Hungary

As a member of the European Union (EU), Hungary is subject to the accounting, auditing and financial reporting requirements established in EU Regulations and Directives as transposed into national laws and regulations.

Accounting Framework

Accounting and bookkeeping regulations are contained within Act C of 2000 on Accounting (the Accounting Act) and its statutes as issued by the Ministry for National Economy (MNE). The Accounting Act is in effect Hungarian GAAP. The MNE has harmonized accounting regulations with the EU regulations that require the application of IFRS as endorsed by the European Commission (EU-endorsed IFRS) for financial statements of companies whose securities trade in a regulated securities market and permitted optional application of EU-endorsed IFRS for consolidated accounts of all companies within the scope of the Accounting Act that do not trade in the regulated market. In 2015, the MNE issued a resolution that expanded the application of EU-endorsed IFRS to individual accounts of Hungarian companies, such as financial institutions, companies whose securities trade in the European Economic Area, and companies subject to mandatory audits.

All other companies must apply the Hungarian GAAP, although they are permitted to use the EU-endorsed IFRS as supplemental financial statements. IFRS for Small- and Medium-sized Entities have not been adopted; however, companies that meet two of the following three thresholds may prepare a simplified annual report: (i) balance sheet total of less than HUF 500,000,000; (ii) annual net revenue less than HUF 1,000,000; or (iii) average number of employees during the business year is 50.

Auditing Framework

The Hungarian government completed implementation of the EU audit reform by vote in parliament on 10 May 2016 with the rules becoming effective on June 17, 2016. Public interest entities in the Hungary are defined as listed companies on an EU regulated market, all credit institutions but excluding the Hungarian National Bank, the Hungarian Development Bank, and the Hungarian Exim Bank, insurance undertakings except for those having less than EUR 4,800,000 gross premium income in the previous business year, and entities providing investment services.

In addition, in accordance with the Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors, companies surpassing both of the following thresholds must undergo a statutory audit: (i) the annual net sales (calculated for the period of one year) exceed HUF 300 million on the average of the two financial years preceding the financial year under review and (ii) the average number of people employed by the undertaking exceed 50 people on the average of the two financial years preceding the financial year under review.

Applicable auditing standards in Hungary are also outlined in Act LXXV of 2007. Audits must be conducted in accordance with auditing standards that have generally been accepted internationally—further defined as ISA issued by the IAASB—that are prepared and issued by the Hungarian Chamber of Auditors (MKVK) with approval by the MNE’s Auditors’ Public Oversight Authority. The MKVK has translated and promulgated the ISA since 2011. Only auditors that are registered with the Authority and the MKVK may undertake statutory audits.

Only auditors are regulated at the state level under the Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors. The Act establishes and outlines the roles of the audit oversight entity—the Auditors’ Public Oversight Authority (the Authority) which operates under the Ministry of National Economy—and the professional accountancy organization—the Hungarian Chamber of Auditors (MKVK). Through the Act, initial and continuing professional development (IPD and CPD) requirements are also established.

To earn the statutory auditor designation in Hungary and offer auditing services, individuals must first have acquired appropriate higher education and obtained initial practical experience (three years) and passed initial competence examinations. Subsequently, individuals must serve as apprentice auditors under the supervision of an active MKVK member for three years. After this time, candidates may take a final professional and competence examination. Upon successful completion of this educational route, individuals can obtain a license issued by the Authority and then register with the MKVK as a statutory auditor. Both the license and registration are necessary to offer statutory audit services.

The MKVK also holds the following regulatory responsibilities as authorized by the Act LXXV of 2007: (i) issue certificates and register statutory auditors; (ii) draw up and regularly update the national standards for audits, advisory services, assurance services, and other related services; (iii) make arrangements for operating the system of quality assurance (QA) in connection with statutory audits; (iv) organize and supervise the training of apprentice auditors, organize the training program for apprentice auditors and the requirements for examinations of professional competence, conduct examinations of professional competence; (v) set the requirements for aptitude tests, conduct aptitude tests; (vi) organize and supervise the compulsory continuing education of registered statutory auditors; (vii) hear the disciplinary cases involving registered statutory auditors and audit firms; (viii) make recommendations for the minister in charge of accounting regulations; (ix) adopt the rules of professional ethics, taking into consideration the Code of Ethics of IESBA for Chamber members and audit firms, and monitor their conduct with a view to compliance with such rules; (x) operate the Arbitration Board and the Legal Aid Center; (xi) monitor the activities of auditors and audit firms and take the measures necessary upon learning of a registered statutory auditor or audit firm being engaged in any unlawful activity or conduct, or of any infringement of the Chamber’s statutes or the Chamber’s rules of self-governance.

