An overhaul of Turkey’s corporate
governance rules will present mid-tier firms with their biggest
opportunity for growth in many years, but unwelcome delays have
placed firms in a conundrum – how much time and resources do they
invest into preparing for the new rules at a time when the economy
is declining?

The implementation of the Turkish Commercial
Code (TCC), currently being debated in Parliament, will require a
significantly larger number of companies to prepare financial
statements in accordance with IFRS and have these audited.

Although a threshold for the new rules has not
been set, it has been suggested the code could apply to companies
with assets exceeding TRY6 million ($3.9 million), a turnover of
TRY12 million or a payroll of 50 employees or more.

Firm leaders estimate the new statutory audit
rules could apply to anywhere between 20,000-50,000 companies.
Today, about 1,000 Turkish companies are subject to this

Experts estimate there are between 40-50 firms
in Turkey that have the capability and capacity to serve companies
bound by the new commercial code requirements.

Baker Tilly Güreli predicts the demand for
IFRS services will increase by a minimum of 30 percent. Consultas,
a firm that specialises in foreign clients, believes the code could
double its growth rate.

Another business opportunity the new code will
create is Sarbanes-Oxley like internal control reporting for listed

“In order to synchronise our regulation with
Europe, the company management of listed companies will also have
to submit such [internal controls] declarations,” Grant Thornton
Turkey managing partner Aykut Halit explained.

A matter of timing



The increase in workload, albeit a welcome injection of new
business, is also a problem mid-tier firms need to tackle well
ahead of any implementation date.

Firm leaders note that it is difficult to
recruit heavily this year due to declining demand as a result of a
downturn in the economy. There is also debate about how much extra
work the new regulations will generate. Another problem is the
uncertainty surrounding how long it will take politicians to enact
the code, with predictions varying from another six months to
several years. This makes it hard for firms to put in place the
necessary manpower to take full advantage of the legislation.

If firms recruit heavily now and the TCC
stagnates, they could be placed in the awkward position of having
to get rid of staff or operate below capacity. If firms react too
cautiously and Turkey’s tottering politicians make unexpected
progress, they run the risk of being left short of talent when
applying for the crucial first round of tenders.

Sinan Güreli, the senior manager at Baker
Tilly Güreli, described this scenario as the biggest challenge
facing Turkish firms.

“We are preparing our staff, we are spending
so much money for training and we are hiring new people so we can
be ready for this code, but it has been postponed several times in
the past and nobody actually knows when it will become effective,”
he bemoaned.

“So we are incurring costs and we are not
getting anything in return. As you can imagine, if you don’t
prepare yourself from today, when it becomes effective you will not
be ready in terms of staff and knowledge.”

Baker Tilly Güreli spends between $500,000 and
$750,000 each year on training and part of this cost is to bring
staff up to speed with requirements of the new legislation. The
firm also plans to increase its headcount by 17 percent. Baker
Tilly Güreli is spending further money to develop new software in
relation to the code.

The firm says it will form partnerships with a
number of smaller firms that specialise in internal audit services
to better manage the demand for these services rather than go down
the path of large scale hires.

Grant Thornton Turkey has also begun preparing
for the code by training staff and organising seminars with clients
to explain the likely effects of the new company law.

Kapital Karden head of international
departments Alan Greenhalgh believes finding enough qualified
talent will not be a problem for his firm because Turkey’s
university system is an excellent production line.

“We don’t want to lay off people, we are
looking to hire, especially on the accounting side, and then in the
near future on the auditing side,” he added. “There are plenty of
people in the market. We now need the regulations and the companies
themselves who need auditing to embrace it.”

This year’s International Accounting
survey of the Turkish profession (see Turkey
survey: Firms optimistic despite sliding econ
omy) indicates
that tax is the dominant service line among firms, contributing 44
percent of revenue compared with 39 percent for audit and
accountancy services (see chart, right). The new code is
likely to swing the service balance in favour of audit.

Raising the bar

The major aim of the TCC is to align Turkish regulations with the
EU and enable Turkey to function as part of the international
community. Articles of the draft TCC are in harmony with EC 8th
Directive provisions.

The code will open up statutory audit to the
SME market for the first time, establish a system of public audit
oversight and streamline standard-setting and regulatory functions.
It will also establish a corporate governance framework for
companies in line with Western standards.

Importantly, the new code will also
professionalise the role of the statutory auditor, which currently
requires no formal education or licence.

“If you have a company and you want to appoint
your secretary or janitor as the auditor you may appoint them,”
Halit explained.

“At the moment the auditor is considered a
part of the management of the company responsible to the

A draft of the TCC is on the agenda of the
Turkish Grand National Assembly (GNA) but so far only a fraction of
the 1,535 articles have been passed and the process is being held
up by political wrangling.

“The reason why it hasn’t come out yet is
friction between different political parties,” Halit said. “The
term of this government will end in 2012, so I personally believe
that it will probably come out in 2011. If it does not come in 2011
it will have to wait until after the new elections in 2012.”

Greenhalgh said the problem has been
exacerbated by a shift in power in Turkey’s GNA. Following the last
local elections, the power spread from two dominant parties to
four. Finding a passage through this political minefield is proving
tricky and point scoring has been a problem.

“As far as we are concerned, two years ago it
looked a lot better and it has come now to be more of a political
issue,” Greenhalgh observed.

“We think it will take years before it comes
into full effect but the benefits are fantastic for us and for
Turkish companies because it is very much focused on the
regulation, the good governance of companies using IFRS,

Nexia Turkey partner Erdinç Angın is more
optimistic and believes the laws could be enacted towards the end
of this year.

Baker Tilly Güreli tax partner Hansin
Dalbayrak points out that even if the bill were to be enacted
today, there will be at least a six month transition period to help
companies adapt to the new rules.

Whatever the case, firms must prepare for the
implementation of the code at a rather difficult time. The stakes
couldn’t be higher.


Turkey’s highly anticipated commercial code will provide many
benefits for audit firms. Highlights include:

• Up to 50,000 companies will require
statutory audit. Today, it applies to 1,000 companies

• Public interest companies will be required
to have internal controls monitored by audit firms, similar to
Sarbanes-Oxley Section 404 requirements

• Turkish Accounting Standards Board will be
sole standard setter, rather than current piecemeal approach

• Introduction of independent oversight of
public auditors, firms

• Statutory auditors will require
qualifications and a licence