IFRS and their application in Spain
The process of adoption by the European Union of the International Accounting Standards (IAS/IFRS) led the European Commission to recommend that the consolidated annual accounts prepared by listed companies should be prepared by applying the accounting standards and interpretations issued by the International Accounting Standards Board (IASB).
The scope of the European decision was analyzed by the Committee of Experts created by Order of the Minister of Economy, whose main recommendation was that the individual annual accounts should continue to apply Spanish accounting regulations, suitably reformed to achieve adequate homogeneity and comparability of the accounting information, within the framework of the new European accounting requirements.
Spain’s accession to the European Union brought with it the harmonization of accounting standards. Spain has opted to harmonize its accounting legislation with the International Accounting Standards adopted by the EU – NICE (IAS and IFRS), integrating their principles and rules in the Commercial Code, the Corporations Law and the General Accounting Plan.
The legal and regulatory channels used to achieve this convergence were, respectively, Law 19/1989, of July 25, 1989, and Royal Decree 1643/1990, of December 20, 1990, approving the 1990 General Accounting Plan, subsequently replaced by Royal Decree 1514/2007, of November 16, 2007.
Accounting regulatory body in Spain
The Instituto de Contabilidad y Auditorias de Cuentas (ICAC) is responsible for preparing and approving the adaptation of the General Chart of Accounts (PGC) to the different sectors of economic activity and its functions are accounting standardization and the control and discipline of auditing.
General Chart of Accounts
The General Chart of Accounts (PGC) is the legal text that regulates the accounting of all companies in Spain. It is mandatory for all companies, regardless of their legal form, individual or corporate, without prejudice to those companies that may apply the General Accounting Plan for Small and Medium-Sized Companies (PGC de PYMES).
The PGC was approved in 2007 by Royal Decree 1514/2007 and is a broad adaptation of the regulations to the international standards known as IFRS.
The PGC is applicable to companies that are in any of the following circumstances:
- That have issued securities in trading processes in regulated markets or multilateral trading systems, of any Member State of the European Union.
- They are part of a group of companies that prepares or should have prepared consolidated financial statements.
- That the currency of the main environment in which the company operates is other than the Euro.
The PGC for SMEs is applicable to companies that meet at least 2 of the following requirements:
- That the total of the items of the Assets does not exceed 2.850.000€.
- That the net amount of the annual turnover is less than 5.700.000€.
- That the average number of employees is less than or equal to 50 workers during the year.
Structure of the General Chart of Accounts
The PGC is made up of five parts, of which three are mandatory and the remaining two are entirely voluntary. The latter offer two main advantages: ease of work and comparative data at internal and market level.
This is the theoretical framework for accounting. It includes the documents that make up the annual accounts, as well as the requirements, principles and accounting criteria for recognition and valuation, which must ensure that the annual accounts give a true and fair view of the company’s net worth, financial position and results. The elements of the annual accounts are also defined.
Recording and valuation standards
This section contains 23 standards that explain the recording and valuation procedure. It develops the accounting principles and other provisions contained in the first part. It includes the criteria for recording and valuation of the different transactions and assets and liabilities of the company from a general perspective.
This part explains how to present the Annual Accounts of a company. In other words, the financial reports that contain the company’s economic information. It is mandatory to file the annual accounts once a year at the Commercial Registry, within one month after the General Meeting approves the company’s activity. The annual accounts consist of the following sections: Balance Sheet, Profit and Loss Statement, Statement of Changes in Equity, Cash Flow Statement, Annual Report.
Chart of Accounts
This section emphasizes the relationship of accounting accounts. The PGC does not recommend the use of the Chart of Accounts in relation to the company’s equity. This is one of the voluntary parts to which companies can adhere, having the opportunity to create new accounts related to their needs.
Definitions and Accounting Relationships
This part shows the use of the accounts recorded in the chart of accounts and the accounting operation of the chart of accounts. The latter concept refers to when accounts are debited and when they are credited. This section is also voluntary.
Royal Decree 1515/2007, of November 16, 2007, approves the General Accounting Plan for Small and Medium-Sized Companies and the specific accounting criteria for micro-companies. Specifically for SMEs there is a simplified version called the General Accounting Plan for Small and Medium-Sized Companies or PGC for SMEs, which is made up of five parts, three of which are mandatory and the other two are voluntary:
- Conceptual accounting framework.
- Recording and valuation standards for Small and Medium-sized Companies.
- Annual Accounts.
- Chart of accounts.
- Definitions and accounting relationship.