All these activities are subject to the oversight and supervision of the Authority, which was formally established in 2013 to carry out this function. Overall, the Authority has three main responsibilities: (i) supervision over the MKVK; (ii) issue a license to qualified auditors; and (iii) carrying out QA reviews and investigative and disciplinary procedures of auditors of public interest entities. In its role as an oversight body, it will monitor and evaluate: (i) the procedures for registering auditors; (ii) the drafting and approval of all professional and technical standards; (iii) the continuing education training program; (iv) the MKVK’s QA review system; and (v) disciplinary proceedings.

The Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors establishes and outlines the role of the independent audit oversight entity—the Auditors’ Public Oversight Authority (the Authority) which operates under the Ministry of National Economy. The Authority was formally established in 2013 to carry out its oversight function. The Authority is a member of the International Forum of Independent Audit Regulators.

Hungarian Chamber of Auditors (MKVK)

The MKVK was established in 2008 by the Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors. The act prescribes that membership of the MKVK is mandatory for all auditors in the jurisdiction along with the institute’s responsibilities. The MKVK is responsible for (i) providing high-quality services and developing auditors’ professional knowledge and competence on a continuous basis; (ii) applying and observing national auditing standards and principles; (iii) adopting professional and ethical standards of behavior; (iv) issue certificates and register statutory auditors; (v) make arrangements for operating the system of quality assurance in connection with statutory audits; (vi) monitor the activities of auditors and audit firms and take the measures necessary upon learning of a registered statutory auditor or audit firm being engaged in any unlawful activity or conduct, or of any infringement of the Chamber’s statutes or the Chamber’s rules of self-governance; and (vii) promote public recognition of the profession, allowing auditors to help achieve Hungary’s economic objectives.

In addition to being an IFAC Member, the MKVK is also a member of Accountancy Europe.

The Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors establishes the creation of a quality assurance (QA) review system for all mandatory audits in the jurisdiction. As of 2013, the Auditors’ Public Oversight Authority (the Authority) carries out reviews for auditors of public interest entities every three years while inspections of non-PIEs are done every six years by the Hungarian Chamber of Auditors (MKVK).

The MKVK reports that it has adopted all relevant standards and to align with international best practices, it has reviewed, assessed, and updated its QA review system to align with SMO 1 requirements. In addition, the Authority’s QA review procedures are derived from the MKVK’s QA review system and accordingly meet SMO 1 best practices.

The MKVK has translated ISQM 1, 2, and ISA 220 (revised). The implementation date for these standards is January 1, 2024 and on-site inspections of systems of quality management will begin in 2025.

Current Status: Adopted

The Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors establishes the initial and continuing professional development (IPD and CPD) requirements for auditors in Hungary.

To earn the statutory auditor designation in Hungary and offer auditing services, individuals must first have acquired appropriate higher education and obtained initial practical experience (three years) and passed initial competence examinations. Subsequently, individuals must serve as apprentice auditors under the supervision of an active member of the Hungarian Chamber of Auditors (MKVK) for three years. After this time, candidates may take a final professional and competence examination. The MKVK’s Committee for the Qualification of Chartered Certified Statutory Auditors and the Education Committee are authorized by law to determine the requirements of and implement all aspects of educational programming that leads to the designation.

The MKVK has set CPD obligations for its members at 120 hours over three years to align with IES 7. The annual CPD programming of the MKVK is approved by the Auditors’ Public Oversight Authority.

The MKVK’s Education Committee has made changes to both education and examinators for auditors to assess and measure competencies – in line with the latest IES requirements.

Current Status: Adopted

Auditing standards outlined in Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors are applicable in Hungary. Audits must be conducted in accordance with auditing standards that have generally been accepted internationally—further defined as ISA issued by the IAASB—that are prepared, translated, and issued by the Hungarian Chamber of Auditors (MKVK) with approval by the Auditors’ Public Oversight Authority.

The MKVK translated the 2020 IAASB Handbook, inclusive of ISA 315 (revised), ISQM 1, ISQM 2, ISA 220 (revised) and is translating ISA 600 (revised) (in the 2021 IAASB Handbook) in Q2 2023. ISQM, 1, 2 ISA 220, and ISA 600 will have an implementation date of January 1, 2024.

Current Status: Adopted

The Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors stipulates that the Hungarian Chamber of Auditors (MKVK) may adopt the rules of professional ethics, taking into consideration the Code of Ethics of the IESBA. These rules are subject to the review and approval of the Auditors’ Public Oversight Authority.

