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8. Auditing Requirements

Additional Provision no. One of Accounting Audit Law 22/2015 of July 20, 2015 stipulates that all companies and entities, irrespective of their legal form, are under the obligation to have their financial statements audited when they are in any of the following situations:

  1. Those issuing securities admitted to trading on official secondary securities markets or multilateral trading systems.
  2. Those issuing debentures for sale to the public.
  3. Those engaging habitually in financial intermediation activities and, in all cases, credit institutions, investment services companies, the governing companies of official secondary markets, the governing companies of multilateral trading systems, the Systems Company, central counterparties, the Stock Exchange Company, investment guarantee fund management companies, and other financial institutions, including collective investment institutions, securitization funds and their managers, entered in the corresponding Registers of the Bank of Spain and Spanish National Securities Market Commission.
  4. Entities whose corporate purpose includes any of the activities regulated by the revised Private Insurance (Regulation and Supervision) Law, approved by Legislative Royal Decree 6/2004 of October 29, 2004, within the limits established in the relevant implementing regulations, and pension funds and their management companies.
  5. Entities that receive government grants or aid or perform work for or render services or make supplies to the State and other public bodies, within the limits established in the implementing regulations to be laid down by the government in a Royal Decree.
  6. All other entities that exceed certain limits defined by the government in a Royal Decree. These limits shall refer, as a minimum, to turnover, total assets according to the balance sheet and the average number of employees for the year, and shall be applicable—all of them or each one individually—to the extent possible given the legal structure of each company or entity.

The limits referred to in the preceding paragraph are identified in article 263 of Legislative Royal Decree 1/2010 of July 2, 2010 approving the revised Capital Companies Law, according to which the financial statements must in all cases be reviewed by an auditor, unless at least two of the requirements described below are met in the two consecutive years leading up to the balance sheet date:

  • Total assets of €2,850,000 or less.
  • Annual turnover of €5,700,000 or less.
  • Average number of employees during the year of 50 or fewer.

Companies lose this entitlement if they cease to meet two of the requirements referred to above for two consecutive years.

The objective of the audit is to verify whether the financial statements give a true and fair view of the equity, the financial position and the results of the company and, if applicable, whether the directors’ report is consistent with the financial statements for the fiscal year.

The auditor is under the obligation to issue a detailed report on the outcome of the audit work in accordance with the legislation regulating audits. The main points regarding the content of the audit report are as follows:

  • Absence of material misstatements: it must be explained that the audit has been planned and executed in such a way as to obtain reasonable assurance that the financial statements are free of material misstatements, including those deriving from acts of fraud.
  • Provision of services other than audit services: the report must include a statement declaring that no services other than the audit of the financial statements have been provided and that there have been no situations or circumstances affecting the necessary independence of the auditor or audit firm.
  • Directors’ report: apart from expressing an opinion concerning the consistency or otherwise of the directors'report with the financial statements for the same year, the report is to include an opinion as to whether the content and presentation of the directors' report meet the requirements of the applicable legislation, with any material misstatements which may have been detected in this respect being indicated. In cases in which the company audited is under the obligation to issue the Non-financial Information Statement, the auditor’s opinion in this respect should be limited to indicating whether or not such Statement has indeed been included.
  • A declaration of the responsibility of the company’s managing body for the issue of the financial statements to be audited and of the audited entity's internal control system.
  • Description of the objective of the audit and the manner in which it has been performed.
  • A mention of the name, address and Official Auditors' Register registration number of the auditor or auditors by which the report is signed.
  • Clear language and without certain references.
  • Due cause for failure to issue the audit report or withdrawal: it is stipulated that due cause shall be deemed to exist in any of the following circumstances:
    • The existence of threats which compromise the independence or objectivity of the auditor or audit firm.
    • When it is absolutely impossible for the auditor or audit firm to perform the work for which they have been engaged owing to circumstances for which they cannot be considered responsible.

    Where there are circumstances which prevent the report from being issued or result in withdrawal from the contract, the auditor is required to set out such circumstances in detail and send this statement to the audited entity within no more than fifteen calendar days as from the date on which the auditor became aware of the situation in question. This statement is to be sent not only to the ICAC and to the Commercial Registry, but also to the Court in cases in which the auditor was appointed by court order.

  • Date of delivery of the report: there must be a documentary record of the date of delivery of the report by the auditor and the date on which it was received by the entity audited, where there exists a difference between one date and the other.

The provisions of the Audit Law are expanded upon in Royal Decree 2/2021 of January 12, 2021 approving the implementing Regulations in respect of Law 22/2015 of July 20, 2015, which was published in the Official State Gazette on January 30, 2021.

Generally speaking, these Regulations set out the provisions which elaborate upon the content of the articles of Law 22/2015 of July 20, 2015. They refer, for example, to matters such as the drafting of audit contracts, the possibility of an audit being carried out jointly and the requirements to be met, how engagement and deferrals of the payment of audit fees should be formalized, how custodianship and the duty of secrecy are to be exercised; measures are introduced for the purpose of avoiding conflicts of interest or commercial relations or relations of any other type which might compromise the independence of the auditor (independence rules), certain forms of control of the audit activity are established, and provisions are laid down which elaborate upon, among other aspects, the rules on infringements and penalties.