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Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility. Hüseyin Gürer
26 April 2007
Antalya
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 2©2007 Deloitte Türkiye
Problems faced by Audit Firms
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Media and Public awareness
Professional Associations
Regulatory bodies Personnel
Clients
Colleagues
Suggestions
Suggestions
Suggestions
Suggestio
ns
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 3©2007 Deloitte Türkiye
Problems and suggestions regarding clients
• Periodic training provided to clientsTechnical Inadequacy
• Promoting an approach of “Reporting for financial and managerial accountability”• Management’s adoption of company’s financial statements• Utilization of professional consultancy services for internal control and information systems
“Tax purpose financial reporting” approach
• Upper management to create awareness among staff regarding the importance of being audited• Reporting dates to be determined considering the amount of audit work to be performed• Arranging status update meetings throughout the audit fieldwork• Effective utilization of audit committees as in banks• Giving priority to audit so that the fieldwork can be completed on the planned date• Regulatory bodies to be enforcing “auditability” of companies• Regulatory bodies to enforce the establishment and inspect the effectiveness of risk management
and internal control systems by the clients in accordance with BASEL II
Adoption of the “audit” concept
• Preparation of all the information necessary for audit work by clients, before the fieldwork starts• Preparation of all calculations required by applicable financial reporting standards by the clients• Companies’ investment in technology to provide such calculations, and employment of personnel
to maintain and utilize such technology
Excessively low audit fees compared to the costs incurred
• Cooperative work between audit firms and clients to maintain and establish the social responsibility conceptSocial responsibility
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 4©2007 Deloitte Türkiye
Cost – Fee Cycle
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
As a result, audit fees are raised to
cover the costs incurred
Client does not fulfill its obligations
Audit firms have to employ more personnel
than actually needed
Personnel turnover rate increases
The audit hours are extended
Greater costs are incurred
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 5©2007 Deloitte Türkiye
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Problems and suggestions regarding regulatory bodies
• Increasing the coordination between SPK, BDDK, EPDK, Treasury, TURMOB etc. • Convergence of report formats requestedImproving the
coordination
• Establishment of a Turkish correspondent of IFRIC as the “Turkish Financial Reporting Interpretations Committee” and issuance of periodic application guidance to regulate and unify the interpretation of Turkey-specific accounting applications such as Cost Increase Funds, specific Corporate Tax applications etc.
• Collaboration between the committee and the audit firms to establish application guidance for such specific applications.
Lack of resources for interpretation of Turkey-specific applications in accordance with reporting standards
Regulatory reviews and application variances
• Effective and frequent regulatory reviews for the purpose of unification of technical applications• Constructive comments and reasonable penalties from regulatory reviews in order to support the
development of the industry• Regulatory bodies to review training materials, budgets and hours used by the audit firms• Regulatory bodies to review the technology investments of those audit firms which audit clients of a
certain size• For the sake of the public benefit, regulatory bodies to share the findings from such reviews with
other audit firms in order to improve the quality of audits• Audit firms to establish systems to ensure independence, and regulatory bodies to review such
systems periodically
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 6©2007 Deloitte Türkiye
Establishment of the TRIO mechanism
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Audit Firms Clients
Regulatory bodies
AuditQuality
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 7©2007 Deloitte Türkiye
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Problems and suggestions regarding professional associations
• Unification of certification requirements and responsibilities.Lack of integration within the profession
• Enriching the content of SMMM examinations to conform with CPA and CA examinations.• Allowing candidates to apply for the examinations during internship periods, as in the CPA
certification process. This will provide the profession with technically enriched junior staff.
Deficiencies in the SMMM certification process
• Introduction of the Continuing Professional Education (CPE) concept into Turkish practice, thus enforcing that members of the profession keep up with the most recent pronouncements.Need for updated
knowledge base
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 8©2007 Deloitte Türkiye
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Problems and suggestions regarding variances in approach among audit firms• Clear definition of audit approach and procedures for GCC and BCC testing• Realistic estimations of hours required• Convergence of audit standards applied in Turkey towards international audit standards approved
by all regulatory bodies and establishment of one-single-set of audit standards• Audit firms to announce their written code of ethics• Audit firms to establish risk management systems
Scope variances
• Audit fees to be based on realistic estimations of hours required Hours estimations
• Increased coordination among the audit firms to interpret the standards consistentlyInterpretation differences
• Due to the increased responsibilities of audit firms in accordance with changing standards, increased coordination and cooperation should exist between audit firms to facilitate knowledge transfer between the prior auditors and the current auditors
Sharing knowledge
• Audit firms to establish an internal quality control system• Approval of QR partner to be required before the audit reports are signed• Both the engagement partner and the QR partner to be held responsible in case of any findings
Quality Control
• Establishment of a common “risk department” to coordinate between the audit firms in order to minimize the risk premium in professional responsibility insurance to be effective in the near future
Risk premium
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 9©2007 Deloitte Türkiye
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Problems and suggestions regarding personnel
Lack of qualified graduates
• Improving the education standards in universities• Inclusion of auditing and financial reporting standards into the education programs at universities• Increased cooperation among audit firms and universities
• In line with the problems regarding clients, as discussed earlier, clients should fulfill their responsibilities in coordination with the auditors in order to achieve a reduction in the personnel turnover rate.
Retention of experienced personnel
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey : Sustainability and Social Responsibility / Hüseyin Gürer 10©2007 Deloitte Türkiye
Problems and suggestions regarding media and public awareness
Assessment and Suggestions on Current Problems and Difficulties of Audit Companies in Turkey: Sustainability and Social Responsibility
Media
Problem Insufficient technical background
of journalists to comment on highly complex accounting
issues and therefore danger of misleading the public
Suggestions• Periodic training should be held
for journalists by professional associations to inform them
about professional standards.• Journalists should consult the professional associations, audit
firms and other authorities before commenting on such
issues
Public awareness
Problem• Public’s misinterpretation of
the “audit” concept
Suggestion• Sharing the definition of the “audit” concept in universities and various
platforms
Profession’s honour and reputation
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