What Are the Consequences of Non - Appointment of Independent Auditor For Joint Stock Companies? 27 July 2018

I. Joint Stock Companies Subjected to Independent Audit

Council of Ministers have firstly defined the companies which will be subject to independent audit according to Article 397/4 of the Turkish Commercial Code (“TCC”) by its resolution numbered 2012/4213 and dated 19.12.2012[1]. There are two lists which are numbered as I and II in the said decision. The companies which are in these lists and the companies which are not in these lists but which fulfill the two conditions of the criteria in Article 3 of the Decision on Determining the Companies Which Will Be Subject to Independent Audit. Additionally, the mentioned criteria shall be fulfilled by the company two years in a row.

The first decision of Council of Ministers  on determining the companies to be subject to the audit published on the date of 23.01.2013 has been abolished by the resolution of Council of Ministers named Determining of the Companies Subject to the Independent Audit (“the Resolution”) dated 26.03.2018 and numbered 2018/11597 which has been published in the Official Gazette dated 26.05.2018 and numbered 30432.

 As of 2018, the standards decided by the Resolution as of 2018 are counted as below:

1. Threshold value for the companies whose capital market instruments are not at a stock exchange or at other organized markets but which are open to public by Code of Capital Markets dated 6/12/2012 and numbered 6362:
   1. 1. Total assets of the same are 15 million Turkish Liras
      2. Annual sale revenue of the same are 20 million Turkish Liras
      3. Number of workers are 50
2. The threshold values for companies which are listed in the list (II):
   1. 1. Total assets of the same are 30 million Turkish Liras
      2. Annual sale revenue of the same are 40 million Turkish Liras (annually)
      3. Number of workers are 125
3. For the companies which are not listed above in the sections 1 and 2, the threshold values are:
   1. 1. Total assets of the same are 35 million Turkish Liras
      2. Annual sale revenue of the same 70 million Turkish Liras (annually)
      3. Number of workers are 175

2. Appointment of the Independent Audit in Joint Stock Companies Subject to the Independent Audit and the Consequences of the Not Appointing the Auditor

The general rule is that the appointment of the auditor shall be made by the general assembly. Additionally; it has been also listed in the non-assignable powers of the general assembly in Article 408/2/c of the TCC.

A new auditor shall be appointed for each activity year. The auditor agreements which is prolonged automatically and the appointments exceed period of one year are invalid.

The auditor of the previous year cannot continue as new auditor without being elected again. Otherwise; the decisions of the auditor will be null and void.

Pursuant to Article 397 of the TCC, the financial statements and the annual report of the board of directors will be accepted as not arranged if the company does not appoint an auditor even though it is subjected to the independent audit. This situation would cause the company to not be able to:

• Share profits
• Increase capital
• Decrease capital

If the Company is in such a circumstance, the board of directors, which does not fulfill the obligation to appoint an auditor, shall be liable for damages.

The Resolution which expands the scope of the companies subject to the independent audit has been come into force as of 01.01.2018. Within this regard; the companies should reevaluate their situations and determine whether they are subject to the independent audit for the year of 2018 and shall also appoint the auditor accordingly in case it is determined that they are subject to the audit in accordance with the new Resolution.