In March of this year, the Spanish Accounting and Auditing Institute (Instituto de Contabilidad y Auditoría de Cuentas) published a resolution developing the criteria for the presentation of financial instruments and other accounting aspects related to the commercial regulation of capital companies.
This resolution develops the criteria for the presentation of financial instruments in line with international standards (IAS-EU 32), and also clarifies numerous accounting implications of the commercial regulation of capital companies, some of which are scattered in different standards or consultations.
what does this standard cover?
The main objective is to develop the criteria for the balance sheet presentation of financial instruments (shares, units, debentures, etc.) in accordance with the International Accounting Standard (IAS-EU 32). It clarifies implications such as: contributions to the company, transactions with own shares, appropriation of profit or loss, increase and reduction of capital, issue of bonds, dissolution and liquidation, structural changes and change of registered office, as well as other changes. By way of example, we explain some changes in the application of profits and losses:
- In the event that legal reserve and profit or loss for the year (or other available reserves) coexist in the balance sheet, prior years’ profit or loss is first offset materially against the legal reserve. Material offsetting involves reducing the legal reserve from accumulated losses to quantify the effective legal reserve, without the need for formal offsetting.
- Unrestricted reserves, positive value adjustments, as well as grants, donations and bequests charged directly to equity, are not distributable and are deducted from equity for the purpose of calculating distributable funds. None of these items may be taken into account for the purpose of offsetting losses.
- If there are accumulated losses and the equity is lower than the share capital, the whole of the positive result shall be applied to offset the losses without allocating a legal reserve.
- For the calculation of the interim dividend, these limitations on the distribution of profits will also apply.
The Resolution applies prospectively to financial years beginning on 1 January 2020, but if companies wish to apply the standard retroactively, they must apply it in accordance with the PGC standard on changes in accounting criteria, errors and accounting estimates.
what can we expect in 2020?
Among many of the changes to come, we will certainly find the draft amendment to the PGC, pending legislative procedure, and the Resolution on the rules for recording and valuation of ordinary income published at the end of the 2018 financial year. Both will significantly affect the financial statements and will entail the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers. All in all, with a two-year delay, it seems that these amendments could affect us locally from 2020 onwards. We advise companies to focus on the 2019 financial year end, and we will keep you informed through AddNEWS and briefings of these upcoming amendments.