Recent Changes Regarding the Determination of Companies Subject to Independent Auditing

The Decision Amending the Decision on Determination of Companies Subject to Independent Auditing ("Amendment Decision") was published in the Official Gazette dated April 6, 2024.

The Amendment Decision provides significant changes to the independent auditing thresholds compared to the Decision on Determination of Companies Subject to Independent Auditing, which was put into effect by Presidential Decree No. 6434 and applied until January 1, 2024 ("Decision"). Accordingly, with the Amendment Decision, which came into effect as of the publication date for application in accounting periods starting on or after January 1, 2024, companies not included in the lists numbered (I) and (II) attached to the Decision will fall within the scope of independent audit if they exceed the threshold values of at least two of the following three criteria successively in two consecutive accounting periods:

- Assets worth over TRY 150 million (previously TRY 75 million)

- Net annual sales over TRY 300 million (previously TRY 150 million)

- Number of employees more than 150 (no change)

The list numbered (I), attached to the Decision, includes companies subject to the regulation and supervision of the Capital Markets Board, companies subject to the regulation and supervision authority of the Banking Regulation and Supervision Agency, as well as insurance, reinsurance, and pension companies, the enterprises engaged in precious metal production or trade, general stores, and media service providers.

With the Amendment Decision, media service providers with the right to provide on-demand broadcasting services on the internet have been added to the list numbered (I) which comprises media service providers. Additionally, companies obtaining licenses, certificates, or authorization documents from the Energy Market Regulatory Authority and operating in compliance with regulations set forth by this Authority, and thereby subject to independent audit obligations according to these regulations, as well as payment institutions and electronic money institutions subject to regulation and supervision by the Central Bank of the Republic of Türkiye, and public economic enterprises and their subsidiaries, have been included in the scope of list (I) without any threshold criteria, making them obligated to appoint an independent auditor.

With the Amendment Decision, some changes have been made regarding companies excluded from the scope. While companies subject to the Privatization Practices Law, excluding those listed in list (I), were previously exempt, with the Amendment Decision, those excluded from the 1st to 8th items of list (I) are exempted. Therefore, rating agencies, valuation firms, publicly traded joint-stock companies, and joint-stock companies issuing capital market instruments other than shares without their shares being traded on the stock exchange will be excluded from the scope of the Decision if they are subject to the Privatization Practices Law.

With the Amendment Decision, changes have been made to list (II) as well. Companies subject to regulation and supervision by the Information Technologies and Communication Authority, excluding call center services, as well as subsidiaries of the Savings Deposit Insurance Fund (TMSF) and companies taken over by the TMSF for audit and management, excluding those that are inactive or temporarily suspended or cancelled, along with companies of which at least 50% of the capital belongs to municipalities, are included in list (II).

While the Decision excluded companies with at least 50% of their capital owned by the state, provincial special administrations, foundations established by law, and other public institutions and organizations, except for those specified in list (I) and companies whose capital is at least 50% owned by municipalities as stated in the 3rd item of list (II), the Amendment Decision now excludes companies with at least 50% of their capital directly or indirectly owned by the state, provincial special administrations, foundations established by law, and other public institutions and organizations, except for those specified in list (I) and companies whose capital is at least 50% owned by municipalities. Public economic enterprises and their subsidiaries are included in list (I).

In general, the amendments made in the Decision, particularly the increase in thresholds for total assets and net sales revenue, will result in a narrowing of the scope of companies required to appoint independent auditors among those not listed in lists (I) and (II).

Therefore, in order to avoid any incompliance, it is very important that the new thresholds and scope changes are evaluated for the accounting periods starting on and after January 1, 2024 and that the companies within the scope fulfill their obligations to appoint an independent auditor.