An Attempt to Understand Compliance Degree of Implementing International Standards in Accountancy: The Turkey Experience

ABSTRACTSome of the prior studies showed a great deal of non-compliance with international standards related to accountancy. This paper contributes to understanding the compliance degree of implementing international standards in Turkey through the quality control activities (2008-2009-2010-2011) of the Capital Market Board (CMB). In addition, we seek some evidence to find out the dominant party (reporting entity, accounting firm, CMB) over the reporting practices of listed companies and auditing practices of accounting firms in Turkey. The quality control activities of the CMB showed that the implementation of the IFRSs and ISAs were inefficient in Turkey, so the audit firms were cautioned, punished, or their licenses cancelled. We concluded that the compliance degree of the implementing international standards will depend on the knowledge level of the CMB Officio in Turkey. Therefore the CMB or regulator has been dominant over the reporting entity, not the audit firm nor the reporting entity.INTRODUCTIONAs the forces of globalization prompt more and more countries to open their doors to foreign investment, and as the businesses themselves expand across borders, both the public and private enterprises have been increasingly recognizing the benefits of having a commonly understood financial reporting framework supported by strong globally accepted accounting and auditing standards (Jaruga et al., 2007). IAS adoption by the European Union is one of the biggest events in the history of financial reporting, making IAS the most widely accepted financial accounting model in the world. Accordingly, there is an urgent need for managers and accountants to apply International Financial Reporting Standards (the IFRSs) properly.Regulators expect that the use of IFRSs enhances the comparability of financial statements, improves corporate transparency, increases the quality of financial reporting, and hence benefits investors. The higher disclosure requirements and financial reporting quality that stem from adopting IFRSs should reduce information asymmetry and give a positive signal to investors. However, the transition to IFRSs presents firms with difficulties including technical differences, the cost of change and adjustment, the time factor, and the insufficient experience and knowledge (Iatridis and Rouvolis, 2010). A survey of PricewaterhouseCoopers (2004) over 300 European firms shows their preference of and their full perception of the benefits of converting to IAS/IFRS, even though some implementation problems and impact on firms' performance have seen as a barrier to the enforcement of IAS/IFRS. Other barriers might include disagreement with certain IAS/IFRS and the complicated nature of certain IAS/IFRS (Cordazzo, 2008). As a result of remarkable achievements in economic reform, on April, 1987, the Turkish government applied for full membership in the EU though the country has relationship with the European Union began in 1959. On December 2004, EU Commission and the EU leaders persuaded that Turkey had made sufficient progress on fulfilling the so-called "Copenhagen Political Criteria" and negotiations have started. In Turkey, the accounting practices for most companies such as nontraded and SMEs have been strongly influenced by the need of producing information for the tax authorities (Cooke & Curuk, 1996). Nevertheless, Turkey has been improving its financial reporting practices in the recent years. Being a candidate for the EU, member of the IOSCO, and the Basel Committee, Turkey did start to comply with the IFRS earlier. Financial institutions had started as of December 31, 2002. The listed companies had as of December 31, 2004. Without mentioning the level of compliance, a study reported that Turkey has been among the countries where the IFRSs have been entirely implemented since 2005 (Barth, 2007). On the other hand, Independent auditing in Turkey started by the establishment of CMB in 1982 which developed its own standards of external auditing for the companies listed in the ISE. …