The primary objective of the new auditing act, Act 22/2015, 21 July, on Accounts Auditing, published in the BOE [Official Gazette of the Spanish State] on 21 July 2015, taking full effect as of 17 June 2016 (with the exception of given precepts that entered into force on the date of its publication, and others as of 01 January 2016), is to adapt Spanish legislation to the European Directive on statutory audits of annual and consolidated accounts, in other words, Directive 2006/43/EC of the European Parliament and of the Council, and it is aimed at reinforcing the independence, transparency and supervision of auditing services.
Among other novelties, the following is worthy of mention:
- The duty of auditor independence is emphasised, proclaiming a general principle of independence that obligates all auditors to abstain from acting if the objectivity of the financial information to be audited could be compromised. Therefore, given circumstances or situations are listed in which it is understood that the auditors have no independence with respect to the company they are auditing, so that the only way for the auditor to preserve independence of judgment is to abstain from performing the audit tasks, thus preventing any conflicts of interest or commercial, financial or other relationships, even those that their relatives with close ties to the audited company could have.
Among the obligations that the Act includes to guarantee the duty of independence, the following are worthy of mention:
- The obligation of auditors to document and establish safeguarding systems in order to reveal and address any threats to their independence.
- The establishment of incompatibilities for the performance of auditing tasks.
- The obligation of auditors to abstain in any cases in which auditor independence may be compromised.
- The obligation of auditors to act with scepticism, as such term is defined in the Act itself, namely: "to always maintain a questioning mind and being especially alert to any circumstance that may indicate a possible misstatement in the audited annual accounts, and a critical assessment of audit evidence."
- In the same way, new incompatibilities are established to ensure auditor independence. Notable, among others, is the incompatibility with services of accounting, internal audit, or advocacy, with the exception of legal persons with different boards of directors. Up to 11 incompatible services are included for the auditor in relation to the audited company that is a public interest entity, its parent or related companies. It includes the potential for including a change of auditor when "just cause exists."
- Given aspects of the compulsory registration regime in the Official Registry of Account Auditors are modified for those auditors that issue audit reports with respect to companies domiciled outside the European Union whose securities are admitted to trading on Spanish markets.
- The obligatory content of audit reports is expanded in order to obtain greater transparency and favour the comparison of information within the international economic environment: given financial information is included, such as the turnover for audit and non-audit services rendered. Furthermore, an additional report is required of auditors of public interest entities, to reinforce the transparency of the information audited.
- A rotation period of 10 years is established, so that the contracts and designation of auditors are limited in time for greater legal certainty. Nevertheless, the text contemplates the possibility of increasing the period to 14 years if, following that period, the auditor acts jointly with the new auditor appointed. On the other hand, in terms of rotation, an obligation is established for key auditors and those responsible for the audit to rotate five years following the initial contract.
- Auditor fees are restricted and, specifically, the fees collected from public interest entities are restricted, establishing two means for this:
- For non-audit services, for three or more consecutive years the remuneration may not exceed 70% of the average fees for audit services collected during the last three years. Nevertheless, such rule does not include the fees collected for services required by State or Community regulations.
- The concentration of revenue collected from one same entity is restricted. Thus, in order to prevent financial dependency with respect to one same entity, in general the fees from it cannot exceed 15% of the total revenue collected by the audit company in the last three years. This point maintains the incompatibility of the current regulation.
- With respect to the obligation of secrecy, it indicates that this must extend to all persons participating in the audit tasks, distinguishing between external quality assurance, of a regular and procedural nature, and the overall control that may lead to the formulation of recommendations or requirements. Auditors must also maintain the secrecy of all information about which they may learn in the performance of their duties, without the ability to use such information for any purpose other than what is strictly necessary for the audit tasks.
- It includes the creation of new supervisory bodies such as the Higher and Technical Corps of Account Auditing Inspectors and Accounting Standards or the Administrative Account Auditing Inspection Corps. Notwithstanding the foregoing, the public supervision of the audit system corresponds fully to the Spanish Accounting and Audit Institute (ICAC).
- Modifications are included to the system of infringements and sanctions, including new infringement types, modifications to the rating thereof as well as novelties with regard to the publicity and reporting of breaches.
Likewise, the new audit act has introduced modifications in other legal documents such as the Spanish Code of Commerce or the Spanish Capital Companies Act.
With respect to the Code of Commerce:
- It is no longer necessary to formulate the statement of changes in equity in those annual accounts in which the company may formulate an abridged balance sheet. Prior to this rule, companies that formulated abridged accounts were exempt from the obligation to include cash flow statements and now such exemption extends to the statement of changes in equity. In this manner, for the formulation of the annual accounts corresponding to the year 2016 (or to the year 2015 if the company has a split financial year), those companies that, in accordance with legislation in force, may formulate abridged accounts will be exempt from submitting the statement of cash flow as well as the statement of changes in equity.
- The exemption from the obligation to consolidate the accounts is amended, increasing cases of exemption so that those companies that, while obligated to consolidate in accordance with legislation in force, at the close of the financial year do not exceed some of the limits of the Capital Companies Act for the formulation of abridged annual accounts. Notwithstanding the foregoing, such exemption is not applicable to the dominant entities of groups in which any of the companies comprising it has issued securities admitted to trading in the European Union.
On the other hand, and as amendments included in the Capital Companies Act:
- The figure of the account auditor is replaced by that of the independent expert in certain cases. Such cases include: the determination of the fair value in the voluntary transfer by inter vivos and mortis causa acts, the preparation of the report on the fair value of shares in the corporation when the exclusion of the pre-emptive right is under debate, or the determination of the fair value of shares or equity stakes when an agreement is not reached between the company and shareholders.
- The obligatory content of the annual report is extended, and should include the information described in Article 160 of the Capital Companies Act, as well as the average number of employees with disabilities or movements of the various items of non-current assets.
- The nullity with full rights of those contractual clauses that restrict the appointment of auditors is established, and it is established that in those cases of auditor appointment by the Mercantile Registrar, the Registry itself will establish the remuneration of such auditor (or the criteria for establishment) for the duration of the post.
- The obligation to endow the company with a restricted reserve equivalent to the goodwill in the application of the results of the year is eliminated.
- With regard to the audit committee, its members are required to have sufficient professional qualifications and minimum technical know-how corresponding to the company's sector of activity.