New law tipped to generate

The passage of Turkey’s draft Commercial Law through parliament
in the coming months is about to have a large impact on the
country’s accounting market. BDO Turkey managing partner Omur Gunel
speaks with David Hayes about how the new law will
benefit the mid-tier firm.

Designed to place the conduct of business and financial
reporting on a modern, open footing, the introduction of a new
Commercial Law in Turkey should result in an increased work load
for many medium and large accounting firms due to the tightening of
procedures for the conduct of statutory audits and other possible
new legal requirements.

The introduction of the new legislation will confirm the adoption
of IFRS and is being introduced to bring Turkish business,
accounting and legal standards into line with international
practice and to harmonise with EU legislation.

“It took some years to prepare the bill. It’s an entire commercial
code, including company law for private sector, such as
establishing a company, the way it’s run, and the way receivables
and payables are treated,” explains BDO Turkey managing partner
Omur Gunel. “The new bill is a complete overhaul of existing
legislation. It also details things such as how cheques and
promissory notes are prepared, and procedures for commercial law
cases. A lot of changes are coming in. The draft Commercial Law
should pass as the government has a majority in parliament.”

Meeting criteria

Under the draft Commercial Law, companies meeting two of three
specified criteria will be subject to an independent audit. The
criteria are expected to be: assets exceeding TRY6 million ($5.1
million); a turnover of TRY12 million; and a payroll of 50
employees or more. Some SMEs are lobbying for the threshold limits
to be raised to avoid having to comply with the statutory audit

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.

“Currently, all companies have to have individual statutory
auditors but anyone can do that job now as no formal qualification
is needed; but this will change,” Gunel remarks. “Big firms usually
have an accountant or a lawyer in the statutory auditor post, but
smaller companies often do not use a professional for statutory
auditor so the position of statutory auditor has no real impact.
The problem with this situation is that the statutory audit does
not function.”

Under the present situation most SMEs do not carry out an audit
unless they want to apply for international bank credit, for which
an audit is needed. Applying to a local bank for a business loan
does not always involve such rigorous approval procedures. However,
once the draft Commercial Law is passed and it becomes necessary
for SMEs to be audited, the status of the statutory audit will
become enhanced.

“Banks and others will take the statutory audit more seriously and
will ask for audit details before approving a loan,” Gunel
predicts. “Changes are coming as accountants are putting on
pressure. The government is supporting this and they have an
election majority. The Commercial Law was the government’s own
draft bill and as the government was recently re-elected, the bill
has a good chance to go through.”

Depending on what level the threshold criteria for statutory audit
are set at, the passage of the draft Commercial Law could swell the
Turkish audit market substantially.

“The criteria for a statutory audit may still change as they are at
the draft stage and some businessmen will lobby to increase the
threshold level. But whatever criteria are used, large companies
will be audited by auditing firms while small companies will be
audited by individual accountants,” Gunel says.

“Individual accountants are capable professionally but there are
not enough qualified accountants now so maybe the government will
set a transition period and put an article in the new law to allow
for a two to three year transition [to statutory audit while
qualified accountant numbers grow].”

Accounting firms also will need to increase their qualified
accountant head count to handle the new business the statutory
audit requirement will generate for the local accounting market.
BDO Turkey employs 115 staff, of whom 95 are professional staff;
this includes 30 qualified accountants, among whom 16 are partners.
The practice employs 65 trainees at various stages of

Gunel expects the new legislation to generate a substantial
increase in audit work for the firm, especially in Istanbul where
about 90 percent of the firm’s clientele is based. “BDO Turkey
revenues may grow 30 percent because of the new law and demand from
existing clients,” Gunel says. “For our audit clients, there will
be no difference as we audit them already, but maybe there will be
a legal procedure for adopting us as statutory auditor. We expect
additional audit work from our tax clients – they will come to us
as we work with them already.

“The true new market coming from the new regulations will be the
large and mid-sized companies who do not do a proper audit now and
will see it as prestigious to have a large audit firm auditing

The expected passage of the draft Commercial Law coincides with a
long period of economic growth driven by increased export revenues,
rising earnings from tourism and greater infrastructure investment.
Turkey’s economy has grown at more than 7 percent annually for the
past four years. Inflation has been tackled and currently is less
than 10 percent a year, well below previous damaging annual
inflation levels of 40 percent to 60 percent. The government’s
re-election in July is expected to ensure continuing political
stability and confidence among the business community.

Buoyant market

Accounting firm revenues are thought to be growing in Turkey’s
buoyant market conditions, where traditional business secrecy
prevails and accounting firms do not publish annual results.

