assessment and suggestions on current problems and difficulties of audit companies in turkey :...

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


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



Cost – Fee Cycle


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



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


Establishment of the TRIO mechanism


Audit Firms Clients

Regulatory bodies

AuditQuality



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



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



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


Problems and suggestions regarding media and public awareness


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

Deloitte Türkiye

Member ofDeloitte Touche Tohmatsu

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