Septiembre 2011

Historical context of the change in accounting legislation

Background

Listed consolidated companies
In 2002 the European Union (EU) approved an accounting regulation, currently in force, requiring all EU companies listed on a regulated market (and which form part of a consolidated group) to follow International Financial Reporting Standards (“EU-IFRSs”) in their consolidated financial statements starting on 1 January 2005.


Unlisted companies
Under the aforementioned European regulation, the Member States were able to extend the IFRS requirement to the consolidated financial statements of non-listed companies and to the separate financial statements of all companies (both listed and unlisted).


In order to analyse the impact of this EU strategy on Spain, in 2001 a Commission of Experts was created to prepare a report on the situation of accounting in Spain and the basic lines along which any reform thereof should advance (Accounting White Paper).


The principal recommendation contained in the aforementioned White Paper was that the accounting standards to be applied in the separate _financial statements of Spanish companies should be those included
in local legislation, which in order to be uniform, should be brought


into line with IFRSs as adopted by the European Union. In addition, the experts deemed it appropriate that non-listed consolidated groups could also voluntarily apply IFRSs from 1 January 2005 onwards -an option which is still currently in force.


The inclusion of International Financial Reporting Standards as adopted by the EU in Spanish accounting and corporate legislation came
about through Law 62/2003, of 30 December, on tax, administrative, employment and social security measures.

Regulation (EC) 1606/2002/ of the European Parliament and of the Council, of
19 July 2002, on the application of International Accounting Standards

• 
  Adoption of IFRSs by listed consolidated groups starting 2005
  
• 
  Extension is envisaged, at the discretion of each Member State, to non-listed companies.
  

Accounting White Paper 2002

• 
  The Commission of Experts recommends maintaining Spanish accounting legislation for separate financial statements and adapting it to a conceptual framework and
  

measurement bases compatible with IFRSs in order to achieve uniformity.

• 
  It was considered appropriate to provide the option of applying IFRSs to unlisted consolidated companies.
  

Law 62/2003, of 30 December, on tax, administrative, employment and social security measures

• 
  Extends IFRSs to Spanish consolidated listed companies and introduces certain basic amendments to corporate and commercial law to make it compliant with the criteria and requirements of International Standards.
  
• 
  Allows for voluntary application of IFRSs to non-listed consolidated groups (requirement of consistent application over time and a rule of continuity).
  
• 
  Consolidated groups: the obligation is introduced to consolidate groups under the concept of “decision- making unit” (Art. 42 of the Spanish Commercial Code). This obligation has since been withdrawn.
  
• 
  Concept of fair value.
  
• 
  New disclosures to be provided in the directors’ report and notes to the financial statements.
  

Law 16/2007, of 4 July, reforming and adapting accounting legislation for its international
harmonisation based on EU legislation

• 
  The text of this corporate and commercial law Reform introduces amendments to the Spanish Commercial Code, the Consolidated Spanish Public Limited Liability Companies Law, and the Spanish Private Limited Liability Companies Law. It introduces a general
  

legal framework which will be subsequently implemented by subordinate legislation in terms of more specific technical-accounting aspects, thereby authorising:

• 
  The Spanish Government to approve through royal decree the Spanish National Chart of Accounts (SNCA) and supplementary rules
  

(in particular, in matters relating to consolidation and the Chart of Accounts for SMEs).

• 
  The Ministry of Economy and Finance, at the request of the Spanish Accounting and Audit Institute (ICAC) and by Ministerial Order, to approve the industry adaptations of the new SNCA.
  
• 
  The ICAC to approve mandatory rules in implementation of the SNCA, in particular in relation
  

to measurement bases and the preparation of financial statements.

• 
  The final text also includes the required amendments to the Spanish Corporation Tax Law.
  

Royal Decree 1159/2010 approving the Rules
for the Preparation of Consolidated Financial Statements and amending the Spanish National Chart of Accounts
• Implements, in the framework of the Spanish Commercial Code, the particularities of consolidating financial statements.
• These consolidation rules were prepared to constitute an accounting framework in harmony with community Law.
• Four recognition and measurement standards (RMS) included in the SNCA were amended:

• 
  RMS 9 Financial instruments
  
• 
  RMS 13 Income tax
  
• 
  RMS 19 Business combinations
  
• 
  RMS 21 Transactions with Group companies
  

Accounting reform in Spain

Thus, the conclusions reached in the Accounting White Paper are at the root of the reform of Spanish corporate and commercial law, which took tangible form in Law 16/2007, of 4 July, reforming and adapting accounting legislation for its international harmonisation
based on EU legislation, as well as in Royal Decree 1514/2007, of 16 November, approving the Spanish National Chart of Accounts, and in Royal Decree 1515/2007, of 16 November, approving the Chart of Accounts for Small and Medium-sized Companies and the specific accounting rules for micro companies.

All these accounting reforms would clearly have been incomplete had no amendments been made to the consolidation rules applicable to Spanish groups that do not use EU-IFRSs as the basis for issuing their consolidated financial statements. To this end, the Ministry of Economy and Finance published Royal Decree 1159/2010, of 17 September, approving the Rules for the Preparation of Consolidated

Financial Statements. This Royal Decree also included other amendments that affected the Spanish National Chart of Accounts. Specifically, the Recognition and Measurement Standards (RMSs) of the Chart of Accounts that were amended were as follows:

• 
  RMS 9 on Financial Instruments
  
• 
  RMS 13 on Income Tax
  
• 
  RMS 19 on Business Combinations
  
• 
  RMS 21 on Transactions between Group companies
  

At present there is no Consolidated Spanish National Chart of Accounts that includes both the basic standards approved in 2007 and the amendments to the four RMSs indicated above.

All the standards discussed in this section came into force at different times, although they are all fully in force for the years beginning on or after 1 January 2011.