Developments in the accounting and auditing framework

On Tuesday 12 January 2021, the Council of Ministers approved two new Royal Decrees, which adapt our accounting and auditing framework to European regulations, as well as the supervision and quality of financial information.

These are two Royal Decrees that approve, on the one hand, the regulations that implement Law 22/2015 on Accounts Auditing and, on the other, the General Accounting Plan approved by Royal Decree 1514/2007.

Accounting regulations adapted to the European framework

The new General Accounting Plan, applicable as from 1 January 2021, incorporates the criteria of IFRS 15 on Revenue and, partially, those of IFRS 9 on Financial Instruments. In addition, among other minor changes, it completes the methods for calculating fair value described in IFRS 13 and introduces a change in Inventories provided for in IAS 2. However, it does not adopt IFRS 16 on leases to any extent. It also makes a compilation of other amendments, rulings and consultations that have already been carried out in the past.

To date, the standards issued by the IASB are mandatory for the issuance of the consolidated financial statements of listed companies in the European Union. The remaining financial statements of Spanish companies must be issued as follows:

• The consolidated accounts of unlisted groups may opt to apply IASB standards or local standards (PGC, RD Consolidation, Bank of Spain Circular, etc.), with the option chosen being maintained over time.
• The remaining financial statements (individual accounts) must be issued in accordance with local standards, and international standards do not apply.

This dispersion could lead to very different criteria, which is why the local standards have been adapted to bring them closer to European standards and to the groups listed locally.

It should be recalled that this adaptation does not apply to SMEs, as they are subject to a simplified regime for the presentation of accounts. Nor does it apply to financial institutions, which are subject to a specific accounting framework drawn up by the Bank of Spain.

We recommend studying the effects it may have on our financial statements with a view to their comparability for the year in which it is applied.

For future publications, we will provide details of the main new features of the new General Chart of Accounts and propose various informative sessions on it.

Audit modifications

As indicated in the Ministry’s own note, the main objective of the modification of the auditing framework is to complete the regulations derived from the regulatory reforms in the European Union adopted as a result of the previous financial crisis, transposing them through Law 22/2015 and developing them in the Regulation that has just been approved.

According to the note, the Regulation emphasises the strengthening of auditors’ independence and establishes the mechanisms to avoid conflicts of interest, as well as the necessary documentation requirements in the engagement working papers for the analysis of threats to independence, as well as the possible safeguarding measures adopted. It also sets out the detailed computation rules for determining the limits to economic dependence upon reaching a certain level of fee concentration.

With regard to the transparency of auditors’ work, the regulation establishes a set of disclosure requirements, including the obligation to issue an annual transparency report for auditors of public interest entities and the obligation to publish the results of periodic inspections carried out on these auditors by the ICAC.