Problems in Making International Financial Reporting Standards Become "National": The Case of Turkey

Abstract

1.IntroductionInternational Financial Reporting (IFRS) have been increasingly under focus of accounting professionals and legislators around world in last two decades. In Turkey, has been used in financial reporting by a limited number of companies for this period. The scope of mandatory application of was for public companies and financial institutions only. During this time, voluntary applications comprised mostly financial reports of local branches of international corporations. Other two groups that could be named as IFRS followers in Turkey were professionals worked for international big auditing firms and academics worked in higher education institutions.After several attempts, a full set official translation of has been published by a semi-autonomous professional agency in 2002. Although this set of rules is exact, word by word translation of IFRS, it was titled as Turkish Accounting Standards (Turkiye Muhasebe Standartlari - TMS). Under this heading, both and IAS (International Accounting Standards) are translated as Financial Reporting (TFRS - Turkiye Finansal Raporlama Standartlari) and Accounting (TMS) respectively. Before new Commercial Code's becoming in effect in July 2012, that were obliged to use TMS were limited to public companies, banks and insurance companies.Today, even after new Commercial Code, it is still legally uncertain whether TMS is only set of rules to be used in financial reporting or not. After several changes made in new law, as of this paper is being composed, new code implicitly commands that companies are still primarily required to keep accounting records according to tax accounting rules and submit tax purpose financial statements first. With this prioritization of tax accounting, law still defines all business entities and so-called the merchants as TMS appliers. However, a newly established governmental agency, Public Oversight, Accounting and Auditing Board - POOAASB (Kamu Gozetimi Kurumu - KGK) limited application of TMS by giving greater emphasize on auditing.As of beginning 2017, after several changes, for non-financial and non-public companies, only ones meeting certain threshold (based number of employees, amount of turnover, amount of total assets) are required to issue audited financial statements. Although, it is stated that, financial statements of those that are subject to independent auditing are to show a true and fair picture of financial position, financial performance and changes in financial position, it has not been stated clearly which set of accounting standards would be used in doing that. Those that are to be audited, do not have to prepare financial statements according to TMS. If they wish they can choose not to apply TMS and still be audited. For these there is a guidance issued by POAASB that defines limited number of adjustments in original tax based financial statements for certain items only. In case of TMS application, conversion process requires much greater deal of work to be done on tax based financial statements.Although, it is not approved as only set of financial reporting rules in Turkey, TMS greatly attracts interest of accounting professionals in Turkey for some time. The author of this paper was involved in many educational programs either as an educator or as a participant for last several years. Based on interactions with accounting professionals that were striving to come to an understanding of TMS, one can easily say that there was significant amount of hardship felt among many accountants. Of course to name these hardships and to diagnose root causes of them, more scientific research is necessary. Unfortunately, to conduct such a research project is extraordinarily difficult due to fact that measurement of variables in such a research model is too indirect. …