Acis 5034 Final Project: Spain

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ACIS 5034 Final Project: Spain

Logan Fitzgerald, Andrew Harrs,

Rachel Shapiro, and Dana Wonderly

Table of Contents:



Spanish History


Spain's Political/Legal System


Spanish Culture


Spain’s Accounting System: Culturally Expected vs. Actual


Spain's Predominant Business/Economic Model


Impact of Globalization on Spain


U.S. GAAP versus IFRS




Works Cited Page


In order to fully comprehend Spain’s accounting system, it is essential to obtain a deeper understanding of Spain's historical, cultural, political, and economical attributes. In addition, determining the similarities and differences between Spain’s accounting policies under IFRS and the way in which U.S. GAAP operates can provide valuable information regarding Spain’s accounting system on a more global scale. Assessing Spain’s involvement in terms of globalization will help reveal, in more detail, how Spain is ultimately impacted by their particular accounting and globalization roles and obligations.

Spanish History:
Religious Underpinning of Spanish Society

Only during the height of the Roman Empire and its rivalry with Carthage did the Roman regime seek to secure the Spanish boundaries. During the First Punic War the Romans lost control of Sicily and Sardinia to Carthage; prompting the Romans, during the following war to take Spain as a defensive tactic. Following their invasion of Spain, the Romans were met with opposition first from the Carthaginians and then from the various Spanish settlements.

The Roman conquest laid a foundation upon which Spain developed: it instilled within the country its Catholic tendencies, its tradition of a monarchy as the nation’s political philosophy, and its division into fragmented regions. After the fall of Carthage in North Africa, the newly freed Muslims pursued Spanish territory. Muslim advancement into Toledo proved rapid, for the local attitude toward the Christian government was one of hostility. Muslim influence grew pervasive in Southern Spain, ingraining in it philosophic, economic, and scientific influences. During the Middle Ages, Aragon, Catalonia, and Valencia were established under the parliament of King Alonso’s rule. Following the crowning of Catholic Monarch King Ferdinand, Castile and Aragon were united, however; the regions remained culturally distinct. The cultural divisions between Spain’s various regions and religious affiliations distinguished it from other regions in Western Europe at the time. Hostility between religious groups ultimately bred the infamous Spanish Inquisition during the Middle Ages. In 1492 the Catholic monarchy announced the expulsion of all Jews who refused baptism from Spain. With the rise of religious prejudices in Spain also came another prejudice: “purity of blood” or limpieza de sangre. The Catholic patriarchy implemented statutes of limpieza, which instilled in the region values of “pure ancestry, orthodoxy, and personal honor” (Encyclopedia Britannica). Continuing on their quest for purity, King Ferdinand and his wife Isabella sought to expel the Muslims from Southern Spain, specifically from the city of Granada. Similar treatment to the Jews was forced upon the Muslims after Ferdinand captured Granada: conversion or expulsion. Although many Muslims bowed to conversion, their old religious influences still pervaded among the region.

As much as the Catholic monarchy was inwardly focused on dominating the Spanish region, it also sought supremacy in the exploration of the new world. During the same year that the monarchy announced the Inquisition, the Spanish-backed explorer, Christopher Columbus made landfall in what he believed to be the West Indies. So marked the beginning of the Spanish exploration of the Americas and disputes with Portugal over colonization efforts. The Treaty of Tordesillas in 1494 finally abated quarrels between the two nations. The treaty granted everything west of the imaginary line 370 leagues west of the Cape Verde Islands in the Atlantic Ocean to Spain (Encyclopedia Britannica). The remainder of Europe, however, saw no reason to acknowledge the treaty between Spain and Portugal, which resulted in constant clashes between European nations in the quest for colonization of the new world.

Spain and the Habsburgs

King Ferdinand’s death in 1516 marked a new Spanish era, as Ferdinand’s grandson and ruler of the Netherlands, Charles I assumed power. Charles I was also heir to the Habsburg territories in Austria and Germany. Although at first met with apprehension and some physical opposition from the Spanish, Charles I was eventually endorsed. During this time period, Spain’s economic weaknesses were exacerbated. In comparison to other European powers, its taxation system proved a serious hindrance. Following the reign of Charles I, the Spanish declines in the economy and population, which suffered a decrease of nearly two million inhabitants, indicated serious issues for the region in the late 17th Century. It is believed that such hardships stemmed from the mass military casualties, plagues, and general dissatisfaction with authority. The decline of Spain, marked by these 17th Century hardships, resulted in a weakening of its power and consequent vulnerability to stronger European powers’ influences.

The year of 1700 saw a new ruler of Spain, Philip V, a Bourbon. While France viewed Philip V’s rise to power as a strategic means for influencing and gaining access to the region, Austria and England interpreted it as a serious threat to the balance of power. The War of Spanish Succession, waged by Austria and England as an attempt to dethrone the Bourbon, raged on from 1701 to 1714. As the war fizzled out in 1714, Philip V was able to capture Barcelona, Catalonia’s capital. Although Catalans vehemently opposed the new leadership, Philip V’s invasion marked a historic milestone in the nation’s history: the taking of Catalonia effectively united Spain, save for the Basque and Navarre regions. It also marked the loss of possessions and rights outside its borders, though. The war had cost Spain the European territories of Belgium, Luxembourg, Milan, Sardinia, Sicily, and Naples; and bestowed to Britain rights to Gibraltar and Minorca and the right to trade with Spanish America (Encyclopedia Britannica).

In the period that followed, Spain focused on strengthening its army and navy so as to exact revenge and regain European dominance. Under the rule of Ferdinand VI, Spain pursued France as an ally against Britain in the fight for supremacy in the new world. Spain also sought to enhance its trade with new naval innovations, but its historically weak economy stifled its ambitions. Although this period saw many failures, the French alliance helped to strengthen Spain’s domestic recovery following its period of decline. The Spanish adopted the French administrative practice of ruling provinces, in which “intendants strengthened royal control over local government” (Encyclopedia Britannica). The new institution bred economic stimulation.

