What is the purpose of the conceptual framework in the PGC?

It is a set of foundations, principles and basic concepts that lead to annual accounts giving a true and fair view of a company's assets, financial situation and results. It is the same for all companies.

What does the accrual principle mean?

Income or expenses are attributed to the result of a financial year when they represent the actual economic flow that occurred in that year, regardless of whether money has changed hands. Collection or payment is the money flow.

The Spanish PGC Chart of Accounts: Structure and Accounting Principles

Q: Which documents must companies submit in the annual accounts?

Companies must submit a balance sheet, profit and loss account, statement of changes in equity, cash flow statement and a report.

Summary

This document introduces the Spanish General Accounting Plan (PGC), explaining its key features and five-part structure, from the conceptual framework to the chart of accounts. It covers the basic accounting principles, including business continuity, accrual, consistency, prudence, no compensation and relative importance. It also describes the annual accounts companies must produce, such as the balance sheet and profit and loss account.

Key points

The PGC is mandatory for all businesses and is adapted to IAS/IFRS standards.
The PGC has five parts: conceptual framework, registration and valuation standards, annual accounts, chart of accounts, and definitions and accounting relationships.
Accrual accounting records income and expenses when the economic flow occurs, regardless of the money flow.
Prudence means profits are recorded only when realized, while losses are recorded when real or merely potential.
The no compensation principle forbids offsetting assets with liabilities or income with expenses.
Annual accounts include a balance sheet, profit and loss account, statement of changes in equity, cash flow statement and a report.

Test yourself

Theme 4: The Chart of Accounts in Spain

The Chart of Accounts arises from the gap between those who produce and those who use accounting information. It tries to set standards to ensure consistent financial information for those who prepare it and those who use it.

Key Features of the PGC (General Accounting Plan)

Mandatory: Required for all businesses.
Adaptable: Adapted to International Accounting Standards (IAS) / International Financial Reporting Standards (IFRS).
Principle-Based: Inspired by economic principles.
Continuity: Maintains continuity with predecessors.
Open to Amendments: Open to any amendment deemed necessary, updating sectoral plans and resolutions that extend as governed by the PGC and the issuance of new ones.
Flexible: A perimeter that allows companies to cover any gaps presented in the plan.

Structure of the PGC

Introduction
Part 1: Conceptual Framework
Part 2: Standards for Registration and Valuation
Part 3: Annual Accounts
Part 4: Chart of Accounts
Part 5: Definitions and Accounting Relationships

The introduction explains the basic features of the new plan, discusses the process of accounting standards followed in Spain, and summarizes the main differences with the 1990 PGC.

Part 1: Conceptual Framework

This is a set of foundations, principles, and basic concepts that lead to annual accounts showing a true and fair view of the assets, financial situation, and results of the company. It is the same for all companies.

Conceptual Framework of the PGC

Annual Accounts: Fair presentation (objectives)
Requirements for information to be included in the annual accounts
Accounting Principles
Elements of the Annual Accounts
Criteria for registration or accounting recognition of the elements of the annual accounts
Assessment Criteria
Generally Accepted Accounting Principles and Standards

Conceptual Framework: "Accounting Principles"

Business in Operation: It is assumed that the life of the company is unlimited, and under this basic assumption, the assets and liabilities are valued.
Accrual: An expense or income is attributed to the result of an exercise when representing the actual flow that occurred in the same, regardless of whether or not there is a money flow. Actual flow is defined as the perception or, where appropriate, the service referred to the income or expense. The money flow is the entrance or exit of money, i.e., collection or payment.
Consistency: Once an option permitted under the PGC for valuation is adopted, it shall be maintained in subsequent years. However, the criteria may change exceptionally if the circumstances that existed at the time of the choice of the criterion were modified. In such a case, full information must be given in the report.
Prudence: Benefits are counted only when they are realized. In exchange, losses are recorded when they are both real and when they are only potential. Any loss should also be reflected, regardless of the expected sign of the profit or loss.
No Compensation: In no case may balance sheet assets be offset with liabilities, or income or expense of the Profit and Loss Account. The reason is that information would be lost, and the annual accounts figures would be undermined.
Relative Importance: Exceptionally, an accounting rule or principle may not be applied if this does not significantly alter the Annual Accounts. This must be fully justified in the report.

The goal is to give a true and fair view of the company.

Part 2: Registration and Valuation

This involves the development of accounting principles and other concepts of the Conceptual Framework and their application to specific cases. It contains specific criteria and rules to be applied in the recording and valuation of transactions or economic events.

Part 3: Annual Accounts

These documents are collected yearly, containing accounting information on a mandatory basis. Companies must submit a Balance Sheet, Profit and Loss Account, Statement of Changes in Equity, Cash Flow Statement, and a Report. There are three sections: Standards Processing, Standard Modeling, and Abbreviated Models.