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Independent audit is the process of assessing and verifying a company’s financial statements and financial information by an impartial expert from outside the organization. This audit is conducted to enhance the reliability of the company’s financial information, ensure compliance with legal requirements, and provide confidence to stakeholders (investors, lenders, shareholders).
In an independent audit, an independent audit firm or a professional auditor examines the company’s financial statements, accounting records, internal control systems, and financial reporting processes. The outcome of this examination determines whether the company’s financial information is accurately, reliably, and fairly represented.
Companies have various reasons to engage in independent auditing. Independent auditing serves as a crucial tool for enhancing the accuracy, reliability, and transparency of a company’s financial reporting. Here are some key reasons why companies need to undergo independent auditing:
Building Stakeholder Confidence: Independent auditing demonstrates that a company’s financial information has been verified by an external expert. This instills confidence in the financial health of the company for shareholders, investors, lenders, and other stakeholders
A company that is required to undergo independent auditing but fails to do so may encounter various legal and financial problems. Mandatory independent auditing is typically required to ensure public disclosure, financial transparency, and stakeholder confidence. Possible consequences for a company that does not undergo independent auditing include the following:
Legal Issues: In many countries, laws mandate that businesses of a certain size or within specific sectors must undergo independent auditing. A company that fails to comply with these legal requirements may face legal sanctions.
The contract to be signed with an independent auditing firm is essential to ensure the transparent, effective, and fair conduct of the audit process. The contract defines the rights and responsibilities of both the business and the auditing firm. At a minimum, the independent audit contract should include the following:
- Identification of Parties
- Scope of the Audit
- Fee and Payment Terms
- Audit Plan
- Reporting and Communication
- Confidentiality and Assurance
- Rights and Obligations
According to Article 409 of the Turkish Commercial Code (TCC), joint stock companies are required to hold their regular general assembly meetings within three months after the end of each fiscal year or, if necessary, an extraordinary general assembly meeting. In accordance with Article 399 of the TCC, the auditor must be elected by the general assembly for each fiscal year, and at the latest, before the end of the fiscal year in which they will perform their duties. The audit contract, in compliance with the Turkish Commercial Code, is concluded within 60 days at the latest from the selection of the auditing firm or independent auditor for the fiscal year in which the audit firm or independent auditor is appointed
As of January 1, 2023, in accordance with the provisions of Law No. 6102 and Decree-Law No. 660 dated September 26, 2011, within the framework of the Decision on Determining Companies Subject to Independent Auditing under the scope of Decision No. 6434, companies subject to independent auditing are as follows:
A. Companies subject to independent auditing without any specific criteria (List (I) attached to Law No. 6434)
The following companies listed in List (I) attached to the Decision are subject to independent auditing without any specific criteria.
In independent auditing, reasonable assurance is a high but not absolute level of confidence within the framework of the audit of financial statements.
Independent audit standards require the auditor to obtain reasonable assurance, which forms the basis for the auditor’s opinion, regarding whether the financial statements as a whole contain a material misstatement due to error or fraud. Reasonable assurance is a high level of assurance but not 100%. An independent auditor provides reasonable assurance when they have obtained sufficient and appropriate audit evidence to reduce audit risk, which is the risk of giving an inappropriate opinion when the financial statements are materially misstated, to an acceptably low level, even if the financial statements do contain a material misstatement. However, due to inherent limitations of the audit, most of the audit evidence that supports the auditor’s conclusions and opinion is persuasive rather than conclusive, making reasonable assurance not an absolute level of assurance.
To provide reasonable assurance, the auditor obtains sufficient and appropriate audit evidence with the aim of reducing audit risk to an acceptably low level. These pieces of evidence enable the auditor to arrive at reasonable conclusions that support their opinion.