The accounting close for fiscal year 2023 presents certain particularities that finance managers must take into account to ensure that the annual accounts faithfully and reasonably reflect the company's situation and the period's results.
Provisions and Impairments
Spanish accounting standards (PGC 2007) require that at year-end all probable and quantifiable potential losses are recorded, even if final confirmation is pending. In an environment of high interest rates and economic slowdown, it is particularly relevant to review impairment of trade receivables and financial assets at fair value.
Trade receivables: The 2022-2023 interest rate increases and consequent credit tightening drove up corporate default rates. NRV 9 of the PGC requires a valuation correction when there are objective signs of impairment, such as payment delays exceeding six months, insolvency proceedings against the debtor, or renegotiated payment terms. Companies relying on historical average percentages for global impairment estimates needed to revisit those parameters in light of 2023 market conditions.
Impairment of group company holdings: In groups with subsidiaries accumulating losses or significantly reduced cash flow projections, the 2023 close required a review of goodwill impairment tests and other equity investments. NRV 9 requires comparing the carrying amount with the recoverable amount, defined as the higher of fair value less costs to sell and value in use.
Corporate Tax: Expense Calculation
Corporate Tax accounting requires calculating the difference between accounting profit and the fiscal tax base, identifying temporary and permanent differences. Negative taxable bases generated in previous years can be offset against the positive result of 2023, with the general limit of 70% of the prior positive taxable base.
Deferred tax assets: Deferred tax assets arising from tax losses carried forward or deductible temporary differences may only be recognised to the extent that it is probable that the company will have sufficient future taxable profits to absorb them. In a macroeconomically uncertain environment, reconsidering deferred tax assets recognised in prior years was a critical task at the 2023 close.
Minimum 15% effective rate for large companies: Law 38/2022 introduced a minimum 15% effective tax rate for taxpayers with net turnover of 750 million euros or more, in line with the OECD’s Pillar Two framework. Affected companies had to calculate and include the corresponding top-up charge in their 2023 Corporate Tax return.
Fair Value Update
Financial instruments classified at fair value through profit or loss must be updated as at 31 December. In 2023, financial market volatility and the impact of rising interest rates on fixed income bonds required special attention.
Investment funds and listed securities portfolios also had to be valued at 31 December 2023 market prices. In many cases, the revaluation resulted in recognising unrealised gains that had not been recorded in prior years, with a corresponding impact on both the accounting result and the Corporate Tax base.
Accruals and Deferrals
An area frequently overlooked in the accounting close is the correct accrual of income and expenses. The PGC’s accrual principle requires that income and expenses are allocated to the period in which they are earned or incurred, regardless of when cash is received or paid. The most common accrual items are: insurance premiums paid in advance, accrued interest receivable or payable, prepaid rent, services rendered but not yet invoiced and post-sale warranty obligations.
A systematic review of contracts in progress at year-end — particularly long-term service contracts, construction contracts or deferred delivery agreements — is essential to ensure that revenue is recognised in the correct period in accordance with NRV 14 on revenue from sales and services.
Notes and Non-Financial Information Statement
Larger companies must include information on sustainability and the impact of their activities in the notes, in accordance with applicable regulations. The non-financial information statement (EINF) is mandatory for companies with more than 500 employees.
The 2023 EINF was required to cover environmental, social and employee matters, human rights, anti-corruption and bribery, and societal impact information. The Corporate Sustainability Reporting Directive (CSRD), which Spain is transposing in phases from 2025, will introduce significantly more demanding requirements for larger companies in the coming years.
Year-End 2023 Checklist
Before approving the annual accounts, it is advisable to verify the following:
- Reconciliation between general ledger balances and bank statements as at 31 December
- Review of debtor ageing and provisioning for doubtful debts
- Stock verification through physical inventory count or sampling
- Update of depreciation schedules to reflect additions and disposals during the year
- Calculation of the Corporate Tax charge and reconciliation between accounting profit and taxable base
- Review of balances with group companies and elimination of intra-group transactions in consolidation
- Verification of size thresholds to determine whether full, abbreviated or SME financial statement models must be filed
At BMC we accompany our clients throughout the accounting close process. See our accounting services.
