Question

Discuss in detail the Turkish financial reporting system and the independent audit of financial statements in Turkey. (The question I posted earlier was with handwriting and it was hard to read. Please answer with computer writing.)

Answer 1

Turkish Financial Reporting System

Turkish Accounting System and Uniform Chart of Accounts, Turkish Financial Reporting Standards (TFRS), and Financial Reporting Standards for Large- and Medium-Sized Enterprises (FRS for LMEs) are simultaneously applied in Turkey. TFRS are a direct translation of the International Financial Reporting Standards (IFRS).

A set of financial statements prepared under the TFRS are as follows:

• Statement of financial position.

• Statement of profit or loss and other comprehensive incomes.

• Statement of cash flows.

• Statement of changes in equity.

• Financial statements are composed of footnotes.

TFRS are prepared to meet the needs of the users of the securities and their financial statements.

The accounting records of companies of the specified nature and scale determined by the decision of the Council of Ministers which was formed around the decision of the POAASA following 01.01.2013 continue to be done in accordance with Tax Procedure Law with compatibility to TFRS.

The publication of TAS/TFRS does not mean that Uniform Accounting System has completed its function, but rather increases its importance in order to ensure their healthy implementation, comparability, and reliability.

With the application of TAS/TFRS, there are some changes in the format and classification of the financial statements in the Uniform Accounting System which have been compulsory since 1994, and the formal structure is changing. The importance of information is emphasized in the standards, and it is required to present important information in a truthful manner. TAS/TFRS also made significant changes in the valuation of balance sheet items and income statement items. These changes in measurement and valuation significantly affect the reported amounts of items in financial statements.

Independent Audit Of Financial Statements in Turkey

The purpose of independent auditing is, in essence, to verify whether or not the financial statements of the company complies with Turkish accounting standards as promulgated by the Turkish Public Oversight, Accounting and Auditing Standards Authority (Authority) and to ensure that the financial information presented under the annual activity report of the board of directors/managers is compatible with audited financial statements and all of the foregoing accurately and truthfully reflect the financial situation of the company.

The scope of the independent audit would depend on the status of the Eligible Entity concerned, and, would include:

• financial statements of the company;

• board of Directors’/managers’ annual activity report;

• inventory and accounting of the Company;

• to the extent required under the Turkey Auditing Standards (TAS), internal financial auditing systems;

• consolidated financial statements of the corporate group (if the Eligible Entity is a corporate group) and the board of directors’ annual activity report relating to group companies, together with the financial statements of the companies included in the consolidated financial statement of the corporate group (unless these have been audited separately); and

• If the board of directors has established a system for the early identification of risks and a competent commission, the structure and practices of such committee must be reported to the board of directors via a separate report along with audit report.

Unaudited financial statements and board of directors’ annual activity reports of the Eligible Entities which are subject to independent audit are qualified by law as “not issued”, i.e. invalid.