3.6 Audit at the CBRT and Audit Reports

3.6.1 Audit at the CBRT

The activities of the CBRT, which operates as a joint stock company, are audited by both internal and external auditors in compliance with the provisions of the CBRT Law No. 1211.

Audits Conducted by the Internal Organs of the CBRT

In accordance with Article No. 15 of the CBRT Law, the General Assembly examines and resolves whether to approve the Annual Report submitted by the Board of the Bank, the report of the Auditing Committee, the CBRT’s balance sheet and the income statements. In this way, the General Assembly completes the monitoring of the activities of the Bank every year by discharging the Board of the Bank and the Auditing Committee.

On the other hand, in accordance with Article No. 24 of the CBRT Law, the Auditing Committee audits all the operations and accounts of the CBRT and submits to the General Assembly a report to be drawn up on operations and accounts of the Bank at the end of the year. With the authorization entrusted by the CBRT Law, the Auditing Committee submits its written opinions to the Board and also presents a copy thereof to the President.

According to Article No. 64 of the Main Regulation on Organization and Duties of the CBRT, the authority and responsibility for auditing the Bank’s transactions are entrusted with the Audit Department.

Article No. 64 of the Main Regulation on the Organization and Duties of the CBRT gives the authority and responsibility of auditing the Bank’s transactions to the Audit Department.

Within the scope of the authorities and duties granted by the CBRT Law No. 1211 as well as other legislation, the Audit Department has the duty and authority to conduct audits, examinations and research, and also to carry out investigations and consulting services when needed in the departments, branches and representative offices of the CBRT and also at institutions and organizations other than the Bank.

According to Article No. 6 of the “Audit Regulation of CBRT”, audits carried out can be classified into four activities: internal audit, investigation, examination and consultancy, and external audit activities.

According to Article No. 37 of the “Audit Regulation of the CBRT”, one or several of the operational, financial, compliance and information systems audits are conducted simultaneously in all departments, branches and representative offices of the CBRT.

Within the scope of the external audit function, banks and financing institutions operating in Turkey are audited to ensure that the liabilities subject to reserve requirements are calculated, the maximum and the weighted average interest rates/profit-loss participation rates are reported, variable interest products and deposits are managed in compliance with regulations related to maturities and types of instruments; that the variable interest rate housing loan contracts are lawful; the incompliance with the credit card regulations and the controls regarding reporting of credit cards, the closure of export rediscount credit accounts, credit cards and overdraft accounts, announced interest rates, actual maximum interest rates, KT (the weighted average interest rates and amounts for credits in TL) and MT (the weighted average interest rates and amounts for credits in TL) forms are in conformity with Trial Balance; and IBAN applications comply with the relevant regulations, instructions and circulars. In 2018, the Audit Department conducted external audits in 28 banks and 4 financing institutions.

The Audit Department has a total of 58 staff and is composed of 13 chief inspectors, 5 chief auditors, 27 inspectors, 1 auditor, 1 information technologies auditor, 3 authorized assistant auditors, 2 assistant information technologies auditors, 2 assistant auditors and 4 assistant information technologies auditor.

The “Follow-up of Audit Results” activities, which are designed to monitor whether the necessary actions are taken regarding the issues in the audit reports, to inform and receive the opinions of the Board, the Auditing Committee and the Executive Committee, were held in June and December 2018.

Audits Conducted by External Parties

In accordance with Article No. 42 of the CBRT Law, the Governor submits to the President a report on the operations of the Bank and the current and future monetary policy, in April and October each year. The CBRT furnishes information regarding its operations to the Committee on Plan and Budget of the Grand National Assembly of Turkey twice a year.

In accordance with the second paragraph of Article 42 of the CBRT Law, the CBRT may assign external auditors to audit the balance sheet and the income statements of the Bank. Believing that independent external audit activities are one of the most effective instruments with respect to the transparency and accountability principles adopted by central banks operating in compliance with international standards, the CBRT first started to receive external audit services in 2000. The reports prepared at the end of the audit engagements each year are made public via the CBRT’s website.

In addition to these audits mentioned above, the Ministry of Treasury and Finance, the State Supervisory Council, the Turkish Court of Accounts, certain ministries and other authorized government agencies may conduct audits via their auditors at the CBRT on the issues related to their duties, if necessary.

3.6.2 The Report of the Auditing Committee

CENTRAL BANK OF THE REPUBLIC OF TURKEY JOINT STOCK COMPANY
2018
AUDITING COMMITTEE REPORT FOR THE EIGHTY-SEVENTH ACCOUNTING YEAR

The Auditing Committee has audited the activities and resulting statements of the 2018 Accounting Year of the Central Bank of the Republic of Turkey within the framework of the provisions of the related legislation, and concluded that:

1-Gold holdings, and cash, foreign exchange banknotes, coins and securities in the service and reserve vaults of the Head Office and Branches, which were subject to audit and stock-taking, are in conformity with the accounting records as well as the inventory records, and these values are kept and administered in accordance with the regulations and instructions,

2-The decisions, dissents and abstaining votes of the Board have been deliberated and no action was deemed necessary,

3-The conformity of books related to the Bank’s accounts with accounting records was examined and it was ascertained that: the records were kept timely, orderly, properly and per legislation, and that the Bank’s operations were in conformity with the Central Bank Law.

4-The trial for the legal liability lawsuit filed by the Bank continues,

5-The balance sheet dated 31.12.2018 and the Income Statement for the period between 01.01.2018-31.12.2018 are in compliance with the Turkish Commercial Code and the Central Bank Law,

6-The financial statements compiled to present the financial position of the Central Bank of the Republic of Turkey on 31.12.2018, and the results of activities relating to the same accounting year that ended on the same date are presented in an accurate, correct and clear manner pursuant to the legislation in force in Turkey and the Central Bank Law.

In conclusion, we hereby submit the “Balance Sheet” and the “Income Statement” dated 31.12.2018 for approval of the General Assembly.

Ankara, 22.02.2019

Mehmet BABACAN Auditing Committee Member	Mehmet KAYA Auditing Committee Member
Zekeriya KAYA Auditing Committee Member	Mehmet Murat ÖZDİL Auditing Committee Member

 

3.6.3 Independent Audit Report Drawn up in Compliance with the Central Bank Law and Related Legislation*

To the Board of the Central Bank of the Republic of Turkey
Ankara

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of the Central Bank of the Republic of Turkey (“the Bank”), which comprise the balance sheet as of 31 December 2018 as well as the income statement, statement of comprehensive, statement of changes in equity and statement of cash flows, and notes to the financial statements, including a summary of significant accounting policies pertaining to the accounting year that ends on the same date as the balance sheet.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with the Law of the Central Bank of the Republic of Turkey and related legislation (Note I.A.(2)).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. Regarding the independent audit of financial statements, we are independent of the Bank in accordance with the Code of Ethics for Professional Accountants (Code of Ethics) issued by the International Ethics Standards Board for Accountants’ (IESBA Code) as well as the ethical rules in Turkey. We have also fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Additional Opinion

The financial statements of the Bank pertaining to accounting year ending on 31 December 2018 have been audited by an external auditor and the auditor has submitted a positive opinion on the financial statements on 5 March 2018.

Responsibilities of the Management and Those Charged with Governance with Respect to the Financial Statements

The Bank Management is responsible for ensuring that the financial statements of the Bank are prepared and fairly presented in accordance with the Law of the Central Bank of the Republic of Turkey and related legislation (Note I.A.(2)), and for such internal controls as management deems necessary to make sure that the financial statements are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to the going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of “material misstatement” of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate for the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate to those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.
A member firm of KPMG International Cooperative

Erdal Tıkmak
Partner

Istanbul, 22 February 2019

* The full text of the Report is accessible at the Bank’s web site (www.tcmb.gov.tr), under About the Bank / Organization / Independent Audit Reports

 

3.6.4 Independent Audit Report Drawn up in Compliance with IFRS*

To the Board of the Central Bank of the Republic of Turkey
Ankara
Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of the Central Bank of the Republic of Turkey (the “Bank”), which comprise the statement of financial position as at 31 December 2018, and the statement of profit or loss, statement of other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Bank as at 31 December 2018, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the Code of Ethics for Professional Accountants (IESBA Code) issued by the International Ethics Standards Board for Accountants and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Additional Opinion

The financial statements of the Bank pertaining to accounting year ending on 31 December 2018 have been audited by an external auditor and the auditor has submitted positive opinion on the financial statements on 5 March 2018.

As stated in Note (3,a), the monetary amounts in US dollars (USD) in the accompanying financial statements are in Turkish lira (TRY) calculated based on the official Central Bank buying rates announced 31 December 2017 and 2018 in financial position tables; whereas, the USD amounts in income statements are the average rates calculated based on official daily buying rates announced by the CBRT in 2018 and 2017, and they are not part of the financial tables herein.

Responsibilities of Management and Those Charged with Governance for the Financial Statement

The Bank Management is responsible for ensuring that the financial statements of the Bank are prepared and fairly presented in accordance with IFRS and for such internal controls as management deems necessary to make sure that the financial statements are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to the going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations,

Those charged with governance are responsible for overseeing the Bank’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. (The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.)
• An understanding of internal control relevant to the audit is obtained in order to be used in the design of audit procedures that are appropriate for the circumstances, not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
• Evaluate the appropriateness of accounting policies used, the reasonableness of accounting estimates and related disclosures made by the management.
• Conclude on the appropriateness of management’s use of the going concern principle of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair -presentation.

We communicate to those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

KPMG Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.

A member firm of KPMG International Cooperative

Erdal Tıkmak
Partner

İstanbul, 22 February 2019

 

* The full text of the Report is accessible at the Bank’s web site (www.tcmb.gov.tr), under About the Bank / Organization / Independent Audit Reports