Competence to appoint the auditor and documents comprising the financial statements

Who has the authority to appoint the auditor?

According to Royal Legislative Decree 1/2010, of July 2, 2010, which approves the revised text of the Capital Companies Act (LSC), the power to appoint the auditor lies with the General Meeting of Shareholders. This body is responsible for deciding on the appointment of the auditor in those companies obliged to submit their accounts to audit, either by law or by their own decision.

Article 264 of the LSC establishes that the General Shareholders’ Meeting must appoint the auditors before the end of the year to be audited. The appointment is made for an initial period of no less than three years and no more than nine years, and may be renewed after this period has elapsed.

In companies where control is exercised by a single partner, the responsibility for the appointment falls directly on that partner, always complying with the deadlines and requirements established by law to guarantee the auditor’s independence and objectivity.

The auditor’s role in financial transparency

The auditor’s mission is to review and verify the financial information presented by the company, ensuring that it accurately reflects its economic situation. This work not only helps prevent fraud and errors, but also increases the confidence of investors, clients and partners in the company’s management.

Appointment at the request of the members

The LSC also contemplates the right of shareholders and directors to request the appointment of an auditor. According to Article 265 of the LSC, when the general meeting has not appointed the auditor before the end of the year to be audited, when it should have done so, or when the person appointed does not accept the position or is unable to perform his duties, the directors and any shareholder may request the commercial registrar of the registered office of the company to designate the person or persons who are to perform the audit.

In corporations, the request may also be made by the commissioner of the bondholders’ syndicate.

In companies that are not obliged to have their annual accounts audited by an auditor, shareholders representing at least five percent (5%) of the capital stock may request the commercial registrar of the company’s registered office to appoint an auditor at the company’s expense to audit the annual accounts for a given year, provided that three months have not elapsed since the closing date of said year. The request for the appointment of the auditor and his appointment shall be made in accordance with the provisions of the Mercantile Registry Regulations. Before accepting the appointment, the auditor must evaluate the effective fulfillment of the assignment in accordance with the provisions of the regulations governing the auditing of accounts.

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Documents comprising the annual accounts

The annual accounts, according to the LSC, are a set of documents that provide a complete view of the company’s financial situation. The main components of the annual accounts include:

1. Balance sheet: Presents the company’s assets, liabilities and net worth, providing a snapshot of its financial position at a given point in time.
2. Profit and loss statement: Details the company’s income and expenses during a given period, showing the result for the year, i.e., whether the company has made a profit or loss.
3. Statement of changes in equity: This reflects the changes in the company’s shareholders’ equity during the year, including contributions from shareholders, distribution of profits and other transactions affecting equity.
4. Statement of cash flows: Shows the cash flows generated and used in operating, investing and financing activities during the year.
5. Notes to the Financial Statements: These supplement and expand on the information contained in the other documents, providing additional details on accounting policies, contingencies, commitments and other aspects relevant to the understanding of the financial statements.

Importance of the correct preparation and auditing of annual accounts

The preparation and presentation of annual accounts is not only a legal obligation established by the LSC, but a fundamental tool for business management. It allows the management body to make informed decisions, facilitates the obtaining of financing and improves the company’s image in the eyes of third parties. Therefore, having an independent external auditor is key to ensure the reliability of the financial information and to comply with current regulations.

Conclusion

The process of appointing the auditor and the correct preparation of the annual accounts are essential aspects for the transparency and efficiency of any company. The General Meeting plays a crucial role in the appointment of the auditor, ensuring that the auditor is independent and competent. In addition, understanding and correctly preparing the documents that make up the annual accounts is vital for accurately reflecting the company’s financial situation and making sound strategic decisions.

For more information and personalized advice, please do not hesitate to contact our law firm. We are here to help you navigate the complex world of auditing and business accounting, ensuring that your company complies with all regulations and makes the most of its financial resources.

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