Turkey: Special Audit In Joint Stock Companies

I. INTRODUCTION

In joint stock companies, there are three types of audit mechanism, namely (i) statutory audit, (ii) optional audit and (iii) special audit.

In accordance with the Turkish Commercial Code No. 6102 ("TCC"), all joint stock companies are subject to statutory audit. Said article stipulates that statutory audit is conducted pursuant to article 398 of the TCC and the relevant regulation ("Regulation") to be introduced by Ministry of Customs and Trade and the Council of Ministers, as the case may be.

In order to determine the joint stock companies that are subject to the statutory audit within the scope of article 398 of the TCC (known as also "independent audit"), the Council of Ministers has determined certain criteria. The joint stock companies that meet such criteria are liable to duly appoint an independent auditor and have the company audited. In accordance with article 398 of the TCC, content of the statutory audit is annual financial statements and board of directors' activity reports. Other joint stock companies, which fall out of the scope of the criteria determined by the Council of Ministers, are subject to the statutory audit in accordance with the Regulation. However, the Regulation has not been introduced yet. Therefore, the statutory audit to be conducted in accordance with the Regulation has not been clarified and it is not applicable at the time being.

On the other side, joint stock companies may also intentionally subject themselves to an audit (optional audit). In practice, optional audit is a widely accepted mechanism amongst the joint stock companies in order to properly determine vulnerabilities of and potential risks for the company. The optional audit may be conducted at a regular basis or when necessary. Content of the optional audit and qualifications of the auditor are determined according to specific need of the company.

As another audit mechanism, article 438 of the TCC enables shareholders of joint stock companies to request special audit. In this respect, each shareholder is entitled to request a special audit from general assembly of the company for clarification of certain issues and in case of certain circumstances. In this article, we will explain concept of special audit mechanism in joint stock companies in the light of relevant articles of the TCC.

II. SPECIAL AUDIT

i. Pre-condition for Requesting Special Audit:

As per article 438 of the TCC, in order for a shareholder to request a special audit, that shareholder or any shareholder of the company should have duly consumed its "right to information and examination". This is a pre-condition for requesting the special audit.

In accordance with article 437 of the TCC, the scope of "right to information and examination" is as follows:

  • Financial statements, consolidated financial statements, auditor's reports, and the board of directors' annual activity report and suggestion as to profit distribution shall be available at the head office and branches of the company for review of the shareholders starting from at least 15 (fifteen) days in advance of the annual general assembly meeting. Financial statements and consolidated financial statements shall be available at the head office and branches of the company for information of the shareholders during 1 (one) year. Each shareholder is entitled to request a copy of the income statement and balance sheet of the company at company's own cost.
  • During general assembly meeting of the company, each shareholder may request information from (a) the board of directors regarding the company's business and/or (b) the statutory auditors regarding their audit methods and results. The information to be provided to the shareholders should be honest and accurate, in accordance with principles of accountability and good faith. The request of information may only be rejected by general assembly of the company on the grounds that an explanation to be given will cause disclosure of the company's trade secrets and jeopardize the company's interests.
  • If any information has been provided to a shareholder outside the course of a general assembly meeting, the same information with an identical scope and details should also be provided to other shareholders during the general assembly meeting, upon their request, even if such matter is not listed in the agenda of the meeting. In such cases, the board of directors may not refrain from sharing this information based on the arguments of trade secret and the company's interests.
  • For being able to evaluate a certain part of the commercial books and the company's correspondences regarding the questions raised by a shareholder, a clear consent of the general assembly or a specific board resolution is required. The evaluation may be made by an expert if such consent has been granted by general assembly or board of directors of the company.
  • If a shareholder's request of information is rejected or not duly answered without any justification at the general assembly meeting, such shareholder may apply to the Commercial Court of First Instance within 10 (ten) days following the rejection or within a reasonable time period in case of other circumstances. The Commercial Court of First Instance will review the file and may order the company to share the information with the shareholder. The court's decision will be final and binding.
  • Information rights of shareholders may not be abolished or limited through the articles of association or a corporate body resolution.

According to a decision of the Court of Appeal's 11th Civil Department numbered 2015/97 E., 2015/13293 K., the plaintiff has requested appointment of a special auditor from the Commercial Court of First Instance on the grounds that (a) the company has not duly made available relevant information/examination requested by the plaintiff and (b) the general assembly of the company has rejected special auditor request of the plaintiff. The Commercial Court of First Instance has rejected request of the plaintiff due to the fact that the procedure of exercising right to information and examination is subject of a pending lawsuit and the pre-condition has not been satisfied yet. We understand by this decision that the plaintiff has already initiated another lawsuit to obtain the relevant information in accordance with article 437 of the TCC. Therefore, the Commercial Court of First Instance has not accepted appointment of the special auditor before conclusion of such lawsuit.

ii. Procedure of Requesting Special Audit:

As per article 438 of the TCC, provided that right to information and examination has already been exercised by any shareholder, each shareholder has the right to request a special audit during the general assembly meeting in order to clarify certain issues and for consuming its shareholding rights, even though such an audit is not included in the general assembly's agenda. At this point, subject of the information/examination and the special audit request should be concerning to the same subject.