1759-1788: The Reign of Charles III and Spain’s Enlightenment

The turn of the 18th Century brought much needed political and economic reformation. King Charles III’s ideals differed from those of the Bourbons; he was dubbed a “reformer’s king” and his governmental philosophy followed those of the European Enlightenment (Encyclopedia Britannica). Spain’s economic revival during the later half of the 18th Century was spurred by population growth and the development of industry specializations in multiple Spanish regions. Catalonia emerged as a cotton-based textile industry, the Basque region established itself as a leader in the iron industry, and Galicia developed a renowned fishing fleet. The nation as a whole also prospered from new trade reforms; allowing better exchange within the country and with America.

As beneficial as the new focus on international trade reforms were to Spain- “the volume of Spanish goods in the American trade increased 10-fold in 10 years”- it also had serious consequences (Encyclopedia Britannica). Realizing that Britain posed the greatest threat to Spain’s success in the international market, Charles III negotiated with France a mutual defense treaty, referred to as the Family Compact of 1761. The newly formed alliance with France entangled it in the Seven Year’s War between the British and French. Spain suffered a serious blow when the British occupied its strategic territory, Cuba, Havana in 1762. A year later the Treaty of Paris was signed, marking the end of the Seven Year’s War and France’s presence as a major American influencer. The treaty resulted in Spain’s losing territory between Florida and the Mississippi River, but it’s gaining of Louisiana. Another later agreement, the Treaty of Versailles, re-awarded Spain with Sacramento, the two Floridas, and Minorca (Encyclopedia Britannica). Although its presence in America created many complications and the Spanish faced American revolts against its colonization, Spain’s international involvement helped to re-establish the nation as a global powerhouse.

On the domestic front, Spain was still characterized and consequently troubled by regional fragmentation. Administrator, Pablo de Olavide famously described the Spanish phenomenon as, “A body composed of other and smaller bodies, separated in opposition to one another, which oppress and despise each other and are in a continuous state of war… Modern Spain can be considered a monstrous Republic of little republics which confront each other because of particular interest of each is in contradiction with the general interest” (Encyclopedia Britannica). And so the government’s quest to better unify the regions and establish a centralized government continued to persist. The ideals of Enlightenment that Charles III had adopted aimed to rid a society of prejudices and institutions that stifled economic prosperity (Encyclopedia Britannica). These new beliefs somewhat contradicted that of the Church’s religious domination. The Roman Catholic society in Spain, at the time, was still an enormous influence; however, the new enlightening principles began to questions its authority in more threatening ways than ever before.

Charles IV, Manual de Godoy, and the French Revolution

In 1788 Charles IV succeeded his father as king. The weak qualities of Charles IV were reflected onto Spain as a whole, which became fragile in the midst of a whirl of uncertainty. A number of grave political missteps would prove to solidify Spain’s 19th Century destiny. During this time frame, revolutionary ideas swept several European nations, culminating in the French Revolution and the Napoleonic Wars. Shortly thereafter, Manual de Godoy, an officer bred from lower nobility, assumed the position of prime minister and subsequently became a Spanish figurehead. Godoy grappled with establishing Spain’s foreign position among the European revolts.

Finally, in 1793, the execution of Louis XVI prompted the nation to take a stance in the matter: Spain declared war on France. The declaration resulted in a French invasion and the French occupation of Bilbao, San Sebastian, and Figueres in 1794 (Encyclopedia Britannica). Fearing the spread of revolutionary ideals into Spain and feeling the pressure of his growing unpopularity among Spanish citizens, Godoy signed the Treaty of San Ildefonso in 1769, creating a Spanish-French alliance. Not only did this treaty again pull Spain into conflicts between the French and the British, but also it marked the first of Godoy’s many questionable political decisions. In 1801 Spain successfully invaded Portugal, spurring the War of the Oranges. Seeking support to compensate for its weaknesses, Spain entered into yet another treaty in 1807, the Treaty of Fontainebleau, with Napoleon. The treaty established that together, the two powers would split the Portuguese territory. However, Napoleon quickly reneged on the treaty. Praying on Spain’s vulnerability, Napoleon took central and northern Spain on his way to Portugal and demanded that Charles IV resign and Godoy be dismissed from his prime minister position. Napoleon’s brother, Joseph Bonaparte’s, assumption of the Spanish throne was the proverbial nail in the coffin for Spain.

1808-1814: The French Invasion and the War of Independence in Response

Napoleon’s usurpation of the Spanish crown spurred a Spanish revolt, which materialized into the War of Independence. In response to the revolt against his occupation, Napoleon invaded Spain in 1809. With Britain’s support, Spanish troops were able to defeat Napoleon in key battles, like Talavera and Victoria. The now common term “guerilla” was first used to describe the Spanish resistance to Napoleon during the War of Independence. The word is derived from the Spanish word “guerra" or war; it gives meaning to both the liberals and conservatives that united to defend Spanish tradition (Encyclopedia Britannica).

The struggle for freedom bred a new, liberal Spanish political philosophy. In 1812, the Constitution of Cadíz was penned; within its pages laid “the ‘sacred codex’ of Latin liberalism” (Encyclopedia Britannica). The constitution stressed individualistic ideals and established a limited monarchy, a single-chamber parliament without religious representation, and a centralized governing body (Encyclopedia Britannica). Although promising, the Constitution of Cadiz would be challenged for decades to come.

1814-1833: The Return of Ferdinand VII

Although Ferdinand VII had been banished by Napoleon during his tirade, the former king returned to Spain from exile to combat the new outbreak of liberalism. With the support of conservatives, Ferdinand reclaimed the throne as an absolute monarch in 1812. Liberal rebels, including Simón Bolívar and José de San Martín, led the resistance against Ferdinand and in 1820 succeeded in pressuring him to reinstitute the constitution. However, the success of liberalism was again short-lived; its failure stemming from a division of the liberal party. The power struggle between liberals and conservatives continued to stifle the evolution of the Spanish political philosophy, illustrating the most pervasive theme throughout its history: a desire for reform, but a fear of letting go of its religious tradition.

Not only did the Spanish monarchy face resistance domestically, but also in its colonies in the new world. In 1822, Mexico succeeded in gaining its independence from Spain. Afterwards, the only international territories that Spain still laid claim to were Cuba, Puerto Rico, and the Philippines (Encyclopedia Britannica).

