Recent Amendments Regarding The Conditions for Being Subject to Independent Audit

In accordance with the Turkish Commercial Code (‘TCC’), companies that are to be determined under the Presidential Decision have been included in the scope of independent audit. The audit to be conducted is to ensure that the investment rates in Turkey are more transparent and reliable and that shareholders and third parties can make healthier decisions about companies, and which provides users of financial statements with reasonable assurance as to whether the financial statements of companies are prepared in all material respects in accordance with the applicable financial reporting framework.
 

1. Companies Under the Independent Audit

The companies subject to independent audit are listed in accordance with the Turkish Commercial Code No. 6102 ("TCC") and the Decree Law No. 660 on the Organization and Duties of the Public Oversight, Accounting and Auditing Standards Authority.

The conditions for the determination of these companies have been regulated by the Presidential Decision No. 6434 (“Decision”) published in the Official Gazette dated 30 November 2022 and numbered 32029, to be effective as of 01.01.2023. The Decision on Determination of Companies Subject to Independent Audit, which was put into effect by the Decision of the Council of Ministers dated 26.03.2018 and numbered 2018/11597 (“Abolished Decision”), has been abolished.

The companies subject to independent audit within the scope of this regulation are analysed under two categories:

  • Regardless of any measure, companies that are recognised within the scope of the relevant Decision.
  • Other companies exceeding the threshold values of at least two of the three criteria stipulated under the Decision in two consecutive accounting periods.
     

1.1. Companies Subject to Independent Audit Regardless of Any Criteria

The companies listed under the Decision are subject to the independent audit regardless of any criteria.

These companies are listed under the List (I) under the relevant Decision.
 

1.2. Criteria for Other Companies Excluded from the List

Other companies that exceed the threshold values of at least two of the three criteria determined within the scope of the Decision in two consecutive accounting periods will also be subject to independent audit.
 

1.2.1. Threshold values for the companies that are not traded on the stock exchange or other organised markets but considered as publicly-held company

The thresholds for companies whose capital market instruments are not traded on a stock exchange or other organised markets, but are considered publicly traded within the scope of the CMB, to be subject to independent audit are determined as

  • the total assets of 30 million Turkish Liras,
  • annual net sales revenue of 40 million Turkish Liras and
  • the number of employees of 50 people.

According to the Abolished Decision taken as basis for determining companies subject to independent audit before, the thresholds for these companies were determined as the total assets of 15 million Turkish Liras, the annual net sales revenue of 720 million Turkish Liras and the number of employees of 50.
 

1.2.2. Within the scope of the list (II) attached to the decision threshold values for the listed companies

The threshold values foreseen for the companies specified under List (II) within the scope of the Decision;

  • the total assets of 60 million Turkish Liras,
  • the annual net sales revenue of 80 million Turkish Liras and
  • the number of employees of 100.

According to the Abolished Decision, the thresholds foreseen for the companies listed under List (II) were determined as the total assets of 30 million Turkish Liras, the annual net sales revenue of 40 million Turkish Liras and the number of employees of 125. The companies listed under List (II) attached to the Decision.
 

1.2.3. Threshold values for the companies that are non-public under the Capital Markets Law and are not included in List (II)

For companies which are not covered under subparagraphs 1.2.1 and 1.2.2, the thresholds are set as

  • the total assets of 75 million Turkish Liras,
  • the annual net sales revenue of 150 million Turkish Liras and
  • the number of employees of 150.

According to the Abolished Decision, the thresholds for the companies that are non-public under the Capital Markets Law and are not included in List (II) were determined as the total assets of 35 million Turkish Liras, the annual net sales revenue of 70 million Turkish Liras and the number of employees of 175.
 

2. Principles for the Implementation of the Decision

Companies that exceed the threshold value of at least two of the three criteria determined within the scope of the Decision in two consecutive accounting periods will be subject to independent audit starting from the following accounting period.

If the company subject to independent audit remains below the threshold values of at least two of the three criteria in two consecutive accounting periods or remains 20% or more below the threshold values of at least two of these criteria in an accounting period, it shall be removed from the scope of independent audit as of the following accounting period.

The determination of whether the thresholds are exceeded is based on the financial statements prepared for the last two years in accordance with the legislation to which the company is subject in terms of total assets and annual net sales revenue, and the average number of employees for the last two years in terms of the number of employees. In determining whether the thresholds are exceeded, companies are taken into consideration together with their subsidiaries and affiliates. For companies with subsidiaries and affiliates, the sum of the items included in the financial statements of the parent company and the subsidiary are taken into consideration in terms of total assets and annual net sales revenue, while the sum of the average number of employees of the parent company and the subsidiary for the last two years is taken into  consideration in terms of the number of employees. For associates, the aforementioned items of the associate are taken into account in proportion to the company's shareholding in the associate.

In the absence of any provision in the legislation, the CMB shall determine the interim limited independent audit obligations of companies which are subject to independent audit. The CMB is also authorized to determine the procedures and principles for the implementation of the decision and to resolve any problems that may arise.

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Corporate Counsel
Elvin OZAN

Corporate Counsel