Accounting of revenue in Hungarian national and international accounting regulations

Abstract

Based on the previously valid Hungarian accounting rules, especially in the case of construction companies, it was a problem that the costs incurred in connection with the construction contracts covering several business years could not be attributed to the proportional sales revenue, and thus the profit achieved during the contract , but could only be accounted for thereafter. The provisions of Hungarian law regarding contracts are dispositive, on the basis of contractual freedom, it is conceivable that the parties could agree to account for sales revenue without actual performance, but at the same time, there is no definition of sales revenue in the Hungarian Accounting Act only an itemized list of revenue accounting rules based primarily on invoicing. Together, these caused uncertainty in the accounting of revenues, costs, and expenses related to contracts that were comprehensively fulfilled over several business years. On 1 January 2020, the Hungarian Accounting Act (hereinafter: the Act) introduced the accounting principles for the “unit of account of a contract”. As a result, the regulations reminiscent of the standard rules of IFRS 15 Revenue from Contracts with Customers have become mandatory for products and services made on the basis of individual orders for a year. Under the new project accounting rules, revenue should be accounted for in proportion to the degree of completion using the principle of matching. The new concept introduced by the regulatory change in the Accounting Act is the contract unit of account, which can only be applied if the buyer can determine the characteristics of the product or service. However, this step did not fully harmonize the Hungarian accounting regulations with the IFRS revenue recognition rules, as IFRS 15 Revenue from Sales of Customer Contracts regulates the dates of accounting for both product and service revenue differently than the Accounting Act. These differences may show significant numerical differences in the financial statements, both in profit and loss and balance sheet. The article examines the points of intersection of income accounting according to national and international accounting standards in Hungary. A number of proposals for harmonizing the accounting of income under construction contracts in accordance with national and international standards are presented.