The “ominous decade” from 1823-1833 marked a failed attempt by Ferdinand to purge Spain of liberals, a tactic reminiscent of the inquisition. Extreme conservatives pressured Ferdinand to comply with their demands that his brother, Don Carlos, inherit the throne from him. However, upon Ferdinand’s marriage to niece Maria Cristina of Naples, the conservatives’ request was squashed. When she assumed her title, Maria Cristina convinced Ferdinand to exclude Don Carlos from the line of succession and later secured her daughter, Isabella’s, position as future queen. Feeling disrespected and angry, the conservatives channeled their rage into the formation of the Carlist party, a foreboding milestone in recent Spanish history.

1833-1868: The Reign of Isabella II and the Carlist Wars

Upon Ferdinand VII’s death and Isabella II’s subsequent crowning, the first Carlist War broke out in 1833. “The dynastic war between Isabelline liberalism and Carlism was a savage civil war between urban liberalism and rural traditionalism, between the poorly paid and poorly equipped regular army of liberal governments, supporting Isabella, and the semi-guerrilla forces of the Carlists” (Encyclopedia Britannica). Out of necessity for protection against the Carlists, Maria Cristina solidified the alliance between the conservative, respectable liberals and the Spanish monarchy with the institution of the Royal Statute of 1834. This constitution proved more conservative than the Constitution of Cadíz, granting the monarchy the right to choose ministers but allowing the financing of war through the sale of church land. Never before in Spanish history has this type of property sale been legal.

The Carlist Wars caused a shift in local power, one toward generals as enforcers of political policy. Under this ideal, two parties were created: the moderados (moderates) and the progresistas (progressives). These two parties vied for power in what created a period of military and political turmoil. During this time period, yet another political party rose and would later become a major influencer: the Democratic Party.

At the same time, the Spanish economy experienced a period of revival driven by new governmental regulations. Successful regional industry specialization and the rise of the bourgeoisie enhanced this era of economic prosperity. Such economic factors, general disapproval of the government, and new democratic tendencies led to the dethroning of Isabella in 1868.

The Constitution of 1869 and the Republic of 1873

Upon Isabella II’s desertion of the throne, the army oligarchs that led the coup against her selected Amadeo, the second son of the king of Italy, to fill vacancy. A year prior to Amadeo’s arrival in Spain, the general penned a new constitution in 1869 to establish a constitutional monarchy. Although he was in power for only a short period of time, Amadeo faced heavy opposition from various parties and subsequently failed to provide the nation with a stable government. Amadeo abdicated in 1873, his absence swiftly transforming the political philosophy from a monarchy to a republic.

The establishment of the Republic of 1873 again enraged the Carlists, prompting the party to wage the Second Carlist War during that same year. It seemed as though the country could not escape the grips of political turmoil. It had finally achieved, however, some political reform through the implementation of the new constitution. The new constitution, “for the first time had allowed complete freedom of religion” (Encyclopedia Britannica).

The Restored Monarchy

For the first time in several decades, the Spanish enjoyed a short era of governmental stability from 1875 to 1898. Antonio Cánovas del Castillo provided the nation with the long sought after peacefulness through his writing of a new constitution in 1876 and through the restoration of the Spanish monarchy. The Canovite system called for a rotation “in office of a Liberal and a Conservative party; this in turn demanded governmental control of elections, which were run by caciques, or local political bosses, who controlled votes in their districts and delivered them in return for favors for themselves and their supporters” (Encyclopedia Britannica). The economic stability during this time period acted as a foundation upon which the political stability rested. Spain thrived on the increased demand for goods and services like iron ore, wine, and railway construction (Encyclopedia Britannica).

While the nation achieved success domestically, Spain suffered a major defeat on the international front. Following the Spanish-American war, the country lost its few remaining territories of Cuba, Puerto Rico, and the Philippines in 1898 (Encyclopedia Britannica). With this defeat came a new air of pessimism: Spain’s economic prosperity began to level off and its political stability was soon met with opposition once more.

Spain at the Turn of the 20th Century

Spain, at the turn of the 20th Century, looked very much like it had in centuries before: confused in the midst of political turmoil and dissatisfied citizens. “Criticism of the restoration monarchy came from the Catalan and Basque regionalists, a revived Republican Party, the proletarian parties, the army, the more forward-looking of the Spanish politicians, and intellectuals” (Encyclopedia Britannica). The Catalan region, holding in esteem its own language and cultural traditions, demanded the return of a party system to replace the current turno or rotation of parties as implemented by the Cavonite constitution. The Basque region proved less threatening to political stability. However, tension between the army and the Catalans continued to build, coming to a head with the passage of the Law of Jurisdictions in favor of the military. Not only did the legislation appease military critics, but also served to formally unite Catalans into the Solidaridad Catalana.

Republican ideals from the previous century were revived, most notably by radical and former journalist Alejandro Lerroux. Lerroux was the driving force behind the 1910 founding of the National Confederation of Labor. Although small at its beginning, the party’s influence grew with the conversion of former socialists to radicals, giving “the party a political leverage in excess of its voting strength” (Encyclopedia Britannica). This period of new political party creation also bred destruction. The Tragic Week of 1909 struck Barcelona, during which “public order collapsed, and anarchists and Radical Republicans burned churches and convents” (Encyclopedia Britannica). Another contributing factor to the Spanish turbulence was World War I. Many workers formed unions and demanded better working conditions, which in turn led to new demands from political parties like the Radical Republicans and Catalans. The workers staged an organized strike in Barcelona in 1919, which then spurred a series of assassinations carried out by the various frustrated parties. Tied up in conflict with Morocco, the Spanish government found itself spread thin.

1923-1930: The Dictatorship of General Miguel Primo de Rivera

In 1923, General Miguel Primo de Rivera staged a coup, through which he gained power as a military dictator and the valuable support of the conservative classes who were threatened by the radical ideals sweeping the nation. Primo de Rivera initially ruled through army utilization and set out “to save Spain from the old politicians and to hand over government to ‘clean’ patriots”, but ultimately failed due to widespread unpopularity among the Spanish citizens (Encyclopedia Britannica). During his stint as head of the Civil Directory, Primo de Rivera enacted protectionist economic policies and overhauled the Spanish public works system. However, Primo’s greatest misstep was failing to sustain sufficient political support from major Spanish parties. Ultimately, both the army and the king stopped supporting the dictator. Lack of support caused Primo de Rivera’s authority to crumble and he resigned in 1930. His departure prompted a political domino effect, driven by dissatisfied and powerful political parties that demanded a republic be re-enacted. As a result, King Alfonso XIII left Spain in late 1930.

