While a position for Turkey in the European Union is perhaps still some years distant, the nation’s business community is working hard to bring itself in line with both EU and international standards.
One chapter in the ongoing negotiations between Turkey and the EU is company and commercial law.
An important milestone was reached last year with the release of the Draft Turkish Commercial Code (TCC) on financial reporting and the statutory audit profession.
The TCC took five years to develop, but still appears far from finalised.
The aim of the code is to align Turkish regulations with the EU and enable Turkey to function as part of the international community.
Korkut Özkorkut, deputy director of the Research Institute for Banking and Commercial Law at the Faculty of Political Sciences at Ankara University, tells The Accountant the new statutory audit regulation in the draft TCC will have a significant effect on financial reporting.
One of the most notable changes in the draft TCC relates to the statutory audit system of joint stock companies. Related articles of the draft TCC that are in harmony with the provisions of the EC 8th Directive would replace the entire statutory audit system in the current TCC, which calls for no qualification, licensing, education requirements or specialist knowledge, Özkorkut explained.
The draft code also brings more coherence to Turkey’s fractured auditing and accounting requirements.
The current TCC and Tax Procedures Code empower several regulatory authorities to set and enforce auditing and accounting requirements for various entities that fall under their jurisdictions.
These authorities include the Capital Market Board, the Banking Regulation and Supervisory Agency, the General Directorate of Insurance and the Energy Market Regulatory Authority.
However, under article 88 of the draft TCC, the Turkish Accounting Standards Board would become the single authority for setting financial reporting standards in Turkey.
Özkorkut said the draft code would also strengthen audit standard-setting and regulation.
The Union of Certified Public Accountants and Sworn-in Certified Public Accountants of Turkey (TURMOB) would set the auditing standards only until a new Turkish Auditing Standards Board is founded.
The authority of oversight of auditors and audit firms would go to the Ministry of Industry and Commerce until a new public oversight board is established.
However, Özkorkut said these interim regulations may not be sufficient to keep pace with the demands of complex public oversight.
“I have not a general, but a concrete fear about an independent auditing system and its oversight authority,” Özkorkut said.
He added that Turkey needs to establish a sole supreme authority working together with the TURMOB to determine auditing standards and ethics, authorise independent auditors and audit firms under a public oversight system and monitor their activities within the framework of quality assurance.
The draft TCC is on the agenda of the Turkish Grand National Assembly (GNA) but Özkorkut said that just 76 of 1535 articles have been passed so far.
None have been accepted yet this year as the government’s focus has been drawn to local elections.
“Last autumn, Turkey promised that the draft TCC would be accepted in 2009 in its Third National Program, which was prepared for adaptation of the EU law,” Özkorkut said.
“Despite that it is not clear yet when the draft would be accepted.”
Results from the nation’s national elections in March mean the opposition is likely to draw the process out.
“If it happens as an optimistic view, at least, it would take much more time than we have expected before. Because the deputies of the opposition parties would probably use their right to make speech for every article of the draft in the GNA,” Özkorkut said.
Özkorkut hopes the new TCC is enacted as soon as possible before it can be amended.
“The draft has not been damaged yet. The attitudes of both parts, the Government and the opposition parties, are still uncertain,” he said.