New accounting rules for companies, aligned with Europe

Automatic summary, not yet reviewed

1. Companies' annual accounts will now include, along with the balance sheet and the profit and loss account, a statement of changes in equity and a statement of cash flows. The cash flow statement is not required for companies that can file the abbreviated documents.
2. The Commercial Code now includes definitions of the elements of the annual accounts: assets, liabilities, net equity, income and expenses. When recording transactions, their economic reality must be considered, not just their legal form.
3. The fair value criterion is introduced on a general basis for certain financial instruments. Value changes are normally charged to the profit and loss account, although some go directly to net equity until the item is sold or cancelled.
4. Goodwill is no longer amortized: it is only adjusted if its value is impaired, and such losses are irreversible. As compensation, public limited companies must set up a restricted reserve equal to that goodwill.
5. A group of companies exists, and with it the duty to consolidate accounts, when one company directly or indirectly controls another or others. The law details the situations where control is presumed and the exceptions that exempt companies from consolidating.
6. Companies listed on a regulated market in the European Union must prepare their consolidated accounts under the international financial reporting standards adopted by the EU. Companies that are not listed may choose between those standards or the national ones.
7. The thresholds for filing an abbreviated balance sheet and profit and loss account are updated, and the Government is authorized to approve a General Accounting Plan for Small and Medium-Sized Enterprises, simpler than the general one.
8. The Corporate Income Taxincome tax The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings. is adapted to the new accounting rules so that the reform does not change the tax burden: goodwill will keep being depreciated for tax purposes even though it is not amortized for accounting purposes, and a 50% reduction is created for income from licensing patents and other intangible assets created by the company.

Who it affects

• Companies and business owners in general: They must prepare their annual accounts with the new documents, definitions and valuation criteria for fiscal years starting from January 1, 2008.
• Listed companies: They must prepare their consolidated accounts under international financial reporting standards and cannot use the abbreviated models.
• Small and medium-sized enterprises: They may use abbreviated models and will have a General Accounting Plan adapted to their usual operations.
• Parent companies of groups: They must prepare, audit, approve and file consolidated annual accounts and a consolidated management report.
• Companies paying Corporate Income Tax: Tax rules (depreciation, impairments, provisions, deductions) are adapted so that the accounting reform does not alter their taxable base.

Words worth knowing

Valor razonable (fair value)

The amount at which an asset could be bought or sold between willing and knowledgeable parties; in general, its reliable market value.

Fondo de comercio (goodwill)

The positive difference paid when buying a company above the value of its assets and debts, due to things like its customer base or reputation.

Cuentas consolidadas (consolidated accounts)

Accounts presenting a company together with all the companies it controls as if they were a single business.

Patrimonio neto (net equity)

What remains of a company's assets after subtracting all its debts.

Balance abreviado (abbreviated balance sheet)

A simplified balance sheet model that companies below certain size thresholds may use.

income tax

The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings.

It summarizes the law as published in the BOE. It is written by artificial intelligence and may contain mistakes: the official text is what counts. Read the official text · How we make summaries