1930-1936: The Second Spanish Republic

The short-lived domain of Spain’s Second Republic can be classified into the following four phases: (1) the provisional government until 1931, (2) the Left Republicans’ and Socialists’ government from 1931-1933, (3) the Radical Republicans’ and Roman Catholic rights’ government from 1933 to 1936, and (4) the Popular Front government until 1936 (Encyclopedia Britannica).

Niceto Alcalá Zamora, a Catholic Republican, presided over the Provisional Government until religious outrage of the Socialists and Left Republicans forced his resignation in 1931. The ousting of Alcalá Zamora placed the Left Republicans and Socialists in power for the time being. Figure heads for the political parties sought to create a “modern democracy” (Encyclopedia Britannica). Perhaps the greatest political achievement during this time period was the appeasement of Catalonia, which threatened to “declare its independence within a federal state” (Encyclopedia Britannica). The election of November 1933 shifted power from the hands of the Left Republicans and Socialists to the Spanish Confederation of Autonomous Rights (CEDA) and to Lerroux’s Radicals (Encyclopedia Britannica). Many Spanish citizens viewed the CEDA as a fascist party; similar to that of Adolf Hitler’s in Germany. Thus, the results of the election in the CEDA’s favor sparked a period of revolution, culminating in the October Revolution of 1934. The socialist party’s fears drove the revolt against the government, which was ultimately suppressed by the Spanish army. The Socialists’ repression by the army laid “the emotional origins of the Popular Front against ‘fascism’” (Encyclopedia Britannica). The election of 1936 was won by the Popular Front, a Republican party that had staged a violent campaign for power. When the Republicans gained back power, its opposition reacted: the Falange party, founded on fascist ideals by son of the former military dictator José Antonio Primo de Rivera, grew in popularity (Encyclopedia Britannica). The Falange party “was primarily responsible for the marked increase in political street violence in the months after the 1936 election” (Encyclopedia Britannica). It seemed as though Spain was being sucked into the Marxist philosophy just as several other European powers were during the time.

1936-1939: The Spanish Civil War

The unsettling political imbalances and hostility among parties in Spain during the Second Republic erupted into a civil war. “The legal government was bypassed or totally supplanted by local committees and trade unions; the workers’ militia replaced the dissolved army”, and in “many parts of Spain a social revolution took place in June 1936 as factories and farms were collectivized” (Encyclopedia Britannica). The war materialized into the Nationalists versus the Republicans; however, both sides were aided by outside assistance. General Francisco Franco, who had emerged as a figurehead for the Nationalists, had gained the support of the Roman Catholic Church and military backing from Germany’s Hitler and Italy’s Mussolini. The Nationalists, overtime, “consciously used terror as a policy” (Encyclopedia Britannica). The Republicans, on the other hand, sought support from the Soviet Union and Mexico.

After years of bitter embattlement, the Nationalists ultimately achieved victory. A strong army, solid political control, and a persuasive leader proved key success factors for the Nationalists. Following his success, Franco incorporated the fascist Falange party and Carlist party under a unified vision in April 1937 (Encyclopedia Britannica).

1939-1975: Franco’s Dominance

Following the end of the Civil War, Franco continued to assert the emergency powers that he was granted during the conflict. His decades of rule were characterized by “political purges and economic hardships” (Encyclopedia Britannica). Early on during his dictatorship, Franco implemented his infamous policy of “autarky”, which adopted an economic stance of protectionism and self-sufficiency. When World War II erupted in Europe, Franco was quick to back Hitler and Mussolini, as the two had helped him seize his power during the Spanish Civil War. This alliance proved costly for Spain: it excluded the country from the newly formed United Nations. Franco was forced to seek other means of international alliance. In 1943, when it was clear that the allies would soon be World War II victors, “Franco reaffirmed Spain’s nominal neutrality without gaining their benevolence” (Encyclopedia Britannica). Nevertheless, in 1953, Franco managed to strike a deal with the United States just as the Cold War was beginning to heat up. The U.S. provided Spain with financial aid in return for the American establishment of strategic military bases in Spain (Encyclopedia Britannica). Things were beginning to look up for Spain; it had achieved relative political stability, an alliance with the U.S., and admittance to the United Nations.

However, the poor state of the Spanish economy threatened the prosperity of Franco’s regime. Upon realizing that his widely unpopular “autarky” policy needed revamping, Franco introduced the new concepts of a market economy and an “opening of Spain to international trade and much-needed foreign investment" (Encyclopedia Britannica). These new strategies boosted economic growth, which saw upwards of a seven percent growth between 1962 and 1966. Most other hopes of governmental reformation were stifled, save for the passing of the Press of Law in 1966, which granted more freedom to the Spanish press.

Facing growing unpopularity among the Spanish and his failing health, Franco began the process of choosing a successor. The Organic Law of 1969 was the last piece of influence that Franco bestowed on the nation before declaring Juan Carlos his successor and king and handing over his premiership to Admiral Luis Carrero Blanco. Carrero Blanco, however, was assassinated shortly afterwards by the terrorist organization, Basque Homeland and Liberty (ETA). Consequently, a new premier needed to be selected. Carlos Arias Navarro was chosen for the position; his political aspirations included shifting the Spanish political policy toward a more democratic one. As had Spanish politicians throughout the nation’s history, Arias Navarro’s ambitions were met with opposition from the traditionalist mentality rooted deep within many of its citizens.

1975-Present: Democratic Strides and the Current-Day Spain

For the first time in its history, Spain saw a peaceful political transition- one to democracy. Upon Franco’s death and Juan Carlos’ crowning, Juan Carlos swiftly replaced Arias Navarro with Francoist Adolfo Suárez González. The elections of 1977 yielded a majority for Suárez González’s party in the Cortes and a national backing for Suárez González as a leader. He went on to construct and pass a new constitution in 1978, which “established Spain as a constitutional monarchy” and separated Church and state (Encyclopedia Britannica). In 1981 Suárez González resigned, feeling the burden of terrorism and the economic hardship too heavy to manage. Thereafter, another member of Suárez González’s Union of Democratic Centre (UCD) party assumed the prime minister position. As leader, Leopoldo Calvo Sotelo “successfully engineered Spain’s entry into the North Atlantic Treaty Organization (NATO) in 1982” (Encyclopedia Britannica).

