Being principle-based is one of the IFRS’ significant advantages over other, rule-based systems (e.g.: Hungarian). However, being principle-based is linked to one of the problems with IFRS, namely, that it makes the situation extremely complex and the notes on the annual accounts inevitably extensive. Comparing the length of the IFRS with that of the Hungarian Act on Accounting we can see that the latter regulation is shorter by far. Though this may prove to be an advantage in some way, it leaves too much ground for various interpretations, and certain areas uncovered. Hungary prescribes the preparation of consolidated annual accounts in accordance with the IFRS for companies listed on the stock exchange, observing the EU directive.
The beginning of the formation of the IFRS dates back to the 1998 recession in Asia. The economic development in Asia seemed unstoppable at that time, so the crisis came entirely unexpectedly for investors. The International Monetary Fund and the World Bank deduced that the recession was due to impenetrable and outdated accounting regulations, showing a false view of the financial situation of banks and companies listed on the stock exchange. The situation was exacerbated by the fact that auditors delivered unrestricted audit reports on companies, verifying that the companies gave a “fair and true view” (according to the Act on Accounting in the given country). As a result of all the above, the expressed aim was to represent the economic reality in a way that enables investors to make a well-founded forecast on the potential capacity of an enterprise.
It is for these reasons that from 2005 all listed companies are obliged to make their reports in compliance with the IFRS (consolidated according to IAS 27). In Hungary, the non-listed companies making consolidated reports have the possibility to make their reports in accordance with the IFRS system as well. This is an option, not an obligation. Based on the regulation, listed companies shall make their annual reports complying with the Act on Accounting, since these statements serve as the basis of tax return. Presently, there are few listed companies in Hungary, but even among these few, there are some really large-scale enterprises. Furthermore, numerous multinational enterprises prescribe for their subsidiaries to make their consolidated reports observing the IFRS regulations. Reports made this way may be advantageous for companies in capital involvement, showing a reliable and real view of them, which makes investors invest in them more readily.
A report can only be said to be in harmony with the IFRS, if it complies with everything laid down in the IFRS both formally and content-wise. Harmony can be attained in several ways; local accounting regulations may be incorporated into the reporting system by companies observing the IFRS. In order to do so, local regulations must be in accordance with the international ones. This seems to be a long-term problem, as the European Union is continuously trying to harmonize its accounting directives with the IFRS system. Consequently, EU member states are getting closer to preparing reports according to the IFRS.
Differences: [Balázs, Boros, Bosnyák, Gyenge, Győrfi, Hegedűs, Kováts, Lakatos, Lukács, Madarasiné, Matukovics, Nagy, Ormos, Pavlik, Pál, Rózsa, Székács, Tardos, Veress: Az IFRS-ek rendszer; Budapest, MKKOK, based on the 2006 edition]
In this part of my paper, the most relevant differences in...