As many countries across the world, Spain is not immune to the consequences of the rapidly progressing Coronavirus. Citizens, particularly, and businesses are facing an uncertain future characterized by a paralyzed economy, nationally and globally, the drop of GDP, fall of long term interest rates and difficulties in securing loans and investments.
The Spanish Government adopted urgent measures to contain Covid-19 and has recently published new laws with fiscal, legal, labor, market and economic impacts to help businesses mitigate the difficulties that they´re currently facing as the ones included in Real Decreto-ley 8/2020 (Royal Decree Law) from March 17th 2020 and Real Decreto-ley 11/2020 from March 31st 2020.
CFOs and Accounting officers face the challenge of evaluating the economic impact and accounting implications Covid 19 is having in its operations, as well as in the preparation of the individual and consolidated financial statements.
For financial statements ended as of December 31, 2019, the negative effects of Coronavirus on the financial situation of companies were evident in March 2020, so we are from the accounting perspective in the face of a non -adjusting Subsequent Event , as those effects did not exist at the end of the financial year.
Acts with an economic impact in business operations like the announcement of financial aid or financial subsidies from the government and decisions taken by the management of companies, such as restructuring plans and/or the cancellation of customer contracts, with a significant impact on their financial position must be disclosed in the Subsequent Event note, including the and estimation of such effects, if possible, or at least mentioned that the estimation was not possible.
The content of the Subsequent Event note will depend of the circumstances and uncertainty that the particular business is facing in regards to its operations , the contingency plans applied, the completion of its financial obligations and its cash resources .
Other aspects that must equally be evaluated and included in the Subsequent Event note include:
- Impairment of financial assets (accounts receivable) and non-financial assets (including goodwill)
- Effect of the rupture of lending covenants and other financial agreements that make or could make bad debt.
- Impact of the suspension or termination of contracts and the evaluation and possible consideration of it as an onerous contract.
- Recoverability of deferred tax assets.
- Information of the nature and the level of risk of financial instruments: credit risk, risk of bankruptcy and market risk (this is understood as currency risk, interest and other price risks)
- Contingent assets.
CFOs must also consider how Covid-19 will impact the continuity of its operations and evaluate if they have to formulate their accounts on a Going Concern basis or in a liquidation basis. If necessary, they may even need to re-formulate the annual accounts.
Another factor to bear in mind would be the different legal measures that the Spanish government is putting in place to make it easier for businesses to formulate and approve their annual accounts. These measures include the extension of deadlines, the manner of submitting the accounts etc. In Spain, the Real Decreto Ley 8/2020, through articles 40 and 42, alongside with the clarifications included by Real Decreto Ley 11/2020, include some modifications of the norms related to the formulation and approval of the annual accounts, applicable whilst the State of Emergency applies.
Deadline for Annual Accounts
The deadline for the Boards to prepare the annual accounts (stand alone or consolidated) and, any other required reports or documents that are legally mandatory within three months from the end of the fiscal year, has been suspended until the State of Alarm” has been lifted.
The Boards could opt to formulate their accounts
- Within the original period of 3 months from the end of the financial year
- Up to 3 months, after the end of the state of alarm, or
- During the state of alarm
Deadline for publication of the audit report on the annual accounts
The minimum period established by commercial law for issuing the audit report is one month from the date on which the duly prepared annual accounts are delivered to the auditor. If the accounts for the previous financial year have already been formulated at the date of the declaration of the state of alarm the period for auditing the annual accounts (mandatory and voluntary audits) y, is extended by two months from the end of the state of alarm. ICAC has issued a clarifying consultation on this matter. https://www.icjce.es/adjuntos/consulta-icac-efecto.PDF,
- If the annual accounts have been formulated before the state of alarm, the auditor has an extension of 2 months to issue the audit report
- If annual accounts are formulated during the state of alarm, the auditor would have at least two months to issue its report from the date of formulation
- If the annual accounts had been formulated after the end of the state of alarm state, the extension of the deadline for issuing the audit report is not applicable.
Deadline for Approval of Annual Accounts
The ordinary general shareholders meeting for approving the annual accounts for the previous financial year shall meet within three months of the end of the period for the reporting of the annual accounts (up to 6 months from the end of the state of alarm).
If the convening of the general meeting was published before the declaration of the State of Alarm, but the day of that meeting was before the declaration, the Board will be able to modify the time and place of the meeting or to revoke the agreement to meet through a public announcement with an advance warning of a minimum of 48 hours. This must be published on the website of the company and, if they do not have a website, it shall be published in the ´Boletin oficial del Estado´.
If the convening of the general meeting is revoked, the Board must proceed to announce a new date within a month of the State of Alarm being lifted.
Form of Board meetings
The form in boards of directors and Shareholders meeting can hold sessions and adopt agreements has been made more flexible. During the state of alarm these could be carried out:
– By videoconference or telephone conference
– Written and without a session
Deadline for legalization of accounting books
The Association of Registers, considering that the deadline for the legalization of the accounting books is related to that of the formulation of the annual accounts, has issued a statement affirming that the companies will have 4 months from the end of the state of alarm for the legalization of their accounting books.
Let us suppose that the state of alarm ends on May 8, 2020, then for the year-end closing on December 31, 2019 and assuming that the annual accounts have not been formulated, we must monitor the following accounting dates:
|Beginning of State of Alarm
|March 14th 2020
|End of state of alarm
|May 8th 2020
|Annual accounts – formulation
|August 8th 2020
|Accounting books – legalization
|September 8th 2020
|Annual Accounts – Approval
|November 8th 2020
|Filing of the Annual Accounts in the Mercantile Register.
|December 8th 2020
|Available after announcement of Annual Shareholders meeting
Accounts prepared before March 14th 2020
|2 months since state of alarm ends – July 8th 202
|Accounts prepared between March 14th 2020 and May 8th 2020
|2 months since formulation
|Accounts prepared after the end of state of alarm
|1 month since formulation
The Coronavirus crisis is causing businesses to face huge challenges and, in this context, reliable and up-to-date information is essential. At Auxadi, we are exports in providing accounts, tax compliance and international payroll management to our clients. If you would like us to expand on the above information, please do not hesitate in getting in touch with us.