The election of 1982 marked a significant change in political policy influence: the Spanish Socialist Worker’s Party (PSOE) had gained a majority over the UCD in the Cortes. PSOE leader, Felipe González, succeeded Sotelo as the new prime minister. His leadership marked the end of the Francoist influence on Spanish political policy. The PSOE set out on a difficult political journey that entailed diminishing the country’s inflation and to modernizing Spain’s industry. In 1986 Felipe González achieved a major success: he had gained Spain’s access into the EEC (now the European Union). In combination with this political victory, Felipe González also gained popularity for his ability to reduce inflation, which helped to fuel economic growth. In the following elections he and his party retained their positions.

Although the nation saw many successes during the period, it was also plagued by the staggering unemployment rate of nearly twenty percent. This reality rallied workers and unions alike against Felipe González and the PSOE. The party, however, managed to hold onto its majority in the Cortes for a number of years. By Felipe González’s fourth term, his party’s speculated corruption sent its former popularity into a quick descent. As expected, the results of the following election in 1996 manifested into the rise of a new political party- the conservative Popular Party. The Popular Party’s majority saw the rise a new prime minister, José María Aznar. María Aznar and his party saw several political successes, including Spain’s admittance to join the EU’s currency, the euro, and an economic recovery (Encyclopedia Britannica). However, the party’s unpopular decision to support “the U.S.- and British-led war to oust Saddam Hussein’s government in Iraq despite opposition by some 90 percent of Spain’s citizens” solidified the PSOE’s fate in the next election.

During the election of 2003, the Socialist Party gained a majority in the Cortes, and José Luis Rodríguez Zapatero became Spain’s new prime minister. Zapatero brought to his position a “new type of progressive politics to government”; nearly half of his cabinet consisted of women and he passed various laws that affected citizens’ private lives, most notably were the “legalization of same-sex marriage and the criminalization of domestic violence” (Encyclopedia Britannica). Once in power, Zapatero almost immediately severed Spanish involvement in the Iraq War and sought to reform the regions of Catalonia and the Basque Country.

The election of 2008 saw the Cortes majority shift back to the PSOE, however, Zapatero retained the prime minister position. The year of 2008 brought with it the burden of the global recession. “Of all the members of the European Union, Spain was one of the worst-affected by the recession; by early 2010 the unemployment rate had surpassed 20 percent.” (Encyclopedia Britannica). In 2011, the Popular Party gained back the majority from the PSOE. With the shift in Cortes power, new Prime Minister Mariano Rajoy was sworn in. Rajoy voiced his commitment to addressing the economic downturn. Around this same time frame, scandal rocked the Spanish monarchy. In the swirl of criminal accusation slung at the royal family, Juan Carlos abdicated, thereby crowning his son Felipe the new king.

Spain’s Political/Legal System:
Spain, currently under the rule of King Felipe VI, has a political structure known as a parliamentary monarchy. This government, also known as a crowned republic, gives governing powers that are restricted to the country’s constitution and laws to their monarch (The World Factbook, 2015). Spain is divided into three different levels of government, being the Central Government, Autonomous Communities Government, and Municipal Government. The Central State of Spain is very similar to the United States government in the sense that its power is divided into the three categories of legislative, executive, and judicial. King Felipe VI is the Head of the State and Commander-in-Chief of the armed forces (Politics of Spain). The Legislative Chamber, also known as the Parliament, is divided into the Congress of Deputies and the Senate. The Congress of Deputies is made of a President, a Board, Board of Spokesperson, and a representative from the Executive. The Executive division of power, known as the Government, is regulated by Title IV of the constitution and comprised of a President (appointed by the king), Vice Presidents, the Ministers, and other members established by the law. Judicial Power is regulated by Title VI of the constitution and Organic Law (the highest level of the legal system), which is “administered only by judges and magistrates and the exercise of judicial authority in any kind of action is vested exclusively in the courts and tribunals laid down by law” (Features- A Guide to the Spanish Legal System). These judges and magistrates uphold Spain’s hierarchical civil law system. Autonomous Communities Government is important to understand because Spain is divided into 17 of these communities. Each Autonomous Community has its own Parliament and Government as described above. However, judicial power does not exist under Autonomous Communities Government because “the Judicial Power is unitary and their courts are courts of the State” (Features- A Guide to the Spanish Legal System). Lastly, Municipal Government is a subdivision of the Autonomous Communities that have an elected municipal council by the citizens that deals with the provinces municipality’s facilities.

Spanish Culture:

Geert Hofstede, a prominent psychologist and professor, was responsible for conducting a worldwide study about how a society’s culture affects the attitudes and morals of individuals in the workplace (Differences 110). Basically, Hofstede was trying to determine the extent to which a society's culture influences its members' motives and values at work (Hofstede). Learning more in-depth about Spain's extensive past provides a sustainable amount of valuable information when assessing Hofstede's model concerning Spain's cultural influences. Hofstede's key national cultural dimensions include power distance, collectivism versus individualism, masculinity versus femininity, and uncertainty avoidance. Long-term versus short-term orientation and indulgence versus restraint are two additional dimensions that have since been added to Hofstede's cultural assessment, however they are not as widely-recognized as the initial four dimensions. By ranking each dimension based on a 0-to-100 scale, individuals can develop a more thorough understanding about Spain's cultural foundation. Each factor ultimately impacts the approach Spain takes when carrying out its accounting and globalization roles and obligations.

The Power Distance dimension relates to how well the lower-ranking members of a society foresee and accept unequal power distribution (Hofstede). Spain scored a relatively high score of 57, which suggests Spain's support regarding fundamental inequalities in addition to the country's hierarchical inclinations. Rather than fight for equality, citizens of Spain, for the most part, do not give their lack of power or control a second thought. Spaniards tend to grow up bearing innate inequalities, so a larger power distance among its members is all they know. Furthermore, individuals in Spain continue to admire and look up to their prime minister. Starting in 2011, Mariano Rajoy has served as Spain's prime minister, and he remains a powerful and inspirational rock for which his society greatly respects (Encyclopedia Britannica).

