The accounting profession is adapting to regulatory changes that
will expand the scope of its work and bring local standards in line
with international equivalents. David Hayes
reports on how the Turkish standard setter is preparing for a new
Turkey’s accounting standards and accounting profession are
about to enter a new era with the expected passage of the draft
Turkish Commercial Law late this year or early in 2008. This will
formalise the convergence of Turkish accounting standards with
The introduction of the draft Commercial Law has involved several
years of preparation and some delay but finally is expected to move
ahead following the government’s mid-year re-election, allowing it
to proceed with legislation awaiting parliamentary approval when
the recent elections were held.
Turkey’s long-term goal of joining the European Union (EU) is the
prime motivation for the introduction of the new Commercial Law and
the adoption of IFRS. Although Turkey’s candidature for EU
membership has yet to be agreed by member states, the draft Turkish
Commercial Law is being introduced to bring Turkish business,
accounting and legal standards into line with contemporary
international practices and EU legislation.
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In the copyright and licence agreement between the Turkish
Accounting Standards Board (TASB) and the International Accounting
Standards Committee Foundation, TASB undertook to prepare a Turkish
translation of IFRS and incorporate it into Turkish legislation.
Translation of IFRS into Turkish and its formal acceptance as a
Turkish accounting standard has now been completed after
translation started in 2006.
“Article 88 of the draft Turkish Commercial Law says that the
Turkish Accounting Standards Board is to be the only standards
authority to set Turkish accounting standards for large, medium and
small firms. We have an agreement with International Accounting
Standards Board [IASB] to set up Turkish standards parallel to
international standards,” explains TASB general secretary Bora
Topaloglu, noting that convergence with IFRS will be completed when
the draft Commercial Law comes into force.
IFRS will be called TFRS and will be completely the same as IFRS.
In fact, TFRS standards are valid now, but are not enforceable.
TFRS will be enforceable on all sectors when the draft Commercial
Law is passed.
Topaloglu points out that all Turkish banks have accepted TFRS
standards and will enforce them this year under directions issued
by the Banking Regulatory and Oversight Board, which is an
autonomous organisation. The banking board previously had its own
version of IFRS but decided it would be beneficial to adopt IFRS
early and so has set the old standards aside.
The banking sector was one of the first to be regulated following a
series of problems in the 1990s when many small banks were shut
down after deposits were found to have been misused. The Banking
Regulatory and Oversight Board was set up following this episode
and has worked to support development of Turkey’s sizable, healthy
Other regulatory boards are at different stages in adopting TFRS.
Turkey’s Capital Markets Board, which regulates listed companies,
has not yet adopted TFRS. The board has its own set of accounting
standards translated from IFRS, but with slight changes, and will
need time to convert to IFRS when it comes in. Turkey’s energy
sector is regulated by the Energy Markets Supervisory and
Regulatory Board, which follows Capital Markets Board accounting
standards. The energy market board also will adopt TFRS when the
draft Commercial Law is passed. Insurance companies, which are
overseen by the Department of Treasury under the Ministry of State,
are also set to adopt TFRS standards when they come into
Topaloglu notes that TASB has more work to do on TFRS and SME
standards. “We use the translation of IFRS to TFRS but we have not
completed translating all of the IFRS 2007 book – the Basis for
Completion part is not yet published. We will try to finish this
before the draft Commercial Law is passed so that this will be part
of the new law,” Topaloglu tells TA.
“We are also working on SME accounting standards. We will complete
these at the end of 2007 but will not publish them until the end of
June 2008 as the International Accounting Standards Board’s SME
standards preparation also is at the draft stage. We will adopt
their draft in our draft. We will publish unofficially at the end
of 2007, then take public comments for three months until the end
of March, and then publish formally in June.”
Although Turkey’s accounting profession believes the draft
Commercial Law has a good chance of being introduced, largely
because the law is the re-elected government’s own draft bill, its
passage through parliament is expected to ruffle some entrenched
Written by Unal Tekinalt, a law professor at Istanbul University,
the new legislation has taken several years to prepare and is an
entire commercial code, including company law for the private
“It’s not easy to pass the new law,” Topaloglu comments, noting
that parliament is expected to pass it article by article. “There
is a power struggle among government departments. Some departments
want to pass certain powers to new institutions while some
departments do not want to transfer powers.”
One major change that will be introduced with the draft commercial
code is that the number of companies requiring a statutory audit
will be expanded significantly to include SMEs. Under the draft
Commercial Law, companies meeting two of three specified criteria
will be subject to an independent audit. This includes those
companies with assets exceeding TRY6 million ($5 million), a
turnover of TRY12 million or a payroll of 50 employees or
However, the three proposed criteria may change before the draft
Commercial Law is passed, as various companies are lobbying for the
threshold limits to be raised.
In addition to extending the requirement for a mandatory audit to a
wider section of the business community, the new law will aim to
increase the effectiveness of the audit requirement by restricting
the post of statutory auditor to suitably qualified professionals.
