Regulation 1606/2002 of the European Parliament and the Council established the obligation to apply the IASB standards for financial years beginning on January 1, 2005, to the consolidated financial statements of enterprises whose securities had been admitted to listing on a regulated market of any Member State at the balance sheet date. In addition, the Regulation gave the Member States the option of permitting or demanding the application of the aforementioned standards to the individual financial statements of listed enterprises, to the consolidated financial statements of unlisted enterprises and to the individual financial statements of unlisted enterprises.

The effect of implementing IAS in Spain will depend, to a large extent, on the decision of the Spanish legislator regarding their application to individual financial statements, although, in any case, the implementation of these standards will lead, at medium term, to an increase in the volume and quantity of the financial information contained in accounting documents.

Under International Accounting Standards, the main financial statements are:

– Balance sheet
– Income statement
– Statement of changes in net equity
– Cash flow statement

In addition, it is anticipated that a series of notes on the accounting policies used and other explanatory notes on the items presented in the main statements will be created. These standards also advocate the presentation of a management report prepared by the directors that describes and explains the business activity carried on by the entity, its financial position and the main economic uncertainties facing it in the future.

IAS does not impose any format for the presentation of the main financial statements, in contrast to the current restrictive nature of the Spanish National Chart of Accounts.

One of the novelties introduced by IAS with respect to the Spanish National Chart of Accounts is the use for certain items, be it on an obligatory or voluntary basis, of the so-called fair value. This is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Fair value must be compulsorily used to measure all the financial instruments held by an enterprise (except loans or accounts receivable originated by it), although the changes in the value thereof are treated differently depending on the enterprise’s intention with respect to these changes. In addition, the fair value must be used in the valuation of agricultural products and biological assets.

In addition, fair value will predictably be able to be used on a voluntary basis to value tangible fixed assets if it can be determined periodically. In this case, the related depreciation will be calculated on the adjusted values and the increases in value exceeding the depreciated historical cost taken to equity, whereas the decreases are treated as losses.

The IASB framework provides for the main assumptions structuring the basis of financial reporting and establishes the qualitative characteristics determining the use of the financial statements. Specifically, the main assumptions are the accrual principle and the goingconcern principle. Also, the qualitative characteristics of the financial statements are:

– Understandability
– Relevance (materiality)
– Reliability
- Faithful representation
- Substance over form
- Neutrality
- Prudence
- Completeness
– Comparability

The process of introducing IAS in Spain began with the approval of Regulation 1725/2003, adopting the International Accounting Standards approved by the IASB with the exception of IAS 32 and 39 (relating to financial instruments) and certain interpretations (SIC) relating thereto.

Subsequently, IAS 32 and 39 were adopted through Commission Regulation (EC) No.
2237/2004 and 2086/2004.

Moreover, the European Union has published on December 31st, 2004 on its official Gazette the Commission Regulations (EC) No. 2236/2004 and 2238/2004 which approve IFRS 1, 3, 4 and 5, and contain the improvements approved by IASB in its "Improvements Project" of December 2003 regarding IAS 1 to 10, 12 to 24.