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When it comes to financial reporting in Hungary, businesses must navigate two distinct systems: the Hungarian Accounting Standards and IFRS. While both aim to ensure transparency and accuracy, their approaches differ significantly—from principles and policies to reporting formats. Understanding these differences is crucial for businesses looking to remain compliant and competitive in the Hungarian market. This article breaks down the essentials, helping you grasp the nuances of both frameworks.
In accordance with EU regulations, the Hungarian Accounting Act requires companies whose securities are traded on a regulated market in any member state of the European Economic Area, i.e. any listed company, to prepare their annual accounts in accordance with IFRS. Furthermore, credit institutions and financial undertakings subject to equivalent regulation are also required to prepare their annual accounts in accordance with IFRS.
The following are not allowed to use IFRS for individual reporting purposes: public and municipal trusts; non-profit companies; treasuries; foundations; associations; condominiums; law firms
Optionally, entities whose direct or indirect parent company prepares its consolidated financial statements in accordance with IFRS may choose to use IFRS standards for the preparation of its separate financial statements. In addition, insurance companies, institutions supervised by the MNB with the exception of treasuries, companies subject to audit and the Hungarian branch of a foreign resident enterprise may choose this reporting method.
The principles set out in Act C of 2000 on Accounting and the IFRS framework are similar in content, but the approach and principles of the two systems are different. Although the Accounting Act is increasingly taking over from IFRS.
The IFRS divides quality attributes into two categories – basic quality attributes and qualitative attributes that reinforce them. It also mentions two underlying assumptions, one is the going concern principle, which is an underlying assumption without which the other quality attributes cannot be valid. It also treats the principle of the natural approach (time lag) in a similar way.
In contrast, the Accounting Act does not group the principles, but groups (substantive principles, additional principles, formal principles) can be identified on the basis of the Act.
A striking difference between the two systems is the form of reporting and accounting. Whereas the Accounting Act states in its principle of clarity that the accounts and accounting must be presented in the statutory format and provides the applicable reporting format and scope, IFRS only provides suggestions on the format, content and minimum disclosures to be presented in the notes.
The IFRS does not give numerical guidance on what is considered a material misstatement, but approaches the materiality criterion from a different angle, material being any financial information the omission or misstatement of which could influence decision-making. The Accounting Act, on the other hand, provides numerical, percentage-based definitions of material misstatement in the definitions.
The Accounting Act basically uses gross accounting, although in recent years it has moved closer to IFRS in this respect. IFRS also states gross accounting but goes on to say that unless certain standards require or allow for net accounting.
Beyond the principles, there are differences between the specific Standards and the Accounting Act. Some differences between the two systems are not exhaustive.
The accounting law specifies the balance sheet date by which certain information must be considered, while IFRSs specify the disclosure date, which occurs later. This includes the measurement of investments and recognition of foreign exchange losses after the balance sheet date.
In the Hungarian Accounting Act, there is no specific regulation on changes in accounting policies and estimates, and the effects of slippage are only disciplined prospectively.
The Accounting Act defines the level of material error that modifies the profit and loss reserve, which in practice means 3 columns in the accounts. In IFRS, the first set of financial statements to be published after the error is detected is already required to be restated. The opening figures for the earliest period presented must be restated to take account of the cumulative effects to date.
The Accounting Act clearly defines the classification of tangible fixed assets in the balance sheet, the application of which is mandatory. IFRS only provides a recommendation.
The accounting law shows the amount of the advance on property, plant and equipment in this balance sheet group. In IFRS, this can be shown under financial assets, or here
The Hungarian accounting law defines the value of low-value assets, IFRS does not deal with it, it is left to the entrepreneur’s discretion.
The Accounting Act does not provide any guidance on component accounting and depreciation for the treatment of spare parts, safety and environmental assets.
Under accounting law, fair value adjustments do not influence the recognition of depreciation. Instead, they are recorded as value adjustments.
Date of capitalisation, date of entry into use according to the Accounting Act, date of reaching ready for use according to IFRS.
