Accounting and Auditing in Turkish Public Economic Enterprises: Assessment and Evaluation from the Foundation of the Republic to Present

Abstract

This study examines the history of accounting and auditing in Turkish Public Economic Enterprises (PEE) beginning from the 1930s. For after the foundation of the Republic of Turkey in 1923, very few businesses were applying the double-entry bookkeeping method. Accountants, who knew this method, were almost non-existent. In awareness of this deficiency, Ataturk and his friends, who founded the Republic, organized an industrial congress in the early 1930s. They identified the issues of state capital and industrial investment in various parts of the country, however, only a small number of young staff with business education and a few engineers were to be found. Thus, approximately 150 operating engineers were invited to Turkey from Germany and other developed western countries. Circa fifty of the largest industrial and commercial establishments in the Middle East were put into operation in 1934-1939 within the groundwork, where two banks assumed the holding duties, mostly with the guidance of German experts. But given the lack of preparation and professional staff, the problem of auditing these structures proved being problematic during the process. To this end, an auditing body had been established under the name of Auditing Committee (audit group) in PEE (1938-39). When the German experts started to return to their country due to World War II, Turkish experts tried to develop this auditing body. They put into practice the culture of business auditing, which German experts left behind during their investment activities and reports. They also tried to create uniform financial statements, and consolidated financial statements in line with the German school. These efforts were in accordance with the advanced accounting understanding of the time. However, two important events held up these developments. First was the death of Ataturk in 1938, who was the pioneer of these efforts. Second, Turkey was economically restricted because of the Second World War. For these reasons, the development of Public Economic Enterprises had slowed down and then stopped. Liberal economic policy practices in Turkey started off in 1950. While the weight of PEE in the economy had been around 50%, this rate decreased in the following period with the effect of liberalization. However, the post-1960 administration began to re-engage PEE, which produced major products in the country, and had large infrastructure investments. So, a commission for reorganizing PEEs was established (in 1967). This commission did very important work in the years 1967-71 and for the first time, the PEEs began to implement the uniform chart of accounts in Turkey. During the seventy-year period from 1923 to 1992, when the uniform chart of accounts started to be implemented, the Turkish accounting thought experienced two bright periods, 1938-39 and 1964-71. This progressiveness was evident in both accounting and business auditing practices. These two periods have always attracted attention as the two short periods that Turkish accounting historians are constantly researching. This study delves into these periods in detail, and offers some important assessments and deliberations.