In the current issue of our Newsletter we mainly review the long-awaited amendments to Act C of 2000 on Accounting (hereinafter: “Act on Accounting”) covering derivative transactions, as promulgated on 25 November 2016. This Act fills in the gaps and answers most of the questions raised in connection with the practical application of the regulations relating to derivative transactions. Our newsletter also presents other amendments to the Act on Accounting, including clarifications of rules for entities preparing their annual reports in accordance with IFRSs as adopted by the EU (hereinafter: IFRSs), or those applying IFRSs for the first time.
The aim of the amendments to the Act on Accounting regarding derivative transactions was to incorporate into law the solutions applied so far in practice, making as few substantive changes as possible.
Unlike with previous practices, the reasoning of the law includes useful explanations about the interpretation and practical application of the revised regulations. The amendments regarding derivative transactions will come into force from the financial years starting in 2017, but they may already be applied for financial years starting in 2016. Where not indicated separately, the provisions are applicable both for fair value measurement and measurement not based on fair value.
Substantial changes - definitions
Substantial changes – accounting for derivative transactions
Certain rules for the measurement of and accounting for derivative transactions have changed [Sections 3 (8) 10, 10/a, 10/b, Sections 32 (5), (6), Sections 44 (5), (6), Section 47 (11), Section 59/A (6), Sections 59/E (1), (1a), (11), (12) of the Act on Accounting]
There are no changes to the following:
Borrowing costs can be deferred [Section 32 (7) of the Act on Accounting]
Current practice is reflected in the amendment according to which costs directly related to loans and borrowings can be recognised as deferred expenses if they are not capitalised as part of the cost of an asset. The deferred amount shall be amortized during the term of the loan on a straight- line basis, but no later than upon the repayment of the full loan amount. The amendment shall be applied for financial years starting in 2017, but can already be applied for financial years starting in 2016.
Notification obligation for transitioning to IFRSs [Section 114/C (4), (5) of the Act on Accounting]
The deadline for notifications to be sent to the tax authority and the National Bank of Hungary about the transition to IFRSs will now change from 90 days to 30 days. There is no obligation to notify the Hungarian Central Statistical Office about the transition to IFRSs. This amendment has been in force since 26 November 2016.
Our newsletter focuses on the long-awaited amendments to the Act on Accounting regarding derivative transactions. Due to space constraints we did not present the amendments and new rules in full; knowledge of the legal regulations would be required for interested parties to fully understand these. Should you have any questions relating to the content of this newsletter, please contact your tax or accounting adviser, or get in touch with us.