In determining cost:
Non-current assets held for sale are not treated under the Accounting Act and are either recognised as tangible assets or may be reclassified as inventories if justified. IFRS treats them separately. Discontinued operations are not dealt with in the Accounting Act
IFRS regulates intangible assets in much more detail than the Accounting Act. The categories are essentially the same, IFRS does not allow the capitalisation of start-up reorganisation costs,
Intangible assets must always be recognised as an expense in the period. Under IFRS, research costs must be expensed.
In IFRS, development costs must be capitalised if the conditions are met, while the Accounting Act only allows for the possibility of capitalising R&D.
Depreciation differences:
The Accounting Act does not define investment property, nor does it require it to be separated and recognised as a tangible asset. Under Hungarian law, investment property must be recorded at cost and depreciated according to plan, if any.
The content of the qualifying asset is not necessarily the same as in the Accounting Act, which does not define them precisely.
Under the Accounting Act, borrowings directly attributable to the acquisition or production of an asset are included in cost. The costs of general financing sources are not capitalised.
Suspension is not provided for in the Accounting Act.
The accounting law applies only nominal interest .
This corresponds to unplanned depreciation in accounting law.
IFRS treats impairment at the level of individual assets and at the level of cash-generating units, whereas the Accounting Act treats it only at the level of individual assets, without interpreting the concept of cash-generating unit
IFRS relates the carrying amount to the recoverable amount reflecting the conditions at the balance sheet date, while the Accounting Act relates the carrying amount to the market value at the balance sheet date.
For impairment losses recognised, IFRS does not specify a precise category of profit or loss, but the Accounting Act classifies them as other expense/other income or financial expense.
There are no differences in the recognition and presentation of current tax.
The Hungarian accounting clearly defines which category of profit or loss is affected by which tax. IFRS refers to taxes on profits.
The Hungarian accounting does not require the recognition and presentation of deferred tax and only allows it from 2023. IFRS also requires deferred tax to be disclosed in individual financial statements, in the Accounting Act it is only disclosed at a consolidated level.
IFRS adopters should be aware of the adjustment items related to TAO and HIPA, which address the differences between Hungarian accounting and IFRS. For example, the treatment of barter transactions, agency transactions, leasing transactions, business transfers, income from non-arm’s length activities, related VAT and material costs. In addition, any other differences between the invoiced revenue and the revenue recognised under IFRS, which would not be recognised under IFRS in subsequent years and have not been recognised as revenue to date, will increase the tax base.
The fundamental difference is that IFRS requires the use of fair value measurement, whereas the Accounting Act allows it.
Presentation differences:
Hungarian accounting does not distinguish between the various types of equity instruments, treating preference shares, ordinary shares and redeemable shares in the same way.
The fundamental difference in the valuation rules is caused by the fact that in Hungarian accounting non-current financial assets and securities are carried at historical cost.
Under the Accounting Act, a value adjustment may be applied to investment holdings. Discounting and effective interest are not recognised in Hungarian accounting.
The related transaction costs are included in the cost of assets in Hungarian accounting, while in the case of liabilities they may be accrued.
The issue of impairment of financial assets is regulated in more detail in IFRS.
The most significant difference is that IFRS no longer differentiates between operating and finance leases for lessees, while the Hungarian regulation still maintains this differentiation for all parties involved in leasing transactions. It follows, however, that since even the most basic definitions differ significantly between the two systems, further comparison is extremely difficult.
The Accounting Act does not define either the general concept of leasing or the concept of operating or financial leasing, the latter being referred to only by reference to the law on credit institutions and financial undertakings, but the Civil Code also contains a definition
The Hungarian system also includes the putting into use, the collection of benefits, the assumption of risks and burdens by the lessee, but the emphasis is on the possibility of obtaining ownership, the other IFRS criteria for financial leasing are not included in the Hungarian definition.
There is also a significant difference in the valuation of transactions. In the Accounting Act, valuation is not regulated in detail, the use of discounted present value is not used, interest calculation is based on the nominal interest rate, and the use of the implicit (incremental) interest rate is not possible.
