In our Newsletter-January 2013, we had provided information regarding the annual and legal obligations to be fulfilled by companies especially limited and joint stock companies.

The Decree of the Council of Ministers on Determination of the Companies Subject to Independent Audit numbered 2012/4213 was published in the Official Gazette dated 23 January 2013. Such decree defines the scope of joint stock and limited companies subject to external auditing as set forth in article 397 of the New Turkish Commercial Code. Furthermore, Public Oversight Accounting and Auditing Standards Authority have issued decree published in the Official Gazette dated 12 March 2013 regarding the implementation procedures and principles of the Council of Ministers Decree.

The purpose of independent auditing is, to verify whether or not the company complies with Turkish accounting standards and especially tax legislation or other relevant law. Furthermore, auditors are in charge with certifying the financial statement of the company and the profit loss statement. During the audit, independent auditor submits a report to the Board of Directors. Aforementioned report is not limited to companies accounting, it also includes the annual report of the Board of Directors and the commercial books of the company and of the group. In case the auditor issues a negative opinion letter in this report, the Board of Directors must promptly convene the general assembly for a meeting to decide the continuity of the board members.

The internal auditors in the former Commercial Code are now replaced by these external auditors.

External auditors are elected by General Assembly for a period of one year; this election method is in line with the previous commercial code. This period may be renewed once a year for the same auditor on several occasions; however in any case, duration of the period shall not exceed a total of seven years in the past ten years.

Not all companies are subject to the independent audit. Determination of whether the company is subject to external audit or not depends on three criteria. These criteria are the assets, the annual net sales and the number of employee. The compliance with such criteria is to be assessed by taking into account the company, its affiliates and its other participations (but limited to the

percentage of each participation). The criteria are stated as follows:

a)  Total assets are at least 150 million Turkish Liras;

b)  Annual net sales revenue is at least 200 million Turkish Liras;

c)  Number of employees is 500 and over.

Under the decree of the Council of Ministers, in order to be subjected to an independent audit, at least two of the above three criteria shall be met during two consecutive fiscal years. The two criteria may not be the same ones during from one year fiscal year to another one. First fiscal years to be taken into account are 2011 and 2012. What matters is that at least two criteria out of three are met.

In addition and irrespective of the compliance with these criteria, among others kinds of companies, listed companies, joint companies with capital market instruments quoted on a stock exchange and/or other markets, banks, finance companies, insurance, reassurance and retirement companies, collective investment undertaking, investment enterprises, rating agencies, leasing companies, media service provider companies, and warehouse companies with agricultural products license are subject to external control.

Independent auditors shall be elected by Ordinary General Assembly, meeting must be held before 31 March 2013. First audit period shall be the year of 2013.

Pursuant to the article 1524 of the Turkish Commercial Code, the obligation to open a website has to be met within three months as from 1stJuly 2013, which is the date of entry into force of the article. Companies subject to independent auditing and existing before 1st July 2013 have to open a website at latest on 1st October 2013 and new companies (i.e. incorporated as from 1st July 2013) must have a web site within three months following their incorporations.

The companies that are not subject to independent audit do not have any obligation to open a website and also there is no requirement to have external auditor for them. As per the current article 397 of the Turkish Commercial Code and the above-mentioned decree, these companies are free from any form of auditing. Under the former code, even if the internal control system was weak, at least it offered a change of ensuring a kind of control. The new Turkish Commercial Code initially foresaw that all joint stock companies were subject to external audit. Just before its entry into force on 1st July 2012, an amending act (act no 6335) was adopted to limit this external control system. The government is aware of this situation. According to State’s statistics, only 2,700 companies shall be subjected to independent auditing compared with the initial number of 898,628 companies. The Government admits the importance to increase administrative controls. In this respect, a directive related on the control of commercial companies by the Customs and Commercial Ministry has been published in the Official Journal dated 28 August 2012.

According to a pending Draft Law adopted by the National Assembly on 28 March 2013, currently waiting for approval by the President of the Republic,

a)  All the joint stock companies that do not fall into the scope of the decree shall be subject to a control whose rules shall be defined by a directive to be issued by the government;

b)  a protocol shall be signed between Customs and Trade Ministry and Ministry of Science, Industry and Technology and within the scope of this protocol; chief inspectors, inspectors and assistant inspectors (who were previously in charge with controlling commercial companies at the level of the Industry and Trade Ministry and are currently working under the Ministry of Science, Industry and Technology) shall be transferred to the Ministry of Customs and Trade within three months in order to ensure these controls.

Our Law Firm will be at the disposal of its clients upon their request of assistance in any kind.