Spanish GAAP Vs IFRS by U6r5gKN


									Spanish GAAP Vs IFRS
   Dr. Clive Vlieland-Boddy
What is Spanish GAAP (PGC)?
• Each country has over the years
  developed its own methodology of
• The basics of double entry remain the
• The principles are however different.
             The new PGC
• Law dated 16th November 2007
• Effective for accounting periods after 1st
  January 2008
• No need to adjust pervious years.
• Replaced 1990 regulations.
• Similar to IAS 19.
          Napoleonic Code
• During the early part of the 19thC
  Napoleon introduced a code based legal
• He arranged for all laws to be codified into
  a book of rules.
• This works well initially but soon becomes
  outdated by technology and changing
  attitudes to situations.
• For example. Slavery!
  Problems of a book or rules!
• There will always be a gray area.
• Abusers try to find loop holes.
• Needs to be updated or it becomes
• Ignores integrity.
      Example Tax Planning!
• Tax planning is allowed so long as the
  rules are not broken.
• The rules may state that if you own 51% of
  a company then you pay tax in that
• What if you pass 1% to a friend!
   Returning to Spanish GAAP
• The accounting system in Spain is set
  down in a book or rules.
• These are known as “Chart of Accounts”
• They tell the company and its officers
  exactly how the financial statements must
  be created.
• This was created under the guidance of
  Sir David Tweedie in the late 1990’s.
• Tweedie had previously developed the
  UK accounting systems from UK GAAP to
  a more modern and responsible structure.
• The key issue is that there is no book or
• There are recommendations laid out in
  International Accounting Standards.
            Shared Principles
• The main difference with IFRS is that it
  relies on the principle of shared principles.
• It requires all to act responsible, with
  integrity and honestly.
• Where as under GAAP, directors look for
  ways around the rules. Under IFRS, they
• Surely passing that 1% to a friend is not
  acting honestly, with integrity or being
         GAAP Convergence
• The International Forum on Accountancy
  Development ("IFAD") was created as a working
  group between the Basel Committee,
  the International Federation of Accountants,
  IOSCO, the large Accounting Firms, OECD,
  UNCTAD, and the World Bank and regional
  development banks, which flowed from the East
  Asian crisis. Its mission was to improve market
  security and transparency, and financial stability
  on a global basis.
• IFAD completed its work with the publication
  of GAAP Convergence 2002.
         Adoption of IFRS in Europe
             Effective in 2005
• In June 2002, the European Union adopted an IAS Regulation requiring
  European companies listed in an EU securities market, including banks
  and insurance companies, to prepare their consolidated financial
  statements in accordance with IFRSs starting with financial statements for
  financial year 2005 onwards. EU countries have the option to:
• Require or permit IFRS for unlisted companies.
• Require or permit IFRS in parent company (unconsolidated) financial
• Permit companies whose only listed securities are debt securities to delay
  IFRS adoption until 2007.
• Permit companies that are listed on exchanges outside of the EU and that
  currently prepare their primary financial statements using a non-EU GAAP
  (in most cases this would be US GAAP) to delay IFRS adoption until 2007.
• The European IAS regulation applies not only to the 27 EU Member
  States but also to the three members of the European Economic Area
  (EEA) - Iceland, Liechtenstein, and Norway.
• Spain is an EU Member State. Consequently, Spanish companies listed in
  an EU/EEA securities market follow IFRS since 2005.
        Basic Requirements
IFRS for SME      Spanish GAAP for SME
• Balance sheet   Balance sheet
• A company wants to depreciate Non
  Current Assets.
• The book of rules says it must be on the
  basis of straight line method over
  estimated useful life. The directors view the
  life as being 20 years.
• However, all other companies depreciate
  the same assets over 10 years.
• IFRS would question why are the directors
  out of kilter with all its competitors.
  Applicability of IFRS in Spain
• Spain has agreed to IFRS of publically
  quoted companies.
• SME’s are required to continue using
  Spanish GAAP.
• The EU supports IFRS for all companies
  although it does accept that its application
  to small companies is not mandatory.
      Spanish GAAP & IFRS
The key differences are:
• Fair Value Accounting
• Cost of Capital
• Goodwill & Intangibles
• Other areas
                Fair Value
• Fair value use is restricted
            Cost of Capital
• IFRS is more strict about capitalising set
  up costs as they see it as not prudent.
• Spanish GAAP allows this.
      Goodwill & Intangibles
• IFRS sees no finite life. Requires annual
  impairment test.
• Spanish GAAP allows it to be depreciated
  over expected useful life.
•   Unrealised foreign Exchange gains
•   Deferred Tax
•   Retirement benefits
•   Treatment of Associated Companies
          What is an SME
• A small to medium sixed company.
• The EU issues guidance on what this
           Small Company
Art 11 states that a small company is:
• Less than 50 employees or
• Turnover less than €8.8m or
• Total Assets of less than €4.4m
     Medium Sized Company
• Less than 250 employees or
• Turnover of less than €38.5m or
• Net Assets of less than €19.25m
                 In Spain
Small                Medium
• Employees < 50     • Employees < 250
• Turnover < €5.7m   • Turnover < €22.8m
• Assets < €2.85m    • Assets < €11.4m
        EU Report Sept 2011
• On the site is a file called EU 2011 report.
• This summarises the current position and
  where each country in the EU is on the
  path of convergence.
     Spanish GAAP Vs IFRS
• There is also a reading to down load on
  the website which I wrote covering this.
          Example - Pensions
IAS 19                     Spanish PGC
• Unbiased & mutually      • Unbiased & mutually
  compatible financial       compatible but no
  assumptions based on       reference made to market
  market expectations at     based approach to
  Balance Sheet date.        financial assumptions.
       Practical Differences
    Actuarial Valuation Method
IAS 19                    Spanish PGC
• Requires the use of     • Requires the use of an
  Projected Unit Credit     actuarial based method
  (PUC) actuarial based     but does not specify what
  valuation.                method should be used.
     Practical Differences
 Recognition of Gains & Losses
IAS 19                          Spanish PGC
• Can chose between             • Requires immediate
  – Immediate or deferred by      recognition as an
    way of a charge or credit     amendment to Equity not
    directly to the Income        shown in Income
    Statement. OR
  – Immediate recognition
    outside the income
    Statement by way of
    adjustment to Equity.
          Practical Differences
            Asset Valuations
IAS 19                        Spanish PGC
• Fair value. Also guidance   • Fair value but no
  where market value might      guidance on market value
  differ. Also guidance on      or in cases where these
  situations where there is     differ. This is especially
  a matching insurance          relevant in Spain where
  contract.                     most are matched by
                                insurance contracts.
          Practical Differences
           Settlements or C...
IAS 19                        Spanish PGC
• Provides specific           • No guidance. Could be
  guidance of how these         either in or outside the
  are to be dealt with and      Income Statement.
  directs these to a charge
  or credit in the Income
       The Chart of Accounts
• The Spanish PGC has with it a finite
  numbering system of accounts.
• Whilst this is useful and helpful to those
  not understanding accounting, it enables
  all users to all prepare similar financial
  looking information.
• We live in one United States of Europe.
• IFRS was established as a EU accounting
• It came to maturity as a result of the failure
  of US GAAP.
• Why does Spain ignore the real benefits of
• Change will eventually come.
Bye for now!      I’m ready for
                some leisure time.

             Please ensure you
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