Assistance provides for the possibility of reducing the cost in addition to accruing the income. This means that the funded asset does not appear in the books at its invoiced value, but at the amount less the funding. This method also results in lower depreciation costs due to the lower cost. In other words, neither the funded cost nor the related income is recognised in the income statement, so this method also ensures that the transaction is neutral on profit/loss. The impact on profit or loss is therefore the same as when the rules of the Act on Accounting are applied.

Grants are not only beneficial for a company’s profitability, but they naturally also exert a positive impact on the operation of the company in terms of its cash flow. However, while financing tends to be short term, the impact on profit/loss is felt throughout the life of the asset or the entire period during which the costs incurred. Whatever the form of funding, the financial accounting requires in-depth expertise. If you need help with this, please contact our experts.

A Duality of grants bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.