Understanding Annual Accounts: Formation, Audit, and Publication

Posted on Dec 15, 2024 in Economy

Expenses and Income

Expenses: Decreases in the net assets of a company during the year, whether in the form of outflows or reductions in asset values, or due to the recognition or increase in the value of liabilities, if not originating in distributions (monetary or otherwise) to the shareholders or owners in such conditions.

Income: Increases in the equity of a company during the year, whether in the form of inflows or increases in the value of assets, or decreases in liabilities, which do not originate in non-monetary contributions from the partners or owners.

Annual Accounts

Forming a whole, annual accounts are based on external financial information. They are composed of five documents:

  1. The Balance or Balance Sheet
  2. The Profit and Loss Account
  3. The Statement of Changes in Equity
  4. The Cash Flow Statement
  5. The Notes

The format should be worded clearly, and the information should be understandable and useful to users. To make economic decisions, the accounts must show a true and fair view of the assets, financial position, and results of the company.

Rules for the Elaboration of Financial Statements

  1. For each item, figures for the current financial year will appear along with those for the immediately preceding year. Do not include items that do not have a corresponding amount within the current year or the previous one.
  2. The structure cannot be changed from one year to another, except in exceptional circumstances, which must be stated in the report.
  3. Items with no amount will not be collected.
  4. New items may be added to those under normal and reduced form models if their content is not covered by existing ones.
  5. A more detailed subdivision of the items appearing in the models, both normal and shortened, can be obtained.
  6. Items preceded by Arabic numerals in the Balance Sheet and Statement of Changes in Equity, or letters in the Profit and Loss Account and Cash Flow Statements, may be bundled if they represent only a negligible amount for showing the true image or if doing so enhances clarity.
  7. Claims and liabilities to group companies and associates, as well as revenue and costs relating thereto, must be set out separately from those applicable to unrelated companies.

Publication of Annual Accounts

Until the annual accounts are available to users, the company that has developed them must follow a path consisting of a series of steps, such as design, audit, approval, storage, and publication of these financial statements.

Formulation of Annual Accounts

  • The obligation to prepare the annual accounts lies with the employer in the case of individual firms and with the managers in the case of corporations.
  • The annual accounts will be developed with a periodicity of twelve months, except in exceptional cases. This periodicity generally coincides with the calendar year.
  • They must be formulated within a maximum period of three months from the date of the financial close.
  • The annual accounts must be identified, clearly stating in each of the documents that comprise them the name of the company to which they relate and the financial year to which they refer.
  • The values should be expressed in euros. They may be reflected in billions of euros when the magnitude of the numbers advises it, in which case that fact must be stated in the annual accounts themselves.
  • The annual accounts shall be signed by the employer in individual firms and by all managers in the case of corporations and limited liability companies.

Audit of Annual Accounts

  • The audit of annual accounts is a report by independent experts to give an opinion on whether or not they represent a true and fair view of the assets, financial position, and results of the company.
  • Commercial companies that cannot present the Abridged Balance Sheet are obliged to be audited. If so, the auditors will issue their report within a minimum of one month from delivery for review.

Approval of Annual Accounts

The annual accounts must be approved by the competent authority (General Meeting of Shareholders in the case of corporations) within six months of the year-end.

Deposit of Annual Accounts

The annual accounts shall be deposited with the Mercantile Registry for the registered office of the company within one month following their approval. Once in the registry, the officer shall verify that legal requirements have been met (registrar rating). Within the first three working days of each month, the Commercial Registrar will forward to the Central Registry a list of companies that have deposited their annual accounts in the previous month. Any person may request the annual accounts deposited in the commercial register, upon payment of the prescribed fee.