IFRS Adoption and Accounting Principles in Spain

Posted on Mar 10, 2025 in Business Administration and Management (BAM)

IFRS Adoption and its Impact on Accounting

Initially, IFRS (International Financial Reporting Standards) were not compulsory, but companies gradually adopted these rules. They began to have a significant influence on companies’ financial accounting reports. The IASC (International Accounting Standards Committee), a private organization made up of accounting specialists, is now called the IASB (International Accounting Standards Board). The aim of IFRS was to have comparable accounting information worldwide.

In 1995, the European Commission announced its purpose of establishing a set of accounting standards accepted all over the world. It also communicated its incorporation to the IASC as a supervisor. In 2000, the European Commission issued a new communication in which it recommended following IFRS. In 2002, it approved the law of IFRS. From that law, the adoption of IFRS was compulsory, and the law determined the process of adoption. It was compulsory for listed companies to follow IFRS. For non-listed companies, each country could decide whether to follow IFRS or make some adjustments to the national regulation to align their regulation with the European standards.

IFRS Adoption in Spain and the PGC

Spain decided to adapt its regulations to the international standards, and in 2007, the PGC (Plan General de Contabilidad) accounting situation was created. (INCLUDE TABLE). The PGC was adjusted to IFRS, which was made up of five parts:

  • Conceptual Framework
  • Regulation and Valuation Rules
  • Annual Accounts
  • Chart of Accounts
  • Definitions and Accounting Relations

Conceptual Framework of the PGC

The conceptual framework is a set of principles, assumptions, basic concepts, and structure: (financial statements, true and fair view, information requirements to include in financial statements, accounting principles, elements of financial statements, registration criteria of financial statement elements, and valuation criteria):

  1. Information Requirements: Information must be relevant (useful for making decisions), reliable (without mistakes), without omissions (it must contain significant information), and comparable (for the same company over the course of time and between companies at the same time).

Stages of the Accounting Process

  1. Information Task: Identification of the accounting facts (acquisition of land, it might have an assigned monetary value, and their registration and then later on summarization), valuation, and registration in the accounting books.
  2. Information Communication: Financial statement preparation (some accounting documents that organize and summarize the information must be published. Once published, there is an external expert, the auditor, who gives his opinion of the Financial System), Commercial registry publication.
  3. Accounting Auditing: Audits the firm to verify the veracity of the Financial Statements (True and fair view).
  4. Analysis and Interpretation of the Financial Statements: Once the Financial Statements are reliable and ready, they can be protected by the users of the Financial Information.

Accounting General Principles

  • Going Concern: Accounting assumes that the company will continue doing business in the future. Therefore, accounting is not aimed at calculating the value of a company as if it were in liquidation.
  • Accrual Basis: It may be recorded when revenues and expenses occur.
  • Uniformity: The company has to always follow the same criteria.
  • Prudence (Faithfulness): We don’t record expected profits; every loss must be recorded.
  • Non-Offsetting: Every element must be shown; assets and liabilities cannot be joined.
  • Materiality: Must be recorded, but for those transactions that, regarding the size of the company, are not significant, it is not compulsory to follow the principles.

Implications in Accounting

  • More stress on economic scope than on the legal aspect.
  • New documents added to the financial statements.
  • Spanish accounting principles modified.
  • Accounting element definitions changed.
  • Increase in valuation criteria.