The basic legislation setting out the legal framework in the sphere of accounting law is embodied in Spanish corporate legislation and has been amended in recent years in response to the mandatory harmonization of that legislation with EU Directives, specifically, with Directive 2013/34/EU of the European parliament and of the council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and repealing Council Directives 78/660/EEC and 83/349/EEC and Directive 2006/43 on statutory audits of annual accounts and consolidated accounts.
In this regard, the aforementioned Community legislation had been approved as a result of the need for international accounting harmonization, in order to, inter alia, (I) ensure the transparency and comparability of financial statements, (II) achieve efficient operation of EU capital markets, (III) close the legal vacuums in the somewhat scant regulations for the accounting Directives and their similarly low level of implementation and (IV) clarify the diversity of legislation.
From the standpoint of accounting, the approval of Regulation (EC) no. 1606/2002 of the European Parliament and of the European Council, of July 19, 2002, in relation to the application of International Accounting Standards (IASs) in the European Union, and the report on the current situation of accounting in Spain and the basic lines to undertake its reform, also known as the White Paper on Accounting Reform in Spain, published by the Spanish Accounting and Audit Institute (ICAC) on June 25, 2002, marked the starting point for the direction that was to be taken in the accounting reform process as a whole in Spain.
That Regulation made it obligatory for companies to apply the IASs approved by the IASB (International Accounting Standards Board), for each financial year starting on or after January 1, 2005, with respect to their consolidated financial statements if at their balance sheet date their securities are admitted to trading on a regulated market of any member state.
The member states were also given the option to allow or require those standards to be applied to the separate financial statements of listed companies, to the consolidated financial statements of unlisted companies and to the separate financial statements of unlisted companies.
In this regard, in Spain it was established that the general approach to be adopted should not be the direct application of IASs or IFRSs (International Financial Reporting Standards) in their most recent version, but rather to adapt Spanish GAAP thereto, solely introducing the accounting treatments that the aforementioned standards establish on an obligatory basis, and where IFRSs establish different accounting treatment options, taking the option that the legislature considered to be the most prudent and in keeping with the tradition in Spanish accounting practice.
Also, a hierarchy of sources was established to distinguish between (I) fundamental legislation, i.e. the Commercial Code and the Revised Spanish Corporations Law1, which must contain basic, stable and lasting principles, (II) implementing regulations, i.e. the Spanish National Chart of Accounts, its industry adaptations (as described below) and (III) the resolutions of the ICAC, which would contain more detailed rules, the contents of which could be modified with greater ease.
This point marked the start of a process of reform in Spain, firstly, with the approval of Law 62/2003, of December 30, 2003, on Tax, Administrative, Labor and Social Security Measures which was the first step taken in the adaptation of Spanish corporate accounting legislation for its international harmonization based on European legislation.
This process reached its maximum expression in 2007 when important legal provisions were passed, wrapping up the main areas in the process of adapting Spanish accounting legislation to international accounting legislation:
- Law 16/2007, of July 4, 2007, reforming and adapting Spanish corporate accounting legislation for its international harmonization based on European legislation, which made significant amendments to the Commercial Code, and to the then in force Revised Spanish Corporations Law, Limited Liability Companies Law and other industry-based accounting standards and, lastly, adapted for the first time the Corporate Income Tax Law to the new accounting legislation.
- Royal Decree 1514/2007, of November 16, 2007 approving the Spanish National Chart of Accounts (the Spanish National Chart of Accounts).
- Royal Decree 1515/2007, of November 16, 2007 approving the Spanish National Chart of Accounts for small and medium enterprises (SMEs) and the specific accounting rules for very small enterprises (VSEs).
- Similarly, 2010 saw the approval of Royal Decree 1159/2010, of September 17, approving the Standards for the Preparation of Consolidated Financial Statements and amending the National Chart of Accounts approved by Royal Decree 1514/2007, of November 16, and the National Chart of Accounts for Small and Medium Enterprises, approved by Royal Decree 1515/2007, of November 16.
In addition, there has been a process for the adoption of additional industry-based accounting legislation, as a result of which the following industry adaptations to the new Spanish National Chart of Accounts have been approved:
- Royal Decree 1317/2008, of July 4, approving the Spanish National Chart of Accounts for insurance companies.