In terms of collectivism versus individualism, which measures the extent to which members of a society are interdependent among one another, Spain attained an impartial score of 51 (Hofstede). Although they only scored one point above average, Spain is considered more of a collectivistic society compared to the rest of the European countries. Spaniard's are raised working in groups and teams. When Spain's interdependency among its citizens is compared to non-European countries, however, they are considered to be a quite an individualistic society. Members of individualistic societies are typically inclined to take care of themselves and their direct families as opposed to care for various groups of individuals and help promote loyalty (Hofstede).

When determining whether Spain embraces a Masculine or Feminine society, it is important to evaluate what motivates and inspires Spaniards. As mentioned in class, this dimension has nothing to do with men versus women. Instead, Hofstede focuses on distinguishing between two different motivational outlooks: whether people want to be the best (Masculinity) or whether people sincerely like what they do (Femininity). By receiving a rather low score of 42, Spain is considered to be a Feminine society that values the quality of life of both its citizens' individual lives as well as the lives of less fortunate people in need. Instead of being taught to take certain sides and be divided, Spanish kids are taught to agree and harmonize with one another. It is deemed unfavorable for Spaniards to rebel and stand out from among the crowd. In regards to management in the workplace, it is uncommon for managers to be dominant and overbearing in nature. Consequently, the opinion of every individual—whether a top-ranked manager or a low-ranked subordinate—matters. They have the opportunity to have their voice heard, which ultimately promotes additional, and more in-depth, collaboration (Hofstede).

The uncertainty avoidance dimension measures the degree to which members of a society tolerate uncertainty and ambiguity (Differences 110). Although the future can be predicted, it is impossible to know exactly what is going to happen. Consequently, societies and cultures use special methods to cope with the ambiguous future. This factor, with an extremely high score of 86, defines Spain's culture the most. Spain thrives off specific rules and laws, so the country attempts to be prepared for any and all possible circumstances and outcomes by creating reliable backup plans. If they lack structure and are given a vague set of guidelines, Spaniards end up stressed and anxious; therefore, Spain's rules are predictably straightforward. Nearly 75% of young Spaniards aspire to work in civil service, which would basically guarantee them a job for life and allow them to clearly map out their future. In contrast, only 17% of young individuals in the United States consider working in such administrative-type jobs (Hofstede).

Two newer dimensions have been incorporated into Hofstede's national culture model, including Long-term versus Short-term Orientation and Indulgence versus Restraint. The dimension centered around orientation helps differentiate various societies' pragmatic goals. Does a society place more emphasis on honoring customary and normative traditions (Short-term Orientation), or does a society encourage educational transformations to help prepare for its future needs (Long-term Orientation)? Spain scored an intermediate score of 48, however they are considered a traditional society with a Short-term Orientation. Spaniards are known to live in the moment instead of worrying about what's in store in the long-run, hence why the term "fiesta" has become such a huge phenomenon throughout Spain. Spain's short-term orientation highlights the country's high uncertainty avoidance by reiterating its dependence on well-defined structures and detailed guidelines. Indulgence versus Restraint revolves around the idea of socialization and gauges the extent to which societies attempt to manage their wants and needs. With a low score of 44, Spain is considered more skeptical and pessimistic than most other countries. Rather than exemplifying weak control over its desires, Spain tends to rely more heavily on restraint in order to prevent Spaniards from spoiling themselves and abusing their free time (Hofstede). Spain's cultural dimensions that accentuate Restraint, Collectivism, and Femininity go hand-in-hand with one another. In particular, the correspondence between the three dimensions influence the manner in which Spaniards integrate teamwork and avert standing out among its peers.

Spain's Accounting System—Culturally Expected vs. Actual:

Gray took Hofstede’s model a step further by identifying several accounting values that are derived from variances in certain cultural dimensions. As a result, Gray developed a comprehensive model that is able to predict the type of accounting system a particular society uses based upon the results of Hofstede’s cultural dimension analysis. The four key accounting values that Gray has distinguished involve: professionalism versus statutory control, uniformity versus flexibility, conservatism versus optimism, and secrecy versus transparency (Worldwide 159). After discovering several correlations between societal values and accounting values, Gray developed a series of hypotheses in order to predict which accounting systems are culturally fitting for various countries. A country's accounting values, therefore, influence the manner in which a country develops and fosters its financial reporting system (Tsakumis 29). By preferring secrecy and restricting disclosures, Spain is better able to evade conflicts and uphold its security (Worldwide 38). According to Gray's results, Spain's accounting system, under IFRS, is likely to stress statutory control, uniformity, conservatism, and secrecy, which happen to be the exact opposite values that reflect the United States' accounting system, under U.S. GAAP (Tsakumis 30).

Gray's first hypothesis claims that if a country ranks high in terms of individualism and low in both power distance and uncertainty avoidance, the country's accounting system is likely to favor professionalism as opposed to statutory control (Salter 384). Since Spain ranks low in terms of individualism and ranks high in both power distance and uncertainty avoidance, Spain's accounting system is expected to favor statutory control. The audit reports and financial statement opinions generated in Spain greatly depend on set legal obligations and ultimately limits the auditor's use of judgment. Countries that rank higher in statutory control, such as Spain, tend to express auditor reports and opinions using the phrase "in conformity with local legal requirements." If a country's accounting system facilitates professionalism, on the other hand, the auditor will be more inclined to use an expression such as "a true and fair view in accordance with" (Salter 384).

