In the current issue of our Newsletter we review the major amendments to Act C of 2000 on Accounting (hereinafter: the “Act on Accounting”) promulgated on 15 June 2016, along with any related issues. The majority of the amendments will come into force from the beginning of FY 2017, but they may already cover financial years beginning as of January 2016. In the sections below, if the date of coming into force of any legislation differs from the above, this is indicated separately.
According to the amendment of the Act on Accounting, and for the purposes of accounting, subsequent modifications of business transaction features to be entered into the accounting records and relating to a closed financial year or years – as documented by a contract amendment or modified accounting documentation – shall no longer be considered errors or impacts thereof, but should be accounted for as errors. Unfortunately, this also means that if the error is significant, the preparation of so-called “three-column financial statements” cannot be avoided. [Section 3 (3) 2 of the Act on Accounting]
According to the new rule, upon the distribution of after-tax profit, the amount of the dividend that would be allocated to the member of the limited liability company who records an unpaid cash contribution, shall be recognised as a decrease in retained earnings, i.e. as an amount transferred to top up registered capital not yet paid. This rule reflects the requirements of the Civil Code. [Section 37 (2) h) of the Act on Accounting, Sections 3:162 (1), 3:185 (1) of the Civil Code]
Any financial settlement made by the balance sheet preparation date is not a prerequisite for the recognition as other income of grants and benefits received to offset costs (expenses), if, based on the grant contract, the requested financial settlement of the grant submitted by the entity has been approved by the grantor by the balance sheet preparation date. [Section 77 (2) of the Act on Accounting]
The amendment makes it clear that in the case of the capitalised costs of completed experimental development and formation and reorganisation, the maximum 5-year ordinary amortisation period, and in the case of goodwill – as long as the asset’s useful life cannot be estimated - the minimum 5-year and maximum 10-year ordinary amortisation period defined in the Act on Accounting shall be applied mandatorily; i.e. this is not just an option. [Section 52 (4) of the Act on Accounting]
The amendment makes it clear that expenses derived from uncollectable or forgiven debts related to purchased receivables and long-term loans granted have to be accounted for under profit or loss on financial transactions. Such types of expense have to be recognised under the expenses on investments if they relate to investments, or under other expenses on financial transactions if they relate to current assets. Expenses recognised under current assets, which are derived from uncollectable and forgiven debts related to receivables that do not qualify as purchased receivables, shall be accounted for under other expenses. [Sections 81 (2) l), (3) b), 85 (1a), b), (3) m), v) of the Act on Accounting]
Wage contributions do not now have to be disclosed as analysed by staff group in the supplementary notes, but are now analysed by legal title. [Section 91 a) of the Act on Accounting]
The amendment has harmonised the references included in the requirements of the Act on Accounting and the descriptions of the line items of the balance sheet and the income statement templates included in the Schedules to the Act. [Schedules 1, 2 to the Act on Accounting]
The content of the corporate governance declaration is expanded to now include information on diversity.
A new requirement is that an enterprise qualifying as a public interest entity above a certain size must disclose a “non-financial statement” in its business report.
These requirements are applicable from financial years beginning in 2017; earlier adoption is not permitted. [Sections 95/B (2) h), 95/C, 134 (5)-(6), 156 (5) of the Act on Accounting]