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A multinational group consolidates under IFRS. Its Spanish subsidiary files accounts under Spanish GAAP. The group auditor signs off on consolidated figures — but the local statutory audit produces a different picture. Reconciling the two is where things get complicated, and where errors, delays, and audit qualifications tend to appear. If you manage a Spanish subsidiary within an IFRS-reporting group, this guide explains how the audit process works and what you need to get right.
Spain’s statutory accounting framework — the Plan General de Contabilidad (PGC) — is broadly convergent with IFRS but not identical. Spanish subsidiaries are required to file their statutory accounts under Spanish GAAP (PGC), while the parent group may report under IFRS as adopted by the EU. This creates a dual reporting environment that requires careful management.
Spanish GAAP vs IFRS: the key differences that affect the audit
Understanding where Spanish PGC and IFRS diverge is essential before scoping the audit. The most significant differences include:
Lease accounting
IFRS 16 requires virtually all leases to be recognised on the balance sheet as right-of-use assets and lease liabilities. Spanish GAAP distinguishes between finance and operating leases more traditionally — operating leases remain off-balance sheet. For Spanish subsidiaries with significant property or equipment leases, this creates a material reconciling item between local and group accounts.
Revenue recognition
IFRS 15 introduced a detailed 5-step model for revenue recognition. Spanish PGC revenue rules are less prescriptive. For companies with complex contracts, variable consideration, or long-term service arrangements, the timing and measurement of revenue may differ between the two frameworks.
Financial instruments
IFRS 9 governs classification, measurement and impairment of financial instruments with detailed rules including expected credit loss (ECL) provisioning. Spanish GAAP follows a different impairment model. Groups with significant intercompany loans, trade receivables, or investment portfolios in their Spanish subsidiary will encounter differences here.
Goodwill and impairment
Under IFRS, goodwill is not amortised — it is tested for impairment annually. Under Spanish GAAP, goodwill is amortised over its useful life (maximum 10 years). This produces a permanent difference that affects both profit and net asset values in the IFRS-to-local reconciliation.
Deferred tax
IAS 12 (deferred tax under IFRS) and Spanish rules on deferred tax follow broadly similar principles but differ in the recognition criteria for deferred tax assets — particularly for tax losses and timing differences. The Spanish tax rules interact with PGC in ways that do not always map directly to IFRS.
The dual audit: statutory audit plus group audit procedures
A Spanish subsidiary within an IFRS-reporting group typically faces two distinct audit processes:
1. Statutory audit under Spanish law
If the Spanish subsidiary meets the audit thresholds under Spanish law (balance sheet above €2.85 million, net turnover above €5.7 million, or more than 50 employees — two of three criteria for two consecutive years), it must have its statutory PGC accounts audited by a registered Spanish auditor (Registro Oficial de Auditores de Cuentas — ROAC).
The statutory audit must be conducted under Spanish auditing standards (NIA-ES — Normas Internacionales de Auditoría adaptadas por el ICAC) and concludes with an audit report on the Spanish GAAP financial statements. This report is filed with the Registro Mercantil and is publicly accessible.
2. Group audit component procedures
Separately, the group auditor (who audits the consolidated IFRS accounts of the parent) will instruct the Spanish component auditor to perform audit procedures on the Spanish subsidiary’s contribution to the consolidated accounts — under IFRS. These procedures follow ISA 600 (using the work of another auditor) and require the Spanish auditor to:
- Apply IFRS-based audit procedures to the local financial data
- Prepare a reporting package under the group’s audit instructions
- Report on any significant differences between local GAAP and IFRS
- Communicate key audit matters and findings to the group auditor
The coordination between the group auditor and the Spanish component auditor is critical — and when it breaks down, it leads to reporting delays and audit qualification risk.
Practical steps to manage the IFRS audit of a Spanish subsidiary
Step 1: Agree the IFRS reporting package early
The group auditor will provide a reporting package template — a set of IFRS-based financial schedules, disclosures and confirmation requirements that the Spanish subsidiary must complete. This should be agreed and distributed well before the audit begins, so the local finance team knows exactly what is expected.
Step 2: Prepare the PGC-to-IFRS reconciliation
A formal reconciliation of profit, net assets and equity between Spanish GAAP and IFRS must be prepared for every reporting period. This reconciliation must be audited as part of the group procedures. Building this reconciliation into the monthly close process — rather than preparing it from scratch at year end — saves significant time and reduces errors.
Step 3: Coordinate timelines between statutory and group audit
The statutory audit and the group component procedures often run in parallel but have different deadlines. In Spain, statutory accounts must be approved by the shareholders’ meeting within 6 months of the financial year end (i.e., by 30 June for a December year end) and filed with the Registro Mercantil within 1 month of approval. Group reporting deadlines are set by the parent and may be earlier. Planning the audit calendar to accommodate both is essential.
Step 4: Ensure the Spanish auditor is ROAC-registered
The statutory audit must be conducted by an auditor registered on the ROAC (Registro Oficial de Auditores de Cuentas), regulated by the ICAC. Foreign audit firms cannot sign Spanish statutory audit reports unless they are registered in Spain. Many multinational groups use a Spanish member firm of their global audit network for exactly this reason.
Frequently asked questions
Can a Spanish subsidiary voluntarily report under IFRS instead of Spanish GAAP?
Yes — but only in limited circumstances. Under Spanish law, consolidated accounts of groups whose parent is a Spanish company can be prepared under IFRS as adopted by the EU. However, individual (statutory) accounts of Spanish entities must be prepared under Spanish PGC, unless the entity is a Spanish company whose securities are admitted to trading on an EU regulated market — in which case IFRS is mandatory for the consolidated accounts.
What if the Spanish subsidiary is below the mandatory audit threshold?
Below-threshold Spanish subsidiaries are not required to have a statutory audit under Spanish law. However, the group auditor may still require component audit procedures for group purposes — even for small entities, if they are material to the consolidated accounts. In this case, agreed-upon procedures or a limited review may be agreed with the group auditor as an alternative to a full audit.
How does the group auditor rely on the Spanish component auditor’s work?
Under ISA 600, the group auditor reviews the component auditor’s qualifications, independence, and methodology before relying on their work. The group auditor will issue an instruction letter setting out scope, materiality, and reporting requirements. The Spanish component auditor responds with a reporting package and a completion memorandum confirming the procedures performed. Direct communication between both audit teams is standard practice in well-managed group audits.
Auditing a Spanish subsidiary under IFRS requires expertise in both frameworks — and strong coordination between local and group audit teams. At Capital Auditors & Consultants, we act as component auditor for multinational groups with Spanish operations, providing ROAC-registered statutory audit services and IFRS-based group reporting packages. Contact our audit team to discuss your subsidiary’s requirements.