Under present regulations, no formal qualification is stipulated
for personnel holding the post. This has resulted in wide
inconsistencies among different companies in the way in which the
statutory audit is conducted and data recorded. While big companies
usually appoint an accountant or a lawyer for the post of statutory
auditor, smaller companies often do not use a professional for the
This anomalous situation has generated growing criticism from
accountants and other professionals concerned about standards of
corporate governance and financial reporting. Critics note that
because the present regulations allow unqualified personnel to be
appointed to the post, the role of statutory auditor has no real
impact and consequently the post does not serve its intended
At present, most SMEs do not carry out an audit unless they want to
apply for international bank credit, for which an audit is
required. Applying to a local bank for a business loan does not
always involve such rigorous approval procedures.
Once the draft Commercial Law is passed and it becomes necessary
for SMEs to be audited, Turkish banks are expected to request audit
details more frequently for loan approval as the role and status of
the statutory audit is enhanced.
“The audit part of the new law is of great importance. The big
question is who will license the auditors; there are other issues
too. The statutory auditor licence is issued by the Capital Markets
Board at present. Once the draft Commercial Law is passed, small
and medium companies will need an audit as well so another
important question is: who will audit the small and medium firms?,”
“The Capital Market Board and TÜRMOB, which oversees Turkey’s two
professional accounting institutes, both want authority to award
auditor licences. But maybe a new professional board will be
established to do this instead. It’s still a big issue over which
body will be authorised to award auditor licences. The biggest
opportunity lies with TÜRMOB.”
The Union of Chambers of Certified Public Accountants of Turkey is
known by its Turkish acronym, TÜRMOB. It is the umbrella
organisation for two of the country’s professional bodies –
Chambers of Independent Accountants and CPAs and Chambers of
Sworn-In CPAs. Both institutes operate through chambers in Turkey’s
largest cities. The chambers are responsible for accountant
training. TÜRMOB, which has its offices in Ankara, sits over this
organised chamber structure.
Chambers of Independent Accountants and CPAs oversees the
profession of certified public accountants, known in Turkey by the
acronym SMMMs. Chambers of Sworn-In CPAs oversees the profession of
sworn-in certified public accountants (YMMs). All certified Turkish
accountants train for professional qualification as an SMMM, which
for suitably qualified graduates involves two years of training and
the passing of prescribed exams. SMMMs wishing to become members of
Chambers of Sworn-In CPAs and obtain YMM professional status must
then undertake another ten years of training before passing their
Members of the Chambers of Independent Accountants and CPAs form
the largest section of certified public accountant professionals in
Turkey. Only a small proportion of SMMMs decide to complete the
professional training required to become a YMM, which are Turkey’s
equivalent of CPAs. The 12 years of training and study to become a
sworn-in CPA is thought to be the longest period of training to
become a CPA equivalent anywhere in the world.
Sworn-in CPAs are the only accountants permitted to certify tax
returns for clients. This is an important traditional professional
right as tax work accounts for a significant portion of most
accounting firms’ total workload. SMMMs, however, are permitted to
undertake bookkeeping work, which YMMs are not permitted to
This separation of functions exists due to long-standing
competition between the two professional accounting institutes.
However, sworn-in CPAs as well as CPAs are permitted to undertake
audits, give tax advice, provide consultancy services and carry out
other duties. Because many clients require the services of both
YMMs and SMMMs, most accounting firms employ members of both
professional institutes to offer clients a full range of services.
Most accounting firms have separate divisions to provide tax and
A prominent member of the Istanbul Chamber of Sworn-In CPAs said:
“Accounting standards were enforceable only for banks and listed
companies until 2001 when the Turkish Accounting Standards Board
was established. But things took time and the first modern
accounting standards were issued only in 2006, so it is not
difficult for Turkey to adopt IFRS. The ideal is that the
professional regulations should be issued by TÜRMOB.
“Maybe that will come in future. This is a transition period.
Previously, there was heavy government regulation. Now the
situation is maturing. Prior to 2001, accounting standards were
based on tax laws except for those enforceable on banks and listed
companies. Although TFRS has introduced new accounting standards
for all to accept, TFRS only will be enforceable on the banks when
the draft Commercial Law is introduced.”
Istanbul is Turkey’s largest city and has a population of more than
10 million people. Ankara, the capital, is the second-largest city
and is home to about 5 million people. Most accountants work in
Istanbul because the city and surrounding European and Asian
regions form the country’s industrial and economic centre, where
there is most demand for accounting services.
While detailed figures are not published for the accounting
professions in Turkey, the total number of accountants in Turkey is
estimated at about 65,500, of which YMMs number about 3,500
professionals. The number of SMMMs is about 27,900 and that of
independent accountants is about 34,100.
Topaloglu warns: “There are not enough accountants for the new
audit requirement. Accountants will have to be trained for the new
standards. Training will not be completed until 2009. We will need
time to train accountants to the Turkish accounting standards that
will be parallel to international standards. We expect the new
Commercial Law will be introduced in 2008, so usage of the new
standards will not happen until 2009 as SME enterprises requiring a
statutory audit for the first time will need time to