The Regulation Amending the Independent Audit Regulation
Contents
Selin Coşkun and Mustafa Kozan co-authored this article.
The Regulation Amending the Independent Audit Regulation ("the Amending Regulation") was published in the Official Gazette on June 15, 2024, and entered into force on the same day, amending the Independent Audit Regulation ("the Regulation") published on December 26, 2012. Amending Regulation most importantly introduces new administrative sanction mechanisms for the auditors. In addition, some concepts have been updated, new obligations has been introduced, and some arrangements have been made to make the Regulation more comprehensible.
As it is known, the Regulation, was issued to determine the procedures and principles for independent audit processes, audit firms and auditors to be carried out in line with the Turkish Commercial Code and the powers and duties of the Public Oversight, Accounting and Auditing Standards Authority (“the Authority”).
What to Expect from Amendments?
The most noteworthy amendment that the Amending Regulation brings is the reorganization of the administrative sanction mechanism that can be applied to auditors. Amending the article 39 of the Regulation which regulates administrative sanctions, warning and restriction of activity sanctions have been added to the existing sanction mechanism that can be enforced by the Public Oversight, Accounting and Auditing Standards Committee (“the Board”) which involves notice, suspension of activity license and revocation of activity license. Administrative sanctions are categorized based on their enforcement power and are summarized as follows:
Warning | formal notification issued to audit firms and auditors informing them of the need to exercise greater caution in their operations due to non-compliance with Regulation. |
Notice | formal notification issued to audit firms and auditors highlighting specific instances of non-compliance with Regulation that require rectification. |
Restriction of Activity | temporary limitation imposed on audit firms' areas of authorization, the scope of audits undertaken by auditors, and the responsibilities of lead auditors. |
Suspension of Activity License | temporary revocation of the operating licenses of audit firms and auditors for a specified period. |
Revocation of the Activity License | permanent cancellation of the operating licenses of audit firms and auditors. |
Introducing warning and restriction of activity sanctions to the Regulation, also the notice sanction is reorganized within this framework. Some actions regulated under notice sanctions have been regulated under warning or restriction of activity, and sanction reasons have been extended. For example, the failure to obtain a written commitment, which previously required a notice, has been regulated within the framework of the warning sanction with the amendment. Again, while the result of non-compliance with the prohibition of advertisement required a warning, with the new amendment this action will result in the restriction of activity.
Accordingly, we submit the table showing the changes regarding notice, and newly stipulated sanctions warning and restriction of activity for your information.
WARNING | ||
Article | Old Version | New Version |
Warning Article 39/A | Not existing | (1) In case it is determined that the following violations are committed, a warning sanction shall be imposed on audit organizations or auditors:
a) Acting in violation of the TDS during audits in a manner that does not require a notice sanction.
b) Failure to obtain the written commitment referred to in the second paragraph of Article 21.
c) Detection of similar situations that require notice sanction in other relevant legislation, although not included in this article. |
NOTICE | ||
Madde | Old Version | New Version |
Notice Article 40 | (1) To audit organizations or auditors; | (1) If it is determined that the following violations have been committed, a warning sanction shall be imposed on audit institutions or auditors: |
| c) Failure to establish the quality control system specified in Article 20, | c) Failure to design, implement or effectively operate the quality management system referred to in Article 20. |
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| ç) If the people who have not completed the continuing education programs stipulated in Article 25 are acting as auditors or be assigned to audit teams. |
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| d) Violation of the provisions of Article 29,
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| e) Failure to have the professional liability insurance specified in Article 33, |
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| f) Violation of the retention provisions set forth in Article 35 or failure to fulfill the submission obligations set forth in the aforementioned Article in due time.
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| g) Failure to prepare the transparency report as specified in Article 36, failure to notify or publish it to the Agency on time.
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| ğ) Violation of the provisions of Article 37. |
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| h) Failure to fulfill the notifications to be made to the Institution in a timely, complete and accurate manner,
ı) Failure to prepare a transparency report as set forth in Article 36 and failure to notify or publish it to the Agency on time, i) Failure to complete and submit audit reports to the relevant authorities in due time, |
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RESTRICTION OF ACTIVITY | ||
Madde | Old Version | New Version |
Restriction of Activity Article 40/A | Not existing | (1) If it is determined that the following violations have been committed, audit firms and auditors shall be sanctioned with restriction of activity for a period determined by the Board decision, not exceeding two years, taking into account the gravity of the act:
a) Conducting audit activities in violation of the TDS in a manner that does not require suspension of the activity license according to the gravity of the act.
b) Failure to comply with the advertisement prohibition specified in Article 23.
c) Violation of the provisions of Article 24.
ç) Detection of similar situations that require the sanction of restriction of activity in other relevant legislation, although not included in this article.
(2) The sanction of restriction of activity is applied as restriction of being assigned as responsible auditor in audit teams, authorization of the audit area in which audit activities may be performed or undertaking audits of the entities meeting the specified criteria. The determination of the entities whose audits cannot be undertaken is made on the basis of one or more of the following criteria: fields of activity, size, and financial reporting frameworks applied by the entities. |
The Regulation have undergone significant changes, particularly in Article 43, which deals with other administrative provisions. The Board has been granted the authority to impose lighter sanctions, taking into account the severity of the offense. Additionally, detailed explanations have been included regarding the continued operations of auditors who have been subjected to administrative sanctions.
Other Primary Amendments that the Regulation on Amendments Brings
— The scope of the Administrative Regulation has been expanded to include discretionary audits. This addition complements the ongoing audits conducted under the Turkish Commercial Code No. 6102 and the Decree-Law No. 660 on the Organization and Duties of the Public Oversight, Accounting and Auditing Standards Board ("Decree-Law No. 660"). The relevant amendments have been made to Article 2 of the Regulation, which defines the scope, and Article 6, which outlines the subject matter, to formally incorporate discretionary audits within the Regulation.
— The definition of the independent audit team has been expanded. The definition in Article 4 of the Regulation now includes other individuals who apply audit procedures, in addition to independent auditors and independent auditors working under their responsibility.
— The quality control system has been replaced by a quality management system in the Regulation. References to the quality control system throughout the Regulation have been revised to reflect the new term "quality management system." As per the amendment to Article 4/j of the Regulation, unlike the previous quality control system, audit organizations and independent auditors will not only need to establish a system in accordance with the Board's Regulation to ensure quality, but they will also be required to design, implement, and operate the system effectively.
— The legal entity part of Article 13 regarding the persons authorized in the audit firm not being a partner in a legal entity has been removed, preventing authorized persons from being a partner in an ordinary partnership.
— Individuals seeking to enter the auditing profession must now adhere to stricter eligibility criteria. Accordingly, the non-involvement with terrorist organizations for the auditor has been introduced. Additionally, auditor candidates must submit a declaration to the Authority affirming the compliance with the criteria introduced in the Article 14 along with relevant information and documentation.
— Article 16 on auditor exam topics has been reorganized and new topics on sustainability have been added to scope of the exam. With the latest amendment, the auditor exam covers the following topics.
· Turkish Accounting Standards,
· Turkish Auditing Standards,
· Corporate Governance Principles and Financial Management,
· Capital Markets Legislation
· Banking Legislation,
· Insurance and Private Pension Legislation,
· Corporate Sustainability Reporting,
· Sustainability Audit.
You can find the text of the regulation here.
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