The MKVK has developed a Hungarian Code of Ethics which is harmonized with the International Code of Ethics issued by the IESBA. The International Code of Ethics is to apply to any issues not covered by the MKVK’s Code of Ethics. The MKVK translated the 2018 International Code into Hungarian and published this in 2020. The MKVK is translating the 2022 International Code in Q3 2023 with an effective implementation date of January 1, 2024.

Current Status: Adopted

In 2013, the Ministry of National Economy issued Government Order No. 74/2013 to reform public sector accounting. The legislation introduced new amendments and regulations to transition to accrual-based accounting systems that would accompany the standards outlined in within Act C of 2000 on Accounting (the Accounting Act) for public sector entities. According to the the IFAC/CIPFA Public Sector Financial Accountability Index, public sector entities report on a partial-accrual basis using national standards.

Current Status: Not Adopted

The Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors outlines the roles of the audit oversight entity—the Auditors’ Public Oversight Authority (the Authority) which operates under the Ministry of National Economy—and the professional accountancy organization—the Hungarian Chamber of Auditors (MKVK) in regards to investigative and disciplinary (I&D) procedures of auditors.

The Authority is responsible for undertaking enforcement procedures related to auditors & firms of public interest entities (PIEs) in addition to overseeing the enforcement system of the MKVK.

The MKVK may monitor the activities of its members, hear disciplinary cases, and take necessary measures upon discovery of any unlawful activity or conduct. The MKVK’s I&D procedures are applicable for non-PIE auditors & firms.

The MKVK states that both enforcement systems in the jurisdiction meet the SMO 6 best practices.

Current Status: Adopted

Accounting and bookkeeping regulations are contained within Act C of 2000 on Accounting (the Accounting Act) and its statutes as issued by the Ministry for National Economy (MNE). The Accounting Act is in effect Hungarian GAAP. The MNE has harmonized accounting regulations with the EU regulations that require the application of IFRS as endorsed by the European Commission (EU-endorsed IFRS) for financial statements of companies whose securities trade in a regulated securities market and permitted optional application of EU-endorsed IFRS for consolidated accounts of all companies within the scope of the Accounting Act that do not trade in the regulated market. In 2015, the MNE issued a resolution that expanded the application of EU-endorsed IFRS to individual accounts of Hungarian companies, such as financial institutions, companies whose securities trade in the European Economic Area, and companies subject to mandatory audits.

As per the IFRS Foundation, IFRS Standards as adopted by the European Union, which are IFRS Standards as issued by the IASB Board with some limited modifications such as the temporary 'carve-out' from IAS 39 Financial Instrument: Recognition and Measurement and a temporary extension of the scope of applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. The modifications affect a limited number of companies and companies that do not apply the modifications can still state full compliance with IFRS Standards.

All other companies must apply the Hungarian GAAP although they are permitted to use the EU-endorsed IFRS as supplemental financial statements. IFRS for Small- and Medium-sized Entities have not been adopted; however, companies that meet certain thresholds may prepare a simplified annual report.

Current Status: Adopted

Relevant Organizations

• Auditor’s Public Oversight Authority
• Hungarian Chamber of Auditors (MKVK)

Relevant Legislation

• Act C of 2000 on Accounting
• Act LXXV of 2007 on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors
• Decision 1387/2015

Relevant Publications

• Accountancy Europe, Definition of Public Interest Entity in Europe, Marc 2019.
• --, Organization of the Public Oversight of the Audit Profession in Europe, a Survey, March 2018.
• --, Structure and organisation of the profession - key features - 2020 update: Hungary, 2020.
• European Commission, Competent authorities for the tasks provided for in the Statutory Audit Directive (2006/43/EC), February 2010.
• EuGo, “Accounting services”, n.d.
• IASPlus, “Financial reporting framework in Hungary”, n.d.
• IFIAR, “Member Profile: Hungary”.
• IFRS Foundation, “IFRS Application around the World?Jurisdictional Profile: Hungary,” June 2016.
• --, IFRS Application around the World – Jurisdictional Profile: European Union, April 2021
• Makaronidis, Alexandre, Accrual and Standards: the Future of EU Member Status Public Accounting, 21 Nov 2016.
• Mazars Group, “The Hungarian Audit Law Reform”, 2016.
• MKVK, SMO Action Plan, 2023.
• RSM, “Doing Business in Hungary: Accounting and Auditing”, n.d.
• Simon, József and Henrietta András, The Role of Financial Standards in Hungarian Public Sector Accounting, 2013.