Accounting and Corporate Modifications Effective January 1st 2008

25 March 2008

Law 16/2007, of July the 4th, reforming and adapting accounting matters in commercial legislation to bring it in line with the EU directive has provoked not only changes in Spanish company accounting, but also important changes in corporate law, especially as regards year-end accounts.

Following is a summary of the most relevant points:

One of the most important changes of the reform is that beginning January 1st 2008, the year-end accounts will consist of two new documents:

     (i) the Estado de Cambios en el Patrimonio Neto or ECPN (Net Asset Change Statement) and
     (ii) the Estado de Flujos de efectivo or EFE (Fluctuation in Actives Statement).

This last document needs to be filed only by companies which are not small or middle sized companies (PYMES) and who furthermore cannot prepare the balance, ECPN or short accounting statements for the year. Therefore based on the new law, the thresholds for formulating balances and accounts for gains and losses have been changed and this should be taken into consideration.

As regards the appointment of auditors, the new law introduces the possibility of re-appointing them once the initial contract has ended. Because of the new law they can be named, not only for an additional year but for longer periods of up to three years, thus reducing notary and registry costs.

The second, third, forth and fifth sections of chapter VII of the Modified Spanish Corporations Law are repealed as some aspects were already regulated by the Commercial Code and other aspects were considered so detailed that they should be included in the statutes.

As regards the consolidated annual accounts, the new law has modified the concept of the “group of companies” included in Article 42 of the Spanish Code of Commerce by distancing it from the united decision making criteria upheld until now and focusing instead on the element of control.

Lastly it should be pointed out that the new law also introduces changes regarding the valuation criteria and the accounting principles which will have to be taken into consideration when preparing the year-end accounts.

For further information, please contact Nerea Tejeda García de Cortazar: ntejeda@mmmm.es