Financial Crime World

Hungary to Implement Compliance Audits for Financial Institutions

The Hungarian government has made significant strides in implementing International Financial Reporting Standards (IFRS) across its financial institutions. As of 2016, companies whose securities are traded in the European Economic Area (EEA) or have a parent company that prepares consolidated financial statements under IFRS will be required to apply IFRS voluntarily.

Harmonizing Accounting Practices and Improving Transparency

The decision was announced on June 12, 2015, and outlined the phased implementation of IFRS for various categories of financial institutions. From January 1, 2017, mandatory application of IFRS will be enforced for companies whose securities are traded in the EEA and most financial institutions. Insurance companies and firms with obligatory audit of their financial statements will also have the option to apply IFRS voluntarily.

Aligning with EU Regulations

Hungary’s decision is part of its efforts to align itself with EU regulations and maintain a level playing field within the region. The European Union adopted an IAS Regulation in 2002, requiring listed companies to prepare consolidated financial statements in accordance with IFRS starting from 2005. Member states have the option to adopt IFRS for unlisted companies, parent company financial statements, or delay adoption until 2007.

Hungary’s Commitment to Implementing IFRS

Hungary’s decision is also reflected in its National Professional Organisation Website, Magyar Konyvvizgaloi Kamara (Chamber of Hungarian Auditors), and World Bank ROSC Accounting and Auditing Report. The European Commission has issued a document summarizing the use of IFRS options by EU member states, highlighting Hungary’s commitment to implementing the standards.

Improving Transparency and Accountability

In addition to mandatory application, companies may also choose to state compliance with IFRSs as adopted by the International Accounting Standards Board (IASB) in their financial statements. This move is expected to improve transparency and accountability within the financial sector, providing investors and stakeholders with more accurate and comparable information about financial institutions.

Conducting Regular Compliance Audits

As Hungary continues to implement IFRS, it will be essential for financial institutions to conduct regular compliance audits to ensure adherence to the new standards. This will involve:

  • Reviewing accounting practices
  • Identifying areas of non-compliance
  • Implementing corrective measures to avoid penalties or reputational damage

By conducting regular compliance audits, financial institutions can ensure that they are in line with the new IFRS standards and maintain transparency and accountability within the financial sector.