According to a 2004 KPMG report titled "Investment in Hungary," the Hungarian Chamber of Auditors (CHA) started adopting International Standards on Auditing (ISAs) back in 1999. Individual ISAs were introduced over a period of three years, and auditors were expected to comply with the international standards beginning on January 1, 2001. In an assessment of accounting and auditing practices conducted the same year as the KPMG report, the World Bank confirmed that the CHA had adopted almost all ISAs as Hungarian Standards on Auditing (HSAs) and was in the process of adopting new standards published by the International Auditing Assurance Standards Board (IAASB). Furthermore, the KPMG report noted that, to keep abreast with the changes in international practices, the CHA is legally obliged to regularly update HSAs in line with ISAs. The 2007 CHA self-assessment also states that Hungarian law encloses the full text of the IAASB pronouncements and that all ISAs have been adopted and subsequent amendments to the international standards have been incorporated. The World Bank observed that, at the time of its assessment, Hungary complied with the Eighth EU Company Law Directive. However, the Directive was subsequently amended, and there is insufficient information as to whether Hungary has transposed it into the legislation.

General Overview

In June 2004, the World Bank conducted a review of accounting and auditing practices in Hungary in order to evaluate the weaknesses and strengths of the accounting and auditing requirements and to compare the reporting requirements with actual practices. International Financial Reporting Standards and International Standards on Auditing (ISAs) were used as the benchmarks for assessing national standards. The Report on the Observance of Standards and Codes (ROSC) was published the same year, summarizing the results of the assessment and suggesting a reform agenda for the country. As explained in the report, Hungary's accession to the European Union prompted the reform of accounting and auditing framework and related national laws. A KPMG report published in 2004 explains that the Chamber of Auditors, (Magyar Könyvvizsgálói Kamara, or CHA) started adopting ISAs back in 1999. Individual ISAs were introduced over a period of three years, and auditors were expected to comply with the international standards beginning January 1, 2001. As of 2004, the World Bank also pointed out that the CHA "adopted virtually all ISA as national standards and has plans to adopt the remaining, more recently published, ISA" (p. 7). Further, "the Chamber is required by the Act [on Chamber of Auditors and Auditing Activities] to continuously update, amend and publish Hungarian Standards on Auditing [HSA] and take measures for the harmonization of those Standards with ISA" (p. 7). The 2007 CHA self-assessment also stated that Hungarian law contains the full text of the IAASB pronouncements, that all ISAs have been adopted, and subsequent revisions to the international standards have been incorporated. The World Bank observed that, at the time of the assessment Hungary, complied with the Eighth EU Company Law Directive. However, the Directive was subsequently amended and there is insufficient information as to whether Hungary has transposed it into the legislation.

Hungarian auditing practices are governed by the Act on Accounting which, according to the 2004 ROSC, requires the audit of "the legal entity and any consolidated financial statements of all companies whose annual net sales exceed HUF 50 million (equivalent to approximately US$240,000)" (p. 3). The World Bank noted that the Hungarian size limitations for small and medium size enterprises is significantly lower than the equivalent companies in the EU member states, and thus recommended that "consideration should also be given to raising the audit threshold to a level that is closer to that allowed by the Fourth EU Company Law Directive and is applied in other EU Member States" (p. 14). According to the description of the regulatory framework provided in the 2005 CHA self-assessment, the securities market, banks, and insurance companies are regulated by the Hungarian Financial Supervisory Authority (Pénzügyi Szervezetek Állami Felügyelete, or PSZAF). All listed companies, including banks and insurance companies, are required to perform a quarterly audit of financial statements. Sanctions for non-compliance include delisting from the stock exchange. With regard to banks and insurance companies, the PSZAF sets reporting and special qualification requirements for auditors. In addition to the quarterly reporting, banks are also required to tender an overall supervisory report every two years and non compliance can lead to recalling the auditor and management.

The CHA, a self-regulating professional body established by the Act on Chamber of Hungarian Auditors and Auditing Activities, is the national auditing standard-setter. In addition, the CHA develops guidance on the application of auditing standards to micro and small entities, is responsible for the issuance of ethical regulations and the discipline of auditors. Per the World Bank, the CHA is required to "organize and oversee the quality control regime of the work of auditors, including the evaluation of the quality control systems employed by the audit firms" (p. 8). In keeping with the quality control regulation, the CHA conducts inspections focusing on compliance with professional standards and the application of national auditing standards. Overall, the World Bank recommended that "the current self-regulation of the audit profession be reviewed and an adequate oversight mechanism be established" (p. i). With regard to professional conduct, the CHA develops its own code of ethics based on the 2004 International Federation of Accountants (IFAC) Code of Ethics. At the time of the 2007 CHA self-assessment, the Chamber was in the process of translating the most recent version of the IFAC code into Hungarian. The CHA is listed as a member on the IFAC website.

