PGC Accounting Groups, Principles and Auditor Duties

PGC groups quoted for each financial statement

Listed or quoted: the parts of the PGC groups involved in each of the following statements.

• Balance sheet: Groups 1 to 5 of the PGC (economic groups), together with the Notes to the Accounts (Memoria) that extend and explain the balance sheet items.
• Profit and Loss Account: Groups 6 and 7 of the PGC (income and expenses), expanded and explained by the Notes to the Accounts.
• Notes to the Accounts (Memoria): The sections on accounting principles and valuation rules (first and fifth sections of the PGC) that provide the applicable bases of presentation and measurement.

Principles and accounting standards established by law

What are the principles and accounting standards generally accepted in our law?

The principles and generally accepted accounting standards are defined and ordered by the following hierarchy:

1. The Commercial Code and other mercantile legislation.
2. The General Accounting Plan (Plan General de Contabilidad) and its sectoral adaptations.
3. Development standards and technical rules issued by the ICAC (Instituto de Contabilidad y Auditoría de Cuentas).
4. Any additional specific legislation that is directly applicable.

Difference between principles and valuation rules

What are the differences between accounting principles and valuation rules?

Accounting principles are theoretical foundations and general precepts for recognizing, measuring and presenting accounting information; they form the basis of the accounting system and are established by law and authoritative bodies. Valuation rules are specific regulations and methods for measuring particular items in the annual accounts; they develop and apply the principles to concrete situations and items.

Circumstances requiring an annual audit

What circumstances must exist for a company to be required to undergo an annual audit?

The LAC (Law on Auditing of Accounts) requires audit of accounts for companies or institutions, whatever their legal form, when any of the following circumstances occur:

• Its securities are listed on any official stock market.
• It habitually carries out obligations of financial intermediation, including companies that act as brokers without taking positions and stock exchange agents, whether they act individually or as companies; in any case, such companies or financial institutions must be registered in the corresponding registers of the Ministry of Economy and Finance and the Bank of Spain.
• It performs any activity subject to Law 33/1984 of 2 August on Private Insurance Management, within the regulatory limits established.
• It receives grants, public funding, or carries out works, facilities or services, or supplies goods to the State and other public bodies under conditions set by the Government by Royal Decree.

Auditor confidentiality and employee disclosure

Is the auditor responsible if an employee of their firm disseminates information obtained while performing audit work? Provide reasoning.

Yes. The auditor is responsible for ensuring the confidentiality of the work performed by assistants and associates. Information obtained in the course of audit activity cannot be used for the personal benefit of staff or third parties. The auditor must implement procedures and controls to prevent unauthorized disclosure and to preserve professional secrecy.

What is supervision in audit work?

What is supervision?

Supervision consists of directing and overseeing the efforts of the professional audit team to achieve the audit objectives and to detect errors or failures. The auditor must review the work of each member of the team, ensure the engagement's work program is followed, and confirm that the procedures performed and the resulting conclusions are consistent with professional standards and the firm's policies.

Technical standards relating to audit reports

Quote the technical standards relating to reports.

Relevant technical matters and required communications in audit reporting include, among others:

• Communication of material weaknesses and significant deficiencies in internal control.
• Matters related to going concern and events or conditions that may cast significant doubt on the entity's ability to continue as a going concern.
• Relationships between auditors and independent experts, including the use of specialists and the need to evaluate their competence, objectivity and the appropriateness of their work.