Secondly, Gray hypothesizes that if a country has a strong uncertainty avoidance, large power distance, and low-rankings in respect to individualism, then the country's accounting system will likely heed uniformity rather than flexibility. According to Hofstede's cultural dimension model, uncertainty avoidance and power distance are Spain's two highest-rank factors, so Spain's accounting system is predicted to function more uniformly, and therefore be less flexible, than other countries' systems. The United States, for instance, ranks the highest in terms of individualism and maintains weak uncertainty avoidance and small power distance, thus the U.S. is likely to run a more flexible and adaptable accounting system. A strong connection exists between Hofstede's Uncertainty Avoidance cultural dimension and Gray's Uniformity accounting value. A country with strong uncertainty avoidance tends to employ strict rules and guidelines in order to help mitigate and avoid ambiguous circumstances; therefore, a fondness for uniformity and a fondness for strong uncertainty avoidance are harmonious. Ultimately, both factors thrive off consistency and the search for definite facts and standards (Salter 385). In order to prevent counting transactions twice—both on the parent company's books and subsidiary's books—Spain's "code legal system" is expected to apply accounting policies that oppose intercompany variability and discrepancy. In addition, Spain's high level of uniformity suggests the country provides accounting principles that are either authorized or prohibited to avoid any uncertainty (Salter 386). As a result, Spanish societies that produce insufficient and poor quality information tend to endure low disclosure and inexperienced audit professions to verify available information (Salter 392).

Based on Gray's third hypothesis, which proposes that a collectivistic and feminine country with strong uncertainty avoidance is likely to operate a conservative accounting system as opposed to a more optimistic approach, Spain is suspected to display a moderately conservative accounting system (Salter 382). Instead of taking bold and daring risks in terms of their accounting policies, Spanish societies are expected employ an accounting system intended to lower income every opportunity it gets and prohibit any financial reporting systems that threaten to enlarge their income or assets (Salter 386).

The fourth and final hypothesis established by Gray declares that "the higher a country ranks in terms of uncertainty avoidance and power distance, and the lower it ranks in terms of individualism and masculinity, then the more likely it is to rank highly in terms of secrecy" (Tsakumis 29). Gray defines secrecy as "a preference for confidentiality and the restriction of the disclosure of information" (Salter 386). Under Spain's adoption of IFRS and the United States' application of U.S. GAAP, both countries require some degree of transparency in terms of their financial reporting procedures. Financial information pertaining to publicly traded companies must be disclosed and shared with the public. However, it is probable that Spain is more selective about the information they end up disclosing and releasing to the public compared to the United States. According to Gray's research team, Secrecy and Uncertainty Avoidance have a strong positive relationship because both values center around eliminating any future uncertainties (Salter 390).

Gray's analysis led to the development of an institutional framework, which is believed to provide additional cultural effects on a country's accounting system (Worldwide 39). Since conservatism and secrecy are the values that presumably sway accountants' decisions relating to a country's financial statements, the framework shows how both of these accounting values are most pertinent when it comes to the affect national cultures instill on the comparability of financial statements (Tsakumis 29). Based on Gray's findings, the institutional framework considers “more developed Latin” societies, which are widespread throughout Spain, to likely rank on the lower scale in terms of secrecy, scoring a 3 out of 7, and on a high scale in terms of conservatism, ranking a 5 out of 5. The parts of Spain deemed as “less developed Latin” societies have the highest secrecy and conservatism ranking out of the 10 distinct cultural areas (Worldwide 39). Spain's actual accounting system matches with the majority of Gray's comprehensive predictions based on his hypotheses and institutional framework analysis. Under IFRS, Spanish societies have all-inclusive regulations and guidelines to help them stay on a consistent track toward success. Subsequent to Gray’s analysis, Christopher Nobes introduced a judgmental classification scheme in terms of various accounting and financial reporting systems. Typically, Spanish statutes can take many forms, so Spain’s accounting system is deemed to portray a “Continental European nature” (Callao 149). The Continental European model is also known as the Legal Compliance Model, which positively corresponds to Gray’s prediction that Spain favors statutory control with detailed guidelines and set legal requirements (Worldwide 33). Additionally, Spain’s accounting system follows code laws rather than common laws, which agrees with Gray’s hypothesis about Spain preferring uniformity over flexibility. Limited disclosures come from the Continental European countries, so Spain is likely to support Gray’s expectation regarding its inclination toward secrecy and conservatism (Worldwide 34). Although the implementation of IFRS emitted an incredible amount of change, it ultimately provides a more standard and universal set of accounting rules that Spain, with high uncertainty avoidance, depends on. In 2007, Spain approved both the Spanish National Chart of Accounts (SNCAs) and the Chart of Accounts for Small and Medium-sized Companies (SMEs), which are alternative methods to IFRS. SNCAs and SMEs clearly spell out specific accounting rules for companies in Spain (“Spanish” 19).

Spain’s Predominant Business/Economic Model:
Spain’s 21st century predominant business and economic model did not become prevalent until the 1980’s. With worldwide energy demands growing at a rapid pace and Spain’s geographic location, Spain’s economy began to boom. Spain then went on to join Europe’s Economic Community at the time being one of if not the strongest of Europe’s economies. Since the boom of the 1990’s up until the crash of 2007 Spain had been out performing the entire European Union in staggering year over year growth. Nevertheless, with unsustainable growth rates and record consumer borrowing Spain was one of the hardest hit countries in Europe. As unemployment spiked and imports and exports slowed so did Spain’s economic growth. This once enormously profitable nation was brought down by record high consumer debt, highly leveraged and speculative investment positions, and a monstrous trade deficit. With a global recession looming theses three factors were only a catalyst to the economic damage Spain would experience.

To explore Spain’s economic troubles more in depth, one must understand Spain’s banking system. The reason for this is that there are common themes among Spanish banking laws and regulations and the United States banking laws and regulations. The first of which is the lack of separation between commercial and investment banks, a hotly debated subject as one could argue that the lack of separation between banking entities allowed investment banks take on more and more leverage inadvertently taking on more and more risk. In the United States investment banks were allowed to use deposits to enter in highly leveraged futures positions, these same banks (some being international) also committed these malpractices abroad in places such as Spain. Nevertheless, just as in the United States the largest Spanish banks had what could be argued as a monopoly on the banking system. The two largest Spanish banks being Santander and Banco Bilbao Vizcaya Argentaria (BBVA), just as one saw in AIG, Bearn Sterns, and Lehmann Brothers. Nevertheless, the lack of separation of commercial and investment banking vehicles and the huge over leveraged positions helped accelerate the economic crash of Spain just as it did in the United States.

Impact of Globalization on Spain:

New technology has forever changed the face of the world. It has paved the way for there to be globalization. Today countries can participate in a foreign markets and politics due to these technologies. To understand the seven dimensions of Marber’s Globalization, one must understand that there are both positive and negative impacts.

