Audit Types of Financial Statements in Turkey

Efsun Demir-Karaman, Istanbul

This article focuses on the audit of the Turkish subsidiaries of companies in the DACH (German speaking) Region.

For various reasons, international companies are forced to have audited financial statements of their subsidiaries. Amongst others, legal regulations or internal control and monitoring reasons lead to higher priority of the audit of Turkish subsidiaries' financial statements.

Unlike in many countries, Turkish accounting is to be understood as reporting required by tax law, and not commercial code. In accounting matters tax regulations are paramount. In view of this, the following three main types of audit of financial statements in Turkey arise:

A.    Voluntary Audit of Annual Financial Statements 

A voluntary audit of an annual financial statement is initially carried out at the local level, i.e. at the so-called HB I level. Accordingly, the annual financial statements are audited in accordance with the accounting guidelines pursuant to Turkish Tax Law.

The voluntary audit of an annual financial statement can optionally also be carried out considering to accounting guidelines pursuant to German Commercial Code, International Financial Reporting Standards, at the so-called HB II level and include the transition of the financial statements to these accounting guidelines as well as the audit of the group reporting package.

A voluntary audit of the annual financial statements is carried out primarily for internal purposes (e.g. for consolidation purposes). The audited financial statements and report are not to be submitted to any Turkish authority. In very rare cases (e.g. credit application) can banking institutions request these reports.

B.    Statutory Audit of Annual Financial Statements acc. to Commercial Code

The Council of Ministers Decree regarding the Determination of the Companies Subject to Independent Audit (the "Decree") was published in the Official Gazette dated 23 January 2013 and entered into force as of 1 January 2013. As per Art. 3 of the Decree, joint stock and/or limited companies who, alone or together with their affiliated companies and subsidiaries, meet at least two of the following criteria for two consecutive years are subject to the independent audit requirement;

a.           Total assets

b.           Net sales

c.           Number of employees

According to the Decree of Council of Ministers' from 30.11.2022, the criteria for the independent audit as of 01.01.2023 is determined as below:

a)           75.000.000 TRY total assets,

b)           150.000.000 TRY net sales in the twelve months prior to the reporting date,

c)           An average of 150 employees per year.

The annual financial statements of companies that are subject to audit under the above conditions must be audited by an independent auditor (Bağımsız Denetçi).

The audit of the annual financial statements must also cover whether the regulations of the articles of association have been observed. The independent auditor must observe the Turkish Financial Reporting Standards, which are very similar to the International Financial Reporting Standards. The annual audit report must be signed by the Turkish independent auditor in charge and uploaded in the Public Oversight, Accounting and Auditing Standards Authority System.

C.    Tax Audit (Turkish: Tam Tasdik / YMM) 

The tax audit includes an audit of the quarterly financial statements prepared in accordance with the Turkish Tax Law and the confirmation of these by a Tax Auditor (so-called "YMM"). This audit is not obligatory under Turkish law. However, it reduces the risk of an audit and is a recommendation from the Ministry of Finance for large corporations. The size classes are determined annually by the Turkish Ministry of Finance.

The responsibilities of a Turkish Tax Auditor are not directly comparable to those of a German auditor (Wirtschaftsprüfer). Since the Turkish Tax Auditor (Steuerprüfer) carries out a tax audit, confirms the correctness of the corporate tax base and submits an audit report to the Turkish Ministry of Finance - which is not usual for a German auditor. Tax Auditor takes on an advisory function and actively participates in the preparation of the financial statements in the course of the corresponding financial year. The confirmation is not comparable to an audit report. Tax Auditor is jointly and severally liable with the audited company for the correctness of the tax base and the tax burden. Tax Auditor is not an obligatory audit but a recommendation of the Turkish Ministry of Finance for taxpayers with a high sales and/or high total assets. In practice, a lot of emphasis is placed on this audit. The clear majority of large and medium-sized companies receive the tax audit service.

For all intents and purposes in the context of an assignment, it is necessary to pay attention to the purpose for which an audit of the annual financial statements is to be carried out. Only in this way can it be guaranteed that the scope of the audit corresponds to the ideas of the client. We, Rödl & Partner, offer all three audit services and are gladly to answer any questions you may have. 

Conclusion 

In principle, the following audit types are available to Turkish subsidiaries of companies in the DACH (Germany speaking) Region, which could be relevant depending on the motives and needs: