Audit Regulations in the EU and Spain

Audit Regulations in the European Union

The Treaty of Rome, which established the EEC (now the EU), recognizes the right of establishment for enterprises within the Community. To ensure consistency, the economic and financial information issued by companies requires a degree of accounting harmonization. These rules are categorized into regulations and directives.

Directives and Regulations

Directives exert influence indirectly through the adaptation of national legislation in each Member State. Key directives include:

• The 4th Directive: Establishes the European chart of accounts, including rules on valuation, presentation of annual accounts, management reports, publicity, and audit requirements. It mandates the auditing of accounts and management reports.
• The 7th Directive: Sets criteria for the consolidation of annual accounts and technical standards.
• The 8th Directive: Provides the Community framework for audit regulation and sets legal requirements for auditor qualification.

Regulations are directly binding on the citizens of Member States. Between 2002 and 2006, 14 regulations were established to form the regulatory body for International Accounting Standards (IAS), which have been published in the BOICAC.

Audit Obligations in Spain

The legal requirement for auditing in Spain is governed by several key statutes:

• The LAC (Audit Law): Requires audits for entities with publicly traded securities, those issuing obligations in financial intermediation, activities subject to private insurance laws, or those receiving subsidies from public bodies.
• The Companies Act: Mandates that annual accounts and management reports be reviewed by auditors.
• The Commercial Code: Allows the competent Court to mandate an audit at the request of any person proving a legitimate interest.
• The RRM (Mercantile Registry Regulations): Allows shareholders of companies not otherwise required to audit to request an auditor's appointment within three months of the year-end.
• The Securities Market Law: Requires independent audits for all stock market issuers.
• Consolidated Accounts: Audits are mandatory for consolidated accounts submitted by corporations.

Exemptions for Small Companies

Under the PGC (General Accounting Plan), companies are exempt from auditing if they meet at least two of the following requirements for two consecutive years:

• Total assets are less than €2,850,000.
• Net annual turnover is less than €5,700,000.
• The average number of employees is less than 50.