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An Empirical Study of transparency Reports and The Auditing Sector in Turkey

1. Introduction

At the beginning of the 21st Century, because of the high-profile accounting scandals and bankruptcies, the quality of audit became one of the most important topics in the eye of the standard setters, regulators, and practitioners. Although there are many different factors used to measure the quality audit, it is thought to be an effective factor because transparency reports explain firms' professional practices and managements to the public (Deumes et al., 2006). Audit quality, as in financial reporting process, is an important factor to effectively manage corporate practices of firms (Wan et al., 2008).

In the United Kingdom, in 2008, independent audit firms required to publish their yearly transparency reports on their web address. In this context, audit firms started to disclose mandatory transparency information in their transparency reports (FRC, 2008). The European Union (EU) also released 2014/56/EU directive by making amendment in the 2006/43/EC directive and made it mandatory to publish transparency reports for the EU (EU, 2014). In Turkey, the article number 36 of "Independent Auditing Regulation" on December 26, 2012 on the basis of Statutory Decree number 660 regulates the mandatory transparency reports.

This study investigates the structure of auditing firms of Turkey on the light of transparency reports of Turkish auditing sector as a measure of audit quality. By the transparency studies in accounting is developing, this study aims to reveal the structure of Turkish auditing sector, such as who audit listed firms, what is the income distribution of the sector, and the big four effect on the sector etc. The four big auditing firms are especially compared with other auditing firms to reveal the effect of the big four auditing firms on Turkish auditing sector.  Even though countries where capital markets are well developed have archival databases in terms of all kind of accounting information, developing countries such as Turkey lack these advantages. As a result, transparency reports not only increase audit quality of certain countries but also allow researchers to gather very valuable auditing data in terms of the sector.

2. Method

To reveal the structure of the independent audit sector in Turkey, information that must take place in transparency reports of 2013 has been examined. The data set (transparency reports) is obtained from web pages of Public Oversight Accounting and Auditing Standards Authority of Turkey (POA). In some situation, when transparency report’s lacks a particular information, the data is gathered from web pages of auditing firms, such as sometimes auditing firms don't reveal their total capital or year of foundation in their yearly transparency reports. As of March 1, 2015, 69 authorized audit firms' transparency reports have been reached by POA web pages. The research method of this study is content analysis which is one of the most preferred archival research methods in social sciences. 

3. Results and Discussion

The major findings of this study are summarized as follows:

In the sector, 49 audit firms have international network connection. Even though many firms have one international network, some firms have more than one international network connection.  

As a measure of audit firm size, the average capital of audit firms is ? 100,000. Moreover, the average audit firm capital ranges between ? 50,000 and ? 1,000,000.  Compare to the big four audit firms, other audit firms generally have higher capital commitments. 

The authorized audit firms’ headquarters are clustered in big cities of Turkey: 53 audit firms are in Istanbul, 12 audit firms are in Ankara, 3 audit firm is in Izmir, and 1 audit firm is in Antalya.

The number of audited public interest entities is higher for big four compare to other audit firms. While the average audited public interest entities for big four is 125, the average audited public interest entities number for other firms is 10. Meanwhile, the 42% of the total public interest entities audited their financial statements to the big four audit firms. This situation also affects audit firm’s income.

In 2013, the audit sector has created the total of ? 418,830,024 from the operations of both independent audit and non-audit  (? 245,556,799 from independent audit services and ?173,273,225 from non-audit services). Almost 80% (? 196,258,540) of the total audit firm income obtained by the big four audit firms. The reason why the big four audit firms earn higher income compare to market share (number of audit firms) is because the big four audit firms audit big firms that are mostly listed in BIST 100. 

One of the major differences between the big four audit firms and others is that the big four audit firm also audit listed firms of Turkey. 86% of the BIST 100 firms get audit services from the big four audit firms. When it comes to BIST 30 firms, almost 94% of the firms prefer the big four firms for the services of audit.

4. Conclusion

According to the results of the study, Turkish auditing sector is an emerging sector, clustered in large cities such as Istanbul, dominated by the big four auditing firms. Moreover, large firms get audit service largely from the big four audit firms.

This study aims to reveal Turkish auditing sector and the effect of the big four audit firm on the sector. This study summarizes Turkish auditing sector for interested parties such as regulators, practitioners, and public. Another important aspect of this study is to open a new page for audit quality studies. Even though earnings management studies mostly dominate audit quality studies from the customer perspective, in recent years, it is very common to see studies use information of audit service providers and their service quality. By this study, we believe the cost of auditing, reputation of audit firms, and the big four effect will be questioned in Turkey. "Does Being Audited by Big Four Pay in Turkey?" may be a good question to start.

Anahtar Kelimeler
An Empirical Study of transparency Reports and The Auditing Sector in Turkey


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