Spanish GAAP — Plan General Contable

What Is the Plan General Contable?

The Plan General Contable (PGC) is Spain’s national accounting standard — the equivalent of US GAAP in the United States or FRS in the United Kingdom. It is a royal decree (currently Real Decreto 1514/2007, substantially updated by Real Decreto 602/2016) that establishes the accounting framework applicable to Spanish companies preparing individual (standalone) financial statements.

The PGC is structured into five parts:

1. Conceptual framework (Marco Conceptual): Definitions of assets, liabilities, equity, income, expenses, and the principles governing recognition and measurement
2. Standards and principles (Normas de Registro y Valoración): Specific accounting treatment for each category of assets, liabilities, income, and expense
3. Annual accounts (Cuentas Anuales): Format, content, and disclosure requirements for financial statements
4. Chart of accounts (Cuadro de Cuentas): The standardised numbering system for bookkeeping entries
5. Definitions and relationships (Definiciones y Relaciones Contables): Guidance on individual account codes

The PGC applies to all Spanish companies, including Sociedad Limitada (SL) and Sociedad Anónima (SA), unless they are listed companies required to use IFRS for their consolidated accounts.

Who Uses Spanish GAAP vs IFRS?

Spanish GAAP (PGC)

• All non-listed Spanish companies (SL and SA): for individual standalone accounts
• Listed Spanish companies: also required for their individual (entity-level) accounts (the parent entity’s standalone accounts)
• Spanish public entities: a separate public-sector adaptation exists

IFRS

• Listed companies: Required to use IFRS for their consolidated financial statements (group accounts)
• Voluntary adoption: Some large non-listed groups voluntarily adopt IFRS for their consolidated accounts (if they have international investors or lenders requiring IFRS)
• IFRS is not required for individual (entity-level) accounts of any Spanish company, even if the consolidated group uses IFRS

Key Differences Between Spanish GAAP and IFRS

Understanding the differences is essential for foreign investors reading Spanish financial statements:

1. Goodwill (Fondo de Comercio)

• Spanish GAAP: Goodwill is amortised over its useful life (maximum 10 years if not reliably determinable), reducing profit annually
• IFRS (IFRS 3): Goodwill is not amortised — instead it is tested annually for impairment. This produces higher reported profits under IFRS for acquisitive companies.

2. Leases (Arrendamientos)

• Spanish GAAP: Distinguishes between operating leases (expensed as incurred) and finance leases (capitalised). Most property leases are operating leases and do not appear on the balance sheet.
• IFRS 16: Almost all leases (with limited exceptions) are capitalised as right-of-use assets and corresponding lease liabilities. This significantly inflates the balance sheet and EBITDA.

3. Financial Instruments

• Spanish GAAP: Most financial instruments are carried at amortised cost; limited fair value accounting
• IFRS 9: Extensive fair value measurement categories; different impairment model (expected credit loss under IFRS 9 vs incurred loss under Spanish GAAP)

4. Revenue Recognition

• Spanish GAAP: Risk-and-rewards model (revenue recognised when risks and rewards transfer)
• IFRS 15: Control-transfer model (revenue recognised when the customer obtains control of the good or service). This can create differences in timing of revenue recognition for long-term contracts, subscriptions, and bundled sales.

5. Development Costs

• Spanish GAAP: Development costs can be capitalised as intangible assets if certain criteria are met
• IFRS: Research costs must be expensed; development costs can be capitalised if strict criteria are met (broadly similar criteria)

6. Deferred Taxes

• Spanish GAAP: Deferred taxes recognised using the liability method, but with conservative approach to deferred tax assets
• IFRS (IAS 12): More detailed guidance; generally similar outcome but different in specific situations

7. Presentation Differences

• Spanish GAAP: Mandatory standardised balance sheet and income statement formats
• IFRS: Flexibility in presentation but minimum disclosure requirements; some companies present significantly more detail

The Plan General de PYMES

For small and medium-sized enterprises, a simplified version exists: the Plan General de Contabilidad de Pequeñas y Medianas Empresas (PGC-PYMES), established by Real Decreto 1515/2007. It simplifies recognition, measurement, and disclosure requirements for qualifying SMEs (similar thresholds to the abbreviated accounts regime).

Spanish GAAP and Tax Accounts

A distinctive feature of the Spanish accounting system is the close relationship between the commercial accounts (prepared under the PGC) and the tax return. Spanish Corporate Tax (Impuesto sobre Sociedades) starts with the accounting profit as the base and makes adjustments (increases and decreases) for permanent and temporary differences.

This means that accounting choices — such as the timing of expense recognition, depreciation rates, and provision levels — have a direct impact on the Corporate Tax position. AEAT inspectors are accustomed to starting their audit from the annual accounts, making proper bookkeeping under the PGC critical for tax compliance.

Annual Accounts Filing Requirement

Companies preparing accounts under Spanish GAAP must file their annual accounts at the Registro Mercantil within 30 days of approval by the shareholders’ meeting. The annual accounts include:

• Balance sheet (balance de situación)
• Income statement (cuenta de pérdidas y ganancias)
• Statement of changes in equity (estado de cambios en el patrimonio neto)
• Cash flow statement (estado de flujos de efectivo) — not required for abbreviated format
• Notes (memoria) — the explanatory notes to the financial statements
• Management report (informe de gestión) — for companies above certain thresholds

The notes (memoria) are a critical component and must include extensive disclosures: accounting policies, related-party transactions, financial risk, employee information, director remuneration, and much more.

Frequently Asked Questions

Is Spanish GAAP converging with IFRS? The 2007 and 2016 reforms significantly aligned Spanish GAAP with IFRS principles, but key differences remain (goodwill amortisation, lease treatment). Full convergence to IFRS for all companies is not currently planned. The EU’s ongoing EFRAG work on IFRS for SMEs may eventually influence the PGC further.

Can a Spanish company voluntarily adopt IFRS for its individual accounts? No. Spanish law requires individual accounts of Spanish entities to be prepared under Spanish GAAP (PGC). IFRS is only mandatory (and voluntary adoption is only possible) at the consolidated group level.

Are there Spanish GAAP standards for specific industries? Yes. Sector-specific adaptations of the PGC exist for: banking, insurance, cooperatives, non-profits (Plan de Contabilidad de Entidades sin Fines Lucrativos), public sector, and real estate. These sector adaptations take precedence over the general PGC for qualifying entities.

How do I find out which accounting standard a Spanish company uses? All individual (standalone) Spanish companies use Spanish GAAP. Their filed annual accounts (available from the Registro Mercantil) will state “preparadas de acuerdo con el Plan General Contable” or similar. The notes will describe accounting policies. For group consolidated accounts of listed companies, IFRS is used.

Why do Spanish SMEs sometimes have poor-quality accounts? Spanish SMEs often prepare accounts primarily to satisfy tax and registry filing requirements, with less emphasis on providing useful information to investors or lenders. Common issues include: understated provisions, non-market-rate related-party transactions, limited disclosure in the notes, and delayed recognition of impairments. Financial due diligence in Spanish SME acquisitions must account for these limitations.

How BMC Can Help

We prepare and review annual accounts under Spanish GAAP, advise on Spanish GAAP-to-IFRS conversion for international reporting purposes, assist in financial due diligence by restating Spanish GAAP accounts, and support companies in meeting their annual account filing obligations at the Commercial Registry.