“We are aiming at 15 percent annual growth. Audit may have a higher
growth rate when the new Companies Act comes in,” Gunel comments.
“Fees are going up in general and clients accept this. Fees are up
10 percent a year in real terms or 20 percent including inflation
as we have 10 percent inflation here. Almost all mid-tier
accounting firms are here in Turkey. They also deal with large
companies in audit, but for tax work we and other mid-tier firms
have large, medium and small clients.

“We see ourselves as number five in this market after the Big Four
firms. It’s difficult to reach the size of the Big Four. Even if we
have high growth they also will be growing. For our clients the
advantage of BDO Turkey is that there is more partner involvement,
while with the Big Four they deal more with managers and junior
staff. Our clients appreciate the partner contact.”

Gunel says client numbers continue to grow, including referrals
from the BDO International network. Existing clients will be the
practice’s main targets for new business once the new Commercial
Law takes effect.

“We get some BDO referrals for the manufacturing and service
sectors. Referrals out are starting, but not much; it’s more inward
referrals. Outward referrals are to the Middle East and Romania,”
Gunel says. “We have 15 listed company clients. The main sectors we
serve are textiles, retail, construction and energy. Türkiye Petrol
Rafinerileri, the former state-owned oil refinery, is our

“Our client market is the same as the Big Four. Most mid-size
companies in Turkey are not looking for professional services so
most of our clients are the same as the Big Four. The situation may
change with the new Companies Act but we are happy having large
companies as clients. We will continue to aim at large companies
but with the new Commercial Law, but if mid-size companies become
clients it will help to grow the business. We have some tax clients
that are not audit clients and they will be our first

Tax, audit and hospitality (tourism) consultancy are BDO Turkey’s
main service lines. Tax work represents 60 percent of revenue and
audit 35 percent. The rest, including hospitality consulting and
publishing, is 5 percent of revenue.

“Tax laws are complicated and can be interpreted in different ways.
Clients rely heavily on us because of this. Our BDO tax practice is
very well known in Turkey and so we are respected by the government
tax authorities,” Gunel remarks. “The audit share of business has
been growing faster than tax work for the last four years. Audit
has been developing gradually over the past 20 years while tax has
always been a major item.

“Mandatory audit for listed companies started in 1988, followed by
banks in 1990 and for insurance companies in the mid-1990s.
Companies in the energy sector, that is electricity companies and
gas companies, have required a mandatory audit since early after

Talking about the practice’s other activities, Gunel explains that
BDO Turkey has established an individual entity to provide
hospitality or tourism-related consulting services. “This consists
of one partner and one assistant that use outside specialist
consultants when needed as this is not an ongoing business,” he
says.“We also publish professional books on accounting and tax,
including VAT, corporate tax, inheritance tax, and also books on
financial statements and accounting. Private companies and other
accountants buy these books.”

Recruitment programmes

BDO Turkey is expanding its accountant trainee recruitment
programme to staff its growing practice and to cover the number of
newly qualified staff who leave for jobs with private sector
companies, often BDO clients. “We recruit direct from university as
it is easier for them to adopt our philosophy and style of
working,” Gunel says. “We take ten graduates a year. There is high
staff turnover in audit as there is always demand for audit staff.
We have to recruit every year. We are growing by about ten staff a

“For new graduates, training starts in October as it is the low
season. We recruit in July then it is on-the-job learning until
they start training in October. Trainees must work under
supervision of a certified public accountant or a more senior
sworn-in certified public accountant. We give them BDO Turkey
course work and they take the Turkish accountancy chambers’ courses
as they are more directed at their exams.”

English skills

In addition to selecting accountancy graduates as trainees, BDO
Turkey insists that all trainee recruits have a reasonable working
knowledge of English.

“We take care that people we hire speak at least average English as
most of BDO training is in English,” Gunel explains. “They deal
with our clients in Turkish but audit reports are written in
Turkish and English as clients need to use the audit reports for
international business. English is taught in all schools here from
secondary level onwards.”

In addition to providing BDO internal training, the practice sends
staff for BDO international training. Gunel notes that there have
been no recent staff secondments to BDO offices in other countries
as the firm currently is short of staff. Such shortages are
expected to rise as the introduction of the Commercial Law and the
rise in demand for accountancy firms takes full effect.

Despite the challenges, investor confidence in Turkey is strong,
helped by firm supervision of the financial sector.

“There have been no major scandals here recently, but ten years ago
there were problems with small banks – a lot of them shut down as
deposits were misused,” Gunel recalls. “After this the Banking
Regulatory and Oversight Board was set up and has worked well. Our
banking sector is very healthy in Turkey. We have sizable banks and
proper supervision.”