- Order EHA/3360/2010, of December 21, approving accounting standards for cooperative companies.
- Order EHA/3362/2010, of December 23, approving the rules adapting the Spanish National Chart of Accounts to concession holders for public infrastructure.
- Order EHA/733/2010, of March 25, approving accounting standards for public companies operating in certain circumstances.
- Royal Decree 1491/2011, of October 24, approving the provisions adapting the Spanish National Chart of Accounts to not-for-profit entities and the model action plan for not-for-profit entities.
Mention should also be made, in view of their importance, of the changes to Spanish accounting legislation introduced by Royal Decree 602/2016 of December 17, 2016. These changes were obligatory in view of the eighth final provision of the Accounting Audit Law 22/2015 of July 20, 2015 and the first final provision of Law 16/2007 of July 4, 2007 for the reform and adaptation of commercial accounting legislation for the purposes of its international harmonization in line with European Union legislation, their purpose being to lay down the implementing regulations necessary as a result of the changes made to Spanish accounting law by Law 22/2015 of July 20, 2015 (as a result of the process for the transposition of Directive 2013/34/EU of June 26, 2013). Specifically, Royal Decree 602/2016 has introduced important changes to the following rules:
- The Spanish National Chart of Accounts, approved by Royal Decree 1514/2007 of November 16, 2007.
- The Spanish National Chart of Accounts for Small and Medium-sized Enterprises approved by Royal Decree 1515/2007 of November 16, 2007.
- The Rules on the Preparation of Consolidated Financial Statements approved by Royal Decree 1159/2010 of September 17, 2010; and
- The Rules on the Adaptation of the Spanish National Chart of Accounts to not-for-profit entities, approved by Royal Decree 1491/2011 of October 24, 2011.
Royal Decree 583/2017 of June 12, 2017 amending the Spanish National Chart of Accounts for insurance companies, approved by Royal Decree 1317/2008 of July 24, 2008, was approved in 2017, also for the purpose of bringing Spanish legislation into line with EU law. As is explained in its pre-amble, the purpose of Royal Decree 583/2017 is to adapt the accounting rules applicable to insurance companies to the provisions of Directive 2013/34/EU of June 26, 2013, which was transposed into Spanish domestic law – as has been explained – by Accounting Audit Law 22/2015.
In relation to the other industries for which an adaptation was adopted before the approval of the currently in force Spanish National Chart of Accounts (such as, for example, construction companies, real estate companies, sports federations, healthcare companies, sports corporations, electricity companies, companies in the grape growing and wine producing industry), the earlier industry adaptations remain in force, insofar as they do not conflict with the new legislation, in conformity with Transitional Provision number five of Royal Decree 1514/2007, of November 16, approving the new Spanish National Chart of Accounts.
From the audit perspective, Accounting Audit Law 22/2015 of July 20, 2015 marked the culmination of a process for the adaptation of Spanish legislation to Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts (following its amendment by Directive 2014/56) and Community Regulation 537/2014 on specific requirements applicable to so-called public-interest entities.
The existing new legislation is supplemented and construed with the ICAC’s resolutions and responses to requests. Particularly in relation to the interpretation of accounting legislation, it must be borne in mind that the ICAC stated in Ruling 1 of its Official Gazette 74/JUNE, 2008, that where the legislation does not provide for a given matter or there are doubts as to its interpretation, the directors must use their professional judgment while respecting the framework of the new Spanish National Chart of Accounts and “generally accepted accounting principles in Spain”. Also, the ICAC states that, although IFRSs may serve as an interpretative criterion, their mandatory application on a supplementary basis to separate financial statements is not envisaged. Notwithstanding this, IFRSs will apply directly to the consolidated financial statements of listed entities.
1 The legislation on Spanish corporations is now contained in the Revised Corporate Enterprises Law, approved by Legislative Royal Decree 1/2010, of July 2, 2010, which repealed both the Revised Spanish Corporations Law and the Spanish Limited Liability Companies Law, to recast both of these laws in a single instrument which also includes the provisions in the Spanish Securities Market Law governing the more purely corporate matters of corporations whose securities are admitted to trading on an official secondary market, and the articles related Spanish partnerships limited by shares in the Spanish Commercial Code.