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New Thresholds For Determining Companies Subject To Independent Audit – Accounting Standards

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The Decree on the Determination of the
Companies Subject to Independent Audit

[“Decree“] No. 6434 published in the
Official Gazette dated November 30, 2022 and numbered 32029,
abolished the Decree on the Determination of the Companies Subject
to Independent Audit No. 2018/11597 dated March 26, 2018, published
in the Official Gazette dated May 26, 2018 and numbered 30432, and
amended the thresholds of the criteria for determining the
companies subject to independent audit while also amending the
scope. These amendments aim to adapt the scope of independent audit
to today’s needs and to harmonize with the EU regulations.

The Decree will enter into force as of January 1, 2023.

New Thresholds as per the Decree

Pursuant to the relevant provisions of the Turkish Commercial
Code No. 6102 [“TCC“], the Presidency
(previously, the Council of Ministers) determines which companies
are subject to independent audit. As per the (former) Decree on the
Determination of the Companies Subject to Independent Audit No.
2018/11597, the companies subject to independent audit were
specified as the companies listed in Annex (I) of the relevant
Decree, regardless of any criteria, and the companies that exceeded
the required thresholds for at least two of the criteria of total
assets, annual net sales revenue and number of employees in two
consecutive accounting periods. With the newly published Decree,
certain amendments have been made to the thresholds for determining
the companies to be subject to independent audit. Accordingly;

  • The thresholds for companies whose capital market instruments
    are not traded on a stock exchange or other organized markets, but
    which are deemed publicly traded within the scope of the Capital
    Markets Law No. 6362 dated 6.12.2012, have been amended as 30
    million TRY in total assets, 40 million TRY in annual net sales
    revenue and 50 employees. Therefore, these companies will be
    subject to independent audit if they exceed at least two of these
    thresholds in two consecutive accounting periods.

  • For the companies listed in Annex (II) to the Decree to be
    subject to independent audit, at least two of the following
    criteria must be met for two consecutive accounting periods: having
    total assets of at least 60 million TRY, annual net sales revenue
    of at least 80 million TRY, or at least 100 employees.

  • In terms of companies other than those listed above, the
    thresholds have been updated as 75 million TRY in total assets, 150
    million TRY in annual net sales revenue and 150 employees. That is
    to say, companies that are not considered publicly traded under the
    Capital Markets Law and not included in the Annex (II) of the
    Decree will be subject to independent audit if they meet at least
    two of the aforementioned criteria in two consecutive accounting
    periods.

What is Independent Audit?

With the entry into force of the TCC in 2012, the old legal
system, which provided for only the internal auditing system, was
abandoned and the independent audit set forth under various
regulations was introduced, aiming to create a holistic legal
structure in the field of independent audit. Even if the initial
provisions of the TCC envisioned independent audit for all capital
companies, with the amendment in 2012, it was regulated that
companies subject to independent audit would be determined
according to the criteria to be stipulated by the Council of
Ministers (currently, by the Presidency). The above-mentioned
Decree was issued for such purpose.

Independent audit regulated under Article 397 et seq. of the TCC
is essentially audit and evaluation of the financial statements and
annual reports of the board of directors of the companies subject
to independent audit by the auditor so as to provide reasonable
assurance to the users of such with respect to the compliance of
the financial statements with the financial reporting standards,
the consistency and accuracy of the relevant statements and
reports, and preparation of a report accordingly. Within the scope
of the audit, it is also examined whether the Turkish Accounting
Standards, the applicable legislation, and the relevant provisions
of the articles of association are complied with.

Independent audit is carried out by independent auditors or
independent audit firms. Independent auditors are the persons
authorized by the Public Oversight, Accounting and Auditing
Standards Authority [“Authority“]
holding the title of sworn in certified public accountant or
independent financial adviser. Independent audit firms on the other
hand, are companies authorized by the Authority to operate in the
field of independent audit. The auditor is elected by the general
assembly of a company for each activity period before the end of
the relevant activity period. The elected auditor shall be
registered by the board of directors with the trade registry and
announced in the Turkish Trade Registry Gazette and on the website.
The TCC regulates in detail who cannot be an auditor. Most
importantly, an auditor who has been elected as auditor for the
same company for a total of seven years within a ten-year period
cannot be re-elected by such company until three years have
passed.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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