The New World of the Old New

Much has changed since my last post here.

Old new could not be able to have a chance to be implemented even for 1 day.

The old new was an overhaul of the very old and was a manifest for all grounds that are to take back the economic environment in the country. Now it seems they did it. They were capable of carrying away the very old with some minor changes as the very new in terms of accounting and auditing of the companies.

Not so many principles have changed from the very old to the very new. The old new had been an overhaul of the business mind in Turkey. The very new is a modification of the very old.

So to speak, we are only with the accounting and auditing with these words.

For other aspects of the (new) Commercial Code in Turkey which has been in practice since 1^st July 2012 we will be speaking out in our new posts with a more positive view in terms of the new business environment in Turkey.

What To Expect For Corporate Turkey Out Of International Standards of Auditing

International Standards of Auditing (ISAs) require the external auditor to cast a special focus on the business environment and the business risks of the audited firm. This requirement very well coincides with the Article 378 of the New Turkish Commercial Code (TCC).

Art. 378 requires board of directors of every publicly held company to form a committee of experts to examine and evaluate the business risk that the entity may face in the future and to provide the entity with the appropriate measures in order to fend off any possible damages and to manage the risk. The board of directors should, after forming the committee, operate the system for equipping with necessary measures and manage the risk. The article requires the external auditor to evaluate the operation of such system within the entity and provide a separate report on the topic with his/her annual audit work. Additionally, the same article requires the auditor of the non-publicly held company to evaluate whether such a committee is necessary in regard with the surrounding conditions of that entity. If deemed so by the external auditor, an urgent report shall be delivered to the board of directors by the auditor and the above mentioned committee shall be formed by the board of directors with an immediate action. The committee prepares its first report up until the end of the first month following its formation.

Reading the Article 378 in the context of the ISAs 315 and 320 clarifies the work of the external auditor in terms of TCC. It shall be deemed as a requirement by law that the external auditor is definitely observes all the risks that the entity faces including the business risk.

Up until the TCC, any auditor would not assume or at least would not be willing to assume such a responsibility under his/her audit plan and work. Beginning from the first day of 2013, the auditor is expected to assume such a cumbersome task. The TCC has relevant provisions for not complying with these rules.

The newly established Public Oversight, Accounting and Auditing Standards Board (POB) is required to act as the watchdog for the accounting and audit professions in Turkey.  With the disciplinary tools in hand, the POB might have very effective power over the professionals to internalize the ethics and work behavior of the accounting and audit professionals. Those are the ones whom we expect to have an educational role over the board of directors and those who are responsible for the governance of the entity.

This is where one of the illuminating rays of the new order stems from. I will try, by the time, to shed some light over the others that I deem relevant.

The New Corporation in Turkey - 1

The corporation in Turkey is in a major breakthrough what has not been in sight for more than 50 years. The 1956 Code of Commerce is to be completely and practically abolished by 1^st July 2012. The New 2011 Commerce Law dictates the corporation to be extremely transparent and ready to stand firmly in a global stance.

The evolving globalization which I would relate with some developments in the 1970s and onwards hit the Turkish borders in the early 1980s. Aside by the bulldozing effects of the end of the gold standard that had shaped the world’s politics and the economic establishment for more than 40 years, chiefly with the deregulatory developments achieved in the US in the mid-1970s (i.e., abandonment of fixed brokerage commissions in 1974, the relaxation of credit conditions for a larger part of US population during this decade) provided a solid basis for the liberalization of the markets. The UK’s Big Bang in 1986 paved the way for a more efficient functioning of the City and making it the financial hub of the world following the New York’s lead. Finally the demise of the Iron Curtain seemed to be the major extent blow to the closed connections of some groupings of the countries over the world. This had been the time where freeing the markets forces seemed to be more than a need and mostly the inevitable.

Turkey started to position herself for the ride in the early 1980s. By the repealing of the regulations on foreign currency holdings of the general public and corporations with rather strict rules where incarceration was regular for the one caught with any amount of foreign denominated currency without government consent and/or legal cause, Turkey initiated an open economy policy which would spur import-export activities of the corporate Turkey. Many economists see this stage as a turning point at the initiation of Turkey’s integration with the international economies. Starting on the first day of 1996 the agreement for customs union with the European Union paved the way for corporate Turkey to be more competitive and quality and productivity oriented though many people see the prism over the vulnerability of the low quality product manufacturers to be harmed rather than to reap any benefits of the new order.

It is clearer nowadays that to the detriment of the struggle of the entrepreneurial Turk with his/her own endeavor through the advancement of the qualitative and productive capabilities of his/her manufactures or services, the legal framework for the company does not help him/her in such application. That is the point where the New Code of Commerce is highly expected to provide much more comfortable environment for the Turkish corporation to be a prominent member of the internationally competitive corporate club in the foreseeable future.

I personally am with this point.

At the Outset

This blog aims to provide overview for the new Turkish "corporation" which has been redefined by the 2011 Commercial Code. The new corporate culture by default required by the new Law is our main domain surrounded by the implementation of International Financial Reporting Standards for all businesses except for the mom-and-pop shops and International Standards of Auditing for all limited liability companies starting from Jan 1st 2013.

The views here are solely the author's and may not be used for investment and commercial purposes without due care and/or legal and commercial consultation. I hope to provide a general view on the developments in the new Turkish corporate environment to help the interested. Further guidance is definitely recommended in making any type of decisions in or with any corporation or customer in Turkiye and other countries within this context.