The Principles

ISA 200 Objective and General Principles Governing an Audit of Financial Statements (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 200 was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 210 Terms of Audit Engagements (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 210 was adopted in Hungary effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 220R Quality Control for Audits of Historical Financial Information (effective 2005)

EN

According to the 2007 CHA self-assessment, ISA 220R was adopted in Hungary effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 230R Documentation (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 230R was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 240 The Auditor’s Responsibility to Consider Fraud in an Audit of Financial Statements (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 240 was adopted in Hungary effective January 2001 and was subsequently revised in January 2005. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 250 Consideration of Laws and Regulations in an Audit of Financial Statements (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 250 was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 260 Communications of Audit Matters With Those Charged With Governance (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 260 was adopted in Hungary and was subsequently revised in January 2005. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 300 Planning an Audit of Financial Statements (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 300 was adopted in Hungary, effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 315 was adopted in Hungary and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 320 Audit Materiality (effective 2004)

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According to the 2007 CHA self-assessment, ISA 320 was adopted in Hungary, effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 330 The Auditor’s Procedures in Response to Assessed Risks (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 330 was adopted in Hungary, effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 402 Audit Considerations Relating to Entities Using Service Organizations (effective 2004)

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According to the 2007 CHA self-assessment, ISA 402 was adopted in Hunagry and was revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 500 Audit Evidence (effective 2004)

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According to the 2007 CHA self-assessment, ISA 500 was adopted in Hungary and was revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 501 Audit Evidence - Additional Considerations for Specific Items (effective 2004)

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According to the 2007 CHA self-assessment, ISA 501 was adopted in Hungary effective January 2001. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 505 External Confirmations (effective 2004)

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According to the 2007 CHA self-assessment, ISA 505 was adopted in Hungary effective January 1, 2005. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 510 Initial Engagements — Opening Balances (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 510 was adopted in Hungary effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 520 Analytical Procedures (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 520 was adopted in Hungary effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 530 Audit Sampling and Other Selective Testing Procedures (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 530 was adopted in Hungary effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 540 Audit of Accounting Estimates (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 540 was adopted in Hungary effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 545 Auditing Fair Value Measurements and Disclosures (effective 2004)

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According to the 2007 CHA self-assessment, ISA 545 was adopted in Hungary effective January 2005. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 550 Related Parties (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 550 was adopted in Hungary, effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 560 Subsequent Events (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 560 was adopted in Hungary effective January 2001 and the Hungarian standard was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 570 Going Concern (effective 2004)

ID

According to the 2007 CHA self-assessment, ISA 570 was adopted in Hungary, effective January 2001. In line with the IAASB amendments, the Hungarian standard was subsequently revised in January 2006.

ISA 580 Management Representations (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 580 was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 600 Using the Work of Another Auditor (effective)

EN

According to the 2007 CHA self-assessment, ISA 600 was adopted in Hungary effective January 1, 2001. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 610 Considering the Work of Internal Auditing (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 610 was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 620 Using the Work of an Expert (effective 2005)

EN

According to the 2007 CHA self-assessment, ISA 620 was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 700 The Auditor’s Report on Financial Statements (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 700 was adopted in Hungary effective for periods ending on or after December 31, 2006.

ISA 701 Modifications to the Independent Auditor's Report (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 701 was adopted in Hungary effective for periods beginning on or after January 1, 2006.

ISA 710 Comparatives (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 710 was adopted in Hungary effective January 2001 and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.

ISA 720 Other Information in Documents Containing Audited Financial Statements (effective 2004)

EN

According to the 2007 CHA self-assessment, ISA 720 was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standards.

ISA 800 The Auditor’s Report on Special Purpose Audit Engagements (effective 2006)

EN

According to the 2007 CHA self-assessment, ISA 800 was adopted in Hungary effective January 2001and was subsequently revised in January 2006. At the time of the self-assessment, no differences existed between the international and Hungarian standard.