First to address the negatives, from a Marber trade and finance standpoint Globalization in part severely damaged Spain’s in 2007-2008. This is a result from Globalization because one could easily argue that the impact of highly leveraged foreign direct investment in Spain accelerated and acted as a catalyst to the economic collapse of Spain. Prior to this Spain was one of Europe’s most economically sound countries, yet after a heavy trade deficit and poor highly leveraged foreign direct investment Spain was considered by the European Union to be at risk of financial collapse (along with Ireland and Greece). These highly leveraged investments could not have been possible without the globalization of Spain’s economy and foreign direct investment.

Although there have been negative side effects from globalization from Spain’s viewpoint, Spain did also benefit from Globalization. The foreign direct investment that helped crash Spain’s economy once fueled its growth at an unprecedented rate. In addition, Spain once again became a global hub for trade as it was the closest connection to Africa and energy demand was booming. Spain’s geographic location greatly benefitted from globalization as the energy trade allowed Spain to grow into one of Europe’s largest importers and exporters. Spain also experienced new technology developments because of Globalization and had a record low unemployment rate prior to the 2007-2008 financial meltdown. Globalization resulted in Spain becoming a NATO member in 1982, which made it easier for Spain to join the European Union in 1986. These two positives from globalization brought huge financial and national security benefits to Spain.

According to Marber, Spain has the third largest inflow of immigrants in the world. This could be contributed to Spain more relaxed immigration policies as immigrants' fund Spain’s social programs, such as the Spanish National Health System. The Spanish National Health System has three main purposes: the extension of health services to the entire population, disease prevention and treatment, and to integrate all public health services into one system. By having favorable immigration policies Spain is able to afford social programs such as health care. This is done through the local taxation; hence the more economically healthy areas have better health services. It should be noted that most of these health services did not fully develop until 1986, when Spain joined the European Union.

Nevertheless, Spain does have some environmental issues that as Marber suggests are interconnected to other dimensions due to Globalization. Historically Spain’s most serious and pressing environmental issue is pollution (of air and water). This in part can be attributed to Spain’s evolving energy needs and the rapid growth of Spain’s economy. As of recent years Spain in some sense has embrace Marber’s “Macro Quantum” idea and is now one of the world’s leading producers of renewable energy, particularly in solar power. As a result pollution levels in Spain are being addressed and have started to decline as Spain looks to manage the delicate balance between trade and finance, energy, and the environment.

According to Unicef, Spain has one of the highest child poverty rates out of any European countries. Unicef also noted that Spain has the highest high school dropout rate in the European Union. This absolutely contributes to the child poverty rates in Spain.

Spain has a crucial role in Marber’s Macro Quantum world. Spain being one of Europe’s centers for trade and finance is still one of the biggest importers and exporters in the world. Nevertheless, Spain is one of the world leaders in renewable energy investment and use. Spain being on the cutting edge of renewable energy could potentially develop new technologies that will enable the rest of the world to follow ensue. Spain relies heavily on the European Union and NATO for defense, as allies surround it. The only real threat to Spain, which is also a threat to the rest of the European Union, is terrorism, which Spain is trying to address via internal controls. Nevertheless, Spain uses its immigration policy to help fuel it social programs via immigration. It just so happens that the most advanced medical facilities in Spain is also where the most immigrants reside, as the facilities are funded by local taxes. Spain is addressing the environment by its leading use of renewable energy. The real issue Spain needs to be concerned with is poverty, as poverty is in part fueled by immigration, assimilation into the Spanish culture for immigrants are crucial. If Spain can assimilate the immigrants, they can drastically reduce their poverty levels.

U.S. GAAP versus IFRS:
The adoption of IFRS in Spain raised numerous issues, the main of which is the comparability and relevance of financial statements since Spain only submits consolidated financial statements. One could argue that this is due to the demographic history of Spain. For example, there are about ten different dialects spoken in Spanish. Furthermore, differences in IFRS and Spanish accounting system are in the measurement of inventories, goodwill, financial instruments, the measurement of property plant and equipment, and the amortization of intangible assets. For the measurement of inventories, the difference between the Spanish accounting system and IFRS is that IFRS will only allows the use of weighted-average and FIFO cost formulas. Goodwill is different because under the Spanish accounting system there is a maximum amortization period of 20 years, whereas goodwill is not amortized under IFRS. Furthermore, the Spanish accounting system does not allow for the measurement of financial assets at fair value, whereas IFRS financial liabilities should be valued at amortized cost and under SAS at repayment value. The main difference between IFRS and Spanish accounting system when measuring property, plant, and equipment is that Spanish accounting system does not allow for fair value. Lastly, IFRS and Spanish accounting system differ in their amortization of intangible assets; under Spanish accounting system intangible assets are always amortized. Under IFRS assets that have an unlimited useful life do not need to be amortized.

In terms of the IFRS’ Spanish accounting system compared to U.S. GAAP, there are three main key differences: intangible assets, inventory costs, and write downs. Intangible assets under IFRS Spanish accounting system are only recognized if the asset will have a future economic benefit. Under U.S. GAAP, however, intangible assets are recognized at their fair value. In addition, IFRS’ Spanish accounting system and U.S. GAAP differ in terms of inventory costs. IFRS does not allow LIFO inventory methods, whereas U.S. GAAP does allow it. Lastly, under IFRS’ Spanish accounting system, an inventory that is written down can be reversed at a future period pending circumstances. Under U.S. GAAP once something is written down it cannot be reversed.

Spain has certainly been through its ups and downs going through the constant governmental instability from generation to generation until the establishment of the Republic in 1873. It was almost three decades after this time that Spain and the United States reestablished their relations by not only being cooperative with each other in the North Atlantic Treaty Organization (NATO), but by also having defense and security relations between the two. Spain allows the U.S. to use some facilities at Spanish military installations under the Mutual Defense Assistance Agreement and the Agreement on Defense Cooperation (U.S. Relations With Spain). Millions of dollars continue to be imported and exported between the two countries. Spain doesn’t have much labor flexibility though as compared to the U.S and as a country have been aiming to create jobs. Overall though, Spain continues to have low political risk with a strong government and society. The country does have some room to update its legal and electoral systems so the early 2016 Parliamentary elections will play off of these factors and potentially change slightly in the near future.

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