Turkey

7 Chapter Accounting

    • Accounting System

      ■Related law and regulation of accounting
      Financial Accounting is regulated by the Ministry of Finance´s regulation of 1992, CMB rules, the Code of obligations, the Commercial Code and the Procedural Tax Law and Central Bank regulations. Turkey passed the Independent Accountancy Law n. 3568/89 in 1989, that applies for accountants and auditors. Accounting Regulation Bodies are the BDDK, Banking Regulation and Supervision Agency KGK, Accounting and Auditing Standards Authority.  
       
      ■Accounting period
      The tax year is the calendar or fiscal year, begins on January 1st and ends on December 31st of the same year. A special accounting period can be used with permission from the Ministry of Finance. All Turkish companies must prepare financial statements and an annual activity report for the fiscal year.  
       
      ■Accounting book
      Companies are must maintain statutory books and individual or consolidated financial statements in accordance with Turkish Accounting Standards and Turkish Financial Reporting Standards (TAS/TFRS) Financial statements must include a balance sheet, and statement and an equity statement from the owner and notes of these statements.
      Ordinary, general and special partnerships, limited partnerships and cooperative societies can keep their books on the double entry system or the working book system. Corporations and partnerships that are limited by shares must keep their books on the double entry system.
      Financial statements are comprised of a balance sheet, profit and loss and comprehensive income statement, statement of changes in equity, cash flow statement and explanatory notes to financial statements.
      Companies and its subsidiaries registered in Turkey must have their accounting books and prepare their statutory financial statements in accordance with the accounting principles in the Turkish Commercial Code and Tax Legislation, this means books must be kept in Turkish language and currency as TRY. 
      Subsidiaries that are registered in foreign countries maintain their accounting books and prepare their statutory statements in accordance with the accounting principles and the local currency in their registered countries.
      Accounting records of statutory books such as the Journal Ledger, Inventory Ledger and General Ledger must be kept for 5 years following the accounting period in accordance with the Turkish tax procedural law and for a period of 10 years as requested by the New Turkish Commercial Code and Social Security System.  

    • Accounting standard

      Account certification is carried out in agreement with the Turkish commercial Code and obtained results must be sent to the Ministry of Finance. Accounting standards are regulated by the Public Oversight, Accounting and Auditing Standards (POA) responsible for preparing and declaring the Turkish Accounting and Auditing Standards which are in line with IFRS and ISAs, authorizing the licenses of audit firms and providing oversight of the auditing profession.
      Public companies must comply with the accounting principles and standards of the capital market board, which are generally in line with IFRS. In April 2015, an update for The Turkish Accounting/Financial Reporting Standards (TASs/TFRSs) and TASs/TFRSs Interpretations were published in the Official Gazette, in accordance with the amendments made by the IASB.
       
       
      ■Transition of accounting standard
      In 2005, all listed companies in EU member countries made the switch to International Financial Reporting Standards (IFRS) and The Capital Markets Board (CMB) was required to adopt the IAS/IFRS at the beginning of 2005.
      In 2011, The Public Oversight, Accounting and Auditing Standards Authority (POA) was created in Turkey to make sure that in Turkey these standards were met, the POA issues Turkish Financial Reporting Standards (TFRS) that are in full compliance with IFRS Standards and determines the application scope of those standards and as well is in charge of applying an effective auditing and public oversight system.
       
       
      ■Application companies of accounting standard
      In accordance with the Turkish Commercial Code companies are subject to independent audits and must prepare financial statements in accordance with the new Turkish Accounting Standards, such financial statements must be audited.
       
       
      ■Difference between IFRS and Turkish accounting standard
      Turkish companies listed on the Stock Exchange must disclose their consolidated annual accounts based on  IFRS standards. The Turkish Code of Commerce is converging with European regulations.
       

    • Disclosure system

      ■Disclosure schedule
      Financial statements must be disclosed by the end of the first working day that follows the day on which the financial statements with the independent audit report and a cover letter reach the company and on the same day that the company’s board of directors resolves to send such financial statements to the Capital Markets Board and the Istanbul Stock Exchange for independently audited financial statements. As well, the day on which the company’s board of directors decides to accept the financial statements for unaudited financial statements.
      All listed companies must disclose publicly their financial statements, explanatory notes, material events and all other disclosures via Public Disclosure Platform on internet with an e-signature for authorized users.
       
