Act LV of 2024 on the Amendment of Certain Tax Laws has modified certain provisions of the Accounting Act and the Act on the Chamber of Hungarian Auditors, the Activities of Auditors, and on the Public Oversight of Auditors, effective from 1 January 2025. Let's take a look at the changes.
Increase in the threshold for audit
The most notable of these changes is the change in audit thresholds.
Accordingly, the revenue threshold for exemption from audit—which must be assessed based on the average of the two preceding financial years—will increase from the previous HUF 300 million to HUF 600 million.
No other changes were made to the exemption from the mandatory audit. The other criterion for exemption regarding the number of employees of entities subject to mandatory audit, has not been changed and no additional threshold or condition has been set.
Under the new regulation, the audit is not required if both of the following conditions are met:
- the average annual net revenue (converted to one year) of the company in the two financial years preceding the current financial year did not exceed HUF 600 million, and
- the average number of employees of the company in the two financial years preceding the current financial year did not exceed 50 persons.
When will the increased audit threshold apply?
The new threshold will apply for the first time to the financial statements for the financial year starting in 2025.
Therefore, for previous years, including 2024, the former thresholds must be applied, and the early application of the new audit threshold is not permitted.
It is also important to highlight that in the case of a newly established company without a legal predecessor, if data for one or both of the two preceding financial years are missing or only partially available, the expected data for the current year and, if applicable, the (annualized) data from the previous (first) financial year should be considered.
Questions regarding the increased audit threshold
The enacted law may raise questions regarding the doubled audit threshold. In principle, EU standards would set a much higher audit threshold in the member states, but of course member states can derogate from this, as they do almost everywhere. A quick regional comparison indicates that Hungary’s HUF 600 million audit threshold remains relatively low.
*Accountancy Europe - 9 April 2020 — Publication - Audit exemption thresholds in Europe. - Revenue data highlighted
Why is an audit still worthwhile?
An audit is not just an obligation but also an opportunity. Business owners can choose to engage an auditor voluntarily to review and evaluate their financial statements.
Every owner or management team naturally prioritizes cost-effective operations. However, before making a decision in 2024—especially if the company was previously subject to mandatory audit—it is worth considering the future impacts as well.
Evaluating the future implications of the decision is just as important as considering the immediate cost savings. It is worth weighing the benefits of maintaining an audit assignment against the potential drawbacks of terminating it.
Public data from the Hungarian Chamber of Auditors (based on the latest complete data from 2022) shows that a significant number of audit reports were issued even in categories below the threshold. A large portion of these audits were conducted voluntarily, while others were required due to specific regulations (see below).
If a company that has fallen below the audit threshold later becomes subject to audit requirements again, certain consequences may arise that need to be addressed in a timely manner. These may include:
- Subsequent audit with significant inventory levels
In the case of a future audit involving significant inventory levels, it must be ensured that the auditor can obtain reasonable assurance regarding the year-end inventory of the unaudited financial year. This is particularly relevant for companies that do not maintain interim quantitative and value-based records, making a year-end inventory take unavoidable and its review essential.
- Audit for the retrospective acceptance and verification of key valuations
How can auditor reviews be ensured when assessing potential impairment of balance sheet items? Will all data and information be available (e.g., on-site visits by the auditor or an expert appointed by them)?
These two examples highlight that "saving" on an audit may not necessarily be beneficial in the long run, especially if the audit exemption is only expected to be temporary. Companies may later face challenges that, in audit terminology, could lead to the limitation of scope.
Also, if it serves the owners' interests, it may be worth considering other audit engagements, such as due diligence or agreed-upon procedures, which can also protect ownership interests. Such engagements are common in countries with relatively higher audit thresholds.
Audit – special cases
In our previous blog, we listed the special cases of audit which are required by law and are not voluntary. These have typically been unchanged, please check them here:
