On 21 July 2015 Law 22/2015 on Account Auditing was published in the Official Spanish Gazette, with the aim of adapting Spanish legislation to the European Directive 2014/56/EU on statutory audit of annual accounts and the EU Regulation number 537/2014 on specific requirements regarding statutory audit of public-interest entities.
The main purpose of the regulatory amendments introduced by the new Spanish Account Auditing Law is to achieve greater harmonisation within the European Union with respect to the requirements that apply to the audit activity. Moreover, the new Law intends to improve the quality of audits and strengthen the independence of auditors, contributing to a greater transparency and reliability of the financial information of audited companies and entities, with special attention on public-interest entities. Law 22/2015 includes in the definition of public-interest entities, credit entities, insurance providers and listed companies, among which are the companies listed on the Alternative Stock Exchange within the section of companies in expansion.
Below we expose the most important amendments introduced by the new Spanish Account Auditing Law:
- Regarding the content of the annual accounts, companies that are able to prepare the abbreviated balance sheet are exempt from the need to prepare a statement of the changes in net equity for fiscal years starting from 1 January 2016. On the other hand, the minimum content of the annual report is enlarged by introducing, for example, the need to mention the amount of the acquisitions or transfers of own shares.
- In order to reinforce and secure the independence of auditors, more restrictive requirements are incorporated as regards their incompatibilities, by establishing, for auditors of public-interest entities, up to eleven services incompatible with auditing. Among others, these incompatible services include accounting, internal audit, legal services or design of internal control procedures or risk management related to the financial information.
- Various cases where verification by an auditor was required and which were covered in the Companies Law have been amended. These verifications may now be performed by any independent expert that must not necessarily be an auditor.
- In relation to public-interest entities, shareholders holding more than 5% of the share capital or voting rights of the audited entity, the Audit Committee of such entity or the Spanish Accounting and Audit Institute may request the first instance judge of the entity’s registered address to revoke the auditor appointed by the general shareholders’ meeting or by the Commercial Registry and the appointment of another, provided there is a just cause.
- A total maximum period of ten years is set for the duration of the contract of auditors of public-interest entities, which may be extended for another four years, provided that the same auditor is simultaneously hired with another auditor to act jointly during such additional period. Also, the partner at the audit firm responsible for the audit of an entity must rotate every 5 years and they can only participate again in the audit process of that entity after a term of 3 years has elapsed.
- Certain mechanisms are introduced to guarantee the auditor’s independence especially when the auditor has an excessive financial dependence on the entity. In relation to the auditors’ fees, whether these are from audits or other services rendered to the audited entity and its affiliates, when these fees represent more than 15% of the auditor’s total yearly income for each of the last three consecutive fiscal years, the auditor shall refrain from performing the audit corresponding to the following fiscal year. Said percentage is raised to 30% in entities that are not considered public-interest entities.
Although the new Account Auditing Law will not come into force until 17 June 2016, some provisions came into force the day after the law was published in the Official Spanish Gazette, while others will be applied from 1 January 2016.