If the general assembly approves the special audit request; either the company or each shareholder (not only the shareholder that requested the audit) may apply within 30 (thirty) days to the Commercial Court of First Instance for appointment of a special auditor. In this case, costs of the special auditor are covered by the company.

If the general assembly does not approve this request; the shareholders representing at least 1/10 (one tenth) or having the total nominal value of TRL 1,000,000 of the share capital in non-public companies and 1/20 (one twentieth) of the share capital in public companies may apply to the Commercial Court of First Instance within 3 (three) months following rejection of the general assembly, for appointment of a special auditor in accordance with article 439 of the TCC. In order to apply to the court, only the share capital ratio and amount are taken as a basis to calculate the foregoing thresholds. In such a case, voting right privileges are not considered. If the court accepts the special audit request, it may hold the applicant shareholders liable for costs of the special auditor.

As stated in the decision of the Court of Appeal's 11th Civil Department 2015/1059 E., 2015/13774 K., the relevant Commercial Court of First Instance has rejected appointment of the special auditor on the grounds that the plaintiffs does not represent at least 1/10 (one tenth) of the company's share capital.

iii. Appointment of the Special Auditor

Article 439 of the TCC stipulates that in order for the court to accept the request, the Commercial Court of First Instance should be convinced that founders or corporate bodies of the company have explicitly violated articles of association of the company or the applicable laws, and caused damage to the company and the shareholders. If the Commercial Court of First Instance accepts to appoint a special auditor, it shall determine the specific scope of the examination pursuant to the request, and appoint one or more independent experts. The independent experts should have knowledge and expertise in accounting, financing and/or legal matters.

As per article 440 of the TCC, the Commercial Court of First Instance will evaluate the case after hearing the company and the shareholder(s) that made a request for special audit. If the Commercial Court of First Instance rejects to appoint special auditor, its decision will be final and binding. In accordance with the decisions of the Court of Appeal's 11th Civil Department numbered 2015/6077 E., 2015/13085 K. and 2015/1936 E., 2015/8065 K., appeal request of the plaintiff against decision of the Commercial Court of First Instance rejecting appointment of special auditor on grounds that the Commercial Court of First Instance's decision is final and binding.

iv. Duties of the Special Auditor

In accordance with article 441 of the TCC, special audit should be conducted within a reasonable time period and without hindering the company's works unnecessarily. Special auditor should keep company's trade secrets confidential.

v. Special Audit and the Auditor's Report

As per article 441 of the TCC, the board of directors shall allow the special auditor to examine the commercial books, company's correspondences and all its assets including cash, negotiable instruments and properties. Shareholders, corporate bodies, agents, employees, trustees and liquidators of the company shall provide all required information to the special auditor. In the event of any dispute, it shall be settled by the court and the court's decision shall be final and binding.

In accordance with article 442 of the TCC, special auditor should first submit its draft report to the board of directors of the company for their review and seek their opinion on the draft. Once the report is finalized, auditor should submit its detailed final report to the court by explaining results of its examinations. Accordingly, the court should deliver a copy of the report to the company.

Upon the company's request, the court may decide that disclosure of the report may jeopardize the trade secrets or interests of the company, and not to share the report with the shareholders that requested special audit. In this respect, list of the clients, costs, price formation etc. may be considered the primary trade secrets and projects; investments and relations may be considered as the primary interests. In such a case, the court would conceal such information within the report.

The court also grants opportunity to the applicant shareholders and the company to convey their opinions and additional questions regarding the disclosed report.

Even if the court has decided that the report should not be disclosed, the board of directors shall submit the report and relevant evaluations of the court to the next general assembly meeting in accordance with article 443 of the TCC. During 1 (one) year following the date of general assembly, each shareholder may request from the company a copy of the auditor's report and opinion of the board of directors regarding the auditor's report.

III. CONCLUSION

Special audit is an effective audit mechanism that enables shareholder to have knowledge regarding specific matters of the company so long as the courts conclude the court process swiftly. Such knowledge and the special audit report may also constitute a basis for the liability cases to be initiated by the shareholders in future against the founders or corporate bodies of the company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.