Finance leases are initially recognised at transaction (invoiced) value as opposed to IFRS. the accounting treatment of operating leases is not prescribed by the Accounting Act.
The Hungarian legislation lacks provisions on a number of other issues, such as the duration of contracts, the treatment of modifications, the breakdown or aggregation into components, and does not recognise the concept of a right-of-use asset.
IFRS and Hungarian accounting differ in definitions and their content.
In Hungarian legislation, provisions are mandatory:
IFRS does not allow for provisions, the Hungarian regulation is that in certain cases unrealised exchange losses can be carried forward
Measurement and recognition differences:
Hungarian accounting does not regulate the recognition of untaken leave.
The IFRS classification criteria for short-term employee benefits are not found in the Hungarian system, but most of the entitlements are recognised in the
Post-employment and other long-term employee benefits are not regulated in Hungarian accounting.
The Hungarian accounting law does not deal with share-based payments, it is regulated for tax purposes. It only appears in accounting law when an actual share issue takes place. Free share awards are settled within capital. Fair valuation is not allowed.
IFRS deals with the effect of exchange rates in more detail than Hungarian accounting.
For revaluation, a distinction is made between monetary and non-monetary basis in IFRS, under Hungarian rules all cash, non-current financial assets, receivables, liabilities and assets must be revalued at year-end exchange rates.
Under Hungarian rules, the exchange rate can only be the average of the selling and buying rates of the MNB or the credit institution of choice.
Hungarian legislation requires revaluation to be charged or credited to profit or loss (except for tangible assets not placed in service), whereas IFRS allows revaluation differences to be recognised in equity.
IFRS gives an example of classification, while the Accounting Act specifies it.
The rules on cost are basically the same, but there are some items that are not highlighted in the Hungarian rules, e.g. storage costs.
In the case of production costs, IFRS provides guidance on the logic for allocating overheads, whereas the Accounting Act does not.
In FRS, advances on inventories are recorded under receivables.
IFRS uses the net realisable value at the balance sheet date, whereas the Accounting Act uses the market value at the balance sheet date to determine impairment.
The Hungarian accounting standards have a gross approach, net approach not applicable.
Specific statutory grants are accounted for in the Accounting Act, but there’s no such accounting in IFRS.
In accounting law, a grant received for the improvement of an asset or to offset costs is released as deferred income against other income – in IFRS, the release may relate to a reduction in related expenses.
Accounting in Hungary isn’t just about understanding numbers – it’s about mastering a complex regulatory framework that evolves with EU standards and local legislation. Businesses must contend with differences in reporting requirements, tax treatments and compliance deadlines under Hungarian Accounting Standards and IFRS. For foreign companies, the added layer of language barriers and local nuances makes the task even more challenging.
Outsourcing your accounting needs to experts like Accace eliminates these hurdles. With a deep understanding of both frameworks and years of experience supporting businesses in Hungary, we provide the guidance and expertise you need to stay compliant, minimize risks, and focus on your core operations. From preparing financial statements to ensuring accurate tax reporting, our tailored solutions are designed to meet the unique demands of your business.
Struggling with Hungarian accounting standards and IFRS? Let Accace take the complexity out of your accounting operations. Our team of specialists combines local expertise with global standards to provide comprehensive support tailored to your needs. Whether you’re navigating Hungarian Accounting Standards, IFRS, or both, we’re here to ensure accuracy, compliance, and peace of mind.
Contact us today for accounting services in Hungary, so that you can focus on growing your business.
About Accace
Accace is a proactive consultancy and outsourcing partner who bridges the gap between needs and solutions. Combining smart and streamlined technology with a holistic approach, we provide an all-round care to clients and consider their matters as our own. With over 800 experts and approximately 2,000 customers, we have vast experience with facilitating the smooth operation and growth of small to large-scale, global businesses.
About Accace Circle
Accace operates internationally as Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience and erase the borders of service delivery. Covering over 60 jurisdictions with more than 7,000 professionals, we support over 80,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and process at least 800,000 pay slips globally.