      Deadlines for Financial Reports 
      Type
      Annual Financial Report
      Unaudited Quarterly Interim Financial Reports
      Independently Audited Quarterly Interim Financial Reports
      Unconsolidated
      10 weeks
      4 weeks
      6 weeks
      Consolidated
      14 weeks
      6 weeks
      8 weeks
       
       
      ■Contents for disclosure
      Disclosure practices are mandatory for companies in Turkey, the disclosure information is required for material events, financial statements, and any other information required to be publicly disclosed. Financial reports, monthly notifications and total net asset value statements are examples of this group.
      Since June 1st of 2009 all listed companies must notify their financial statements through the “Public Disclosure Platform” an electronic disclosure system online that requires an electronic signature. 
      The system allows all users to access to both the current and past notifications of a listed company, to access current announcements and up-to-date general information about all listed companies to inquire basic comparisons or analyses among companies.
      The Public Disclosure Platform requires financial statements in an XBRL format since this year 2016, along with financial disclosures, corporate action and material events.
      Material events considered as events that give rise to insider information that may influence the value of a capital market instrument or the decisions of the investors and not yet disclosed publicly, this comprises continuous and privileged information except trade secrets.
      Financial statements and footnotes are prepared quarterly and must comply with the International Financial Reporting Standards IFRS.
      For any change of holdings or transaction where disclosure is required, the investor must file a disclosure form with the ISE or the CMB by 09:00 local time on the day following that on which the change of holdings or the transaction took place. 
       
      ■Penalty for disclosure
      For no executing the required disclosures there is a fine of between TRY 5,000 and TRY 15,000 imposed by the Capital Markets Board.
       
       

    • Audit system

      ■Companies subject to auditing
      Companies with at least two of the following options must be subject to statutory audit:
      Ø  Total assets ≥ TRY 150 million
      Ø  Annual net sales ≥ TRY 200 million
      Ø  Number of employees ≥500.
       
       
      And according to Law No. 660, these other characteristics are subject to statutory audit:
      ·Companies under control of Capital Markets Board of Turkey regulations.
      ·Companies under control of Banking Regulation and Supervision Agency regulations.
      ·Insurance, reinsurance and pension companies that are regulated by the law of individual retirement savings and investment plan and law of insurance.
      ·Institutions authorized by the Istanbul Gold Exchange and allowed to operate as a member; precious metals intermediary institutions; joint-stock companies engaged in the production or trade of precious metals.
      ·Companies licensed for warehousing of agricultural products established as a joint-stock company.
      ·Companies established as a joint-stock company.
      ·Media companies that are owners of national terrestrial satellite and cable television.
       
       
      ■Kinds of auditor
      There are two types of auditors:
      -External Auditors.
      -Internal Auditors.
       
      There is another audit, the special audit which is conducted to inspect issues that may affect the company as fraud, inconsistency in financial statements, information given to some shareholders not shared to the General Assembly, etc. The audit is subject to new principles, and a new shareholding and minority right, it starts with the request of a shareholder. If the General Assembly accepts this request, the special auditor is appointed by the court. If it is rejected and the minority repeats the request, the court will appoint a special auditor regardless of the decision of the General Assembly.
       
       
       
      ■ Auditor requirements
      An audit shall be carried out only by auditors or audit firms, which are approved by the POA. Auditors are selected and voted during the General Assembly of the company. To be approved as an individual auditor, candidates should meet the following requirements:
      • To be graduates from programs of law, economics, public finance, business administration, public administration or political science or foreign universities approved by Turkish Council of Higher Education.
      • To be Certified Public Accountant.
      • To be Residents in Turkey.
      • To have at least 3 years of experience in the field of audit.
      • Not have a criminal record associated with bribery or fraud.
      • With valid and not cancelled licenses by the POA,
      • To have a good reputation and not have any position contrary to honor and dignity required by audit profession.
       
      For Audit firms this are the requirements:
      • Audit firms should have prepared policies and procedures of quality control system in a written form and in line with principles set by the POA.
      • The majority (but less than 75%) of the management board of an audit firm should consist of auditors in the audit staff.
      • All the members of the management board of an audit firm should be from members of the profession.
      • Auditors, shareholders and key managers of an audit firm should not work for or with other audit firms or auditors, or should not be shareholders, key managers or auditors of a legal entity.
      • Organization, office place, technical equipment, documentation and recording order should be sufficient to conduct audit effectively.
      • Activity permission should not be cancelled before by the POA.
       
       
       
      ■Responsibility from the board of directors about auditing
      Audit reports for publicly-held companies are presented to the Board of Directors and Audit Committee of the client. They are uploaded to KAP to be announced to public.
      Audited financial statements are approved by the Board of Directors.
       
      Negative opinion from an independent auditor: This opinion is provided by the auditor when financial statements contain discrepancies. When this happens, the general assembly may not take any resolutions based on financial statements, particularly about the announced profit or loss. The actions by the assembly are the following:
      • The court will decide on any differences of opinion between the company and the auditor upon the request of the board of directors or the auditor.
      • If the auditor has written a limited positive opinion letter or refrained from providing an opinion concerning the relationships of the company with the group companies, a special auditor may be appointed by the court upon the request of the shareholders.
       
       
      ■Tax audit
      All tax audit activities are organized and performed according to the principles described in the Statutory Decree no 646, tax laws and all other related regulations and performed by Tax Inspectors, they determine tax amount which companies must pay, legal rights and confidentiality are respected through tax audits by tax inspectors
      There is no regular audit cycle for taxpayers, the audits are based on selection through a risk assessment software, where it can be conducted by sector-specific or issue-specific audits.
      The Turkish Tax Inspection Board (TTIB) is the one that regulates audit procedures and tax inspectors.