Do You Think the Most Recent Decrease in the Audit Thresholds Will Improve Transparency in Turkey?
The audit exemption thresholds were decreased with the Council of Ministers Decision on 19 March 2016. The decision will be effective as of 1 January 2016.
The Council of Ministers Decision No. 2016/8549 was published in the Official Gazette dated 19 March 2016 to be effective as of 1 January 2016 and the criteria regarding to the determination of Companies subject to independent audit have decreased.
According to the said Ministers Decision effective from 1 January 2016, if a Company fulfills two of three requirements below individualy or with their affiliates and subsidiaries for two consecutive fiscal years, then it will be subject to independent audit as of the following fiscal year. If a Company does not fulfill at least two of these criteria for two consecutive fiscal years or if it is under the limit by a percentage of tweny or more for at least two of these criteria for one fiscal year, then it will be excluded from independent audit scope in the following fiscal year.
The Council of Ministers Decision No. 2012/4213 dated 19 December 2012 have been re-determined as follows;
a) Total asset size of TRY 40 million or more. (It was 50 million or more TRY in the previous decree)
b) Annual net sales revenue of TRY 80 million or more. (It was 100 million or more TRY in the previous decree)
c) Minimum of 200 employees or more. (This criteria is the same as in the previous decision)
What would be the impact of this change from the transparency perspectives?
As you may know, the audit exemption thresholds were set rather high when the new Turkish Commercial Code was effective on 1 July 2012. To date, the thresholds were updated a few times. This most recent change appears to be another effort of the law makers to normalize the standards of audit requirements criteria in Turkey. This will clearly result in an increase in the number of the companies subject to independent audit. But, who will benefit from this? The basic question should be whether this change (like the previous ones) will have any impact on the transparency of financial statements in Turkey. We believe that in order to answer this question we should assess two things:
- What are the financial reporting standards used in the preparation of financial statements subject to independent audit?: The financial statements subject to independent audit was normally prepared in accordance with Turkish Accounting Standards (equivalent of IFRS) as required by the Turkish Commercial Code. However, in accordance with the decision of Public Oversight Authority dated 30 December 2014, Companies subject to independent audit may prepare their financial statements in accordance with General Communique on Accounting System Application (Muhasebe Sistemi Uygulama Tebliğleri). What are these General Communique on Accounting System Application? These standards appear to be a combination of measurement and recognition rules of Tax Regulation and Turkish Commercial Code. Many critical accounting policies are left to the management choice such as provision, consolidations etc. For example: If you have a group of companies, you may not consolidate your subsidiaries in accordance with this framework or you may not account for certain provisions. In addition, disclosure standards of these General Communique on Accounting System Application are also much worse than IFRS. Namely, the quality of this financial reporting framework is far below the IFRS standards and this move is not an improvement but definitely deterioration. We simply do not understand the reason of this change.
- Are audited financial reporting standards disclosed to the public (through company websites or other means)?: Except for public companies and financial institutions, companies do not disclose their audited financial statements in their website or do not file in any chambers etc. Public cannot access these audited financial statements.
We believe that the consequences of decreasing the audit thresholds should be assessed taking into account these facts.
We repeat our question: Do You Think the Most Recent Decrease in the Audit Thresholds Improve Transparency in Turkey? The answer lies within.
You can refer to the following link for the said Official Gazette.