Audit and Assurance
Financial Analysis and Risk Assessment
Review of financial statements, ratios and cash flow, monitoring of capital loss indicators, preparation of credit and investor reporting packages, and financial review support before an acquisition.
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Overview
Financial analysis is the review and interpretation of a company’s balance sheet, income statement and cash flow data for management, shareholders, credit institutions or investors. The aim is to present indicators of liquidity, profitability, indebtedness and cash generation capacity in a form that can be compared across periods, and to bring items that need attention to the notice of management.
Under Law No. 3568, the profession of certified public accountant (SMMM) covers advisory work on business management, accounting, finance and financial legislation, examination, analysis and review based on documents, and the preparation of written opinions and reports on financial statements. (Law No. 3568, Art. 2/A)
A financial analysis report is not an independent audit and does not contain an audit opinion on the financial statements. Independent audits under the Turkish Commercial Code No. 6102 (TTK) are performed by sworn-in certified public accountants (YMM) or certified public accountants (SMMM) authorised by the Public Oversight Authority (KGK), or by audit firms whose partners are such persons. (TTK Art. 400/1) Certification (tasdik) of financial statements belongs to sworn-in certified public accountants (YMM). (Law No. 3568, Art. 12) The analysis is based on the records and documents provided by the company; the results are limited to the scope of these data, and decisions rest with the company’s management.
KEYBIZ CPAs & Advisors compares the data used in the analysis with the statutory books, prepares the ratio and cash flow tables and presents the findings in a written report. For the preparation of the statements on which the analysis is based, see our Financial Reporting page.
Types of Work and Their Content
| What Is Reviewed | Output | |
|---|---|---|
| Financial Statement Analysis | Vertical and horizontal analysis of the balance sheet and income statement, changes between periods | Comparative tables and annotated findings |
| Ratio Analysis | Liquidity, profitability, indebtedness and activity ratios | Ratio table and trends over the periods |
| Cash Flow Review | Cash flows from operating, investing and financing activities; maturities of receivables and payables | Cash flow statement and summary of the maturity structure |
| Capital Loss Indicators | The portion of the total of capital and statutory reserves left uncovered by losses; position against the one-half and two-thirds thresholds in TTK Art. 376 | Calculation table; decisions on the general assembly and the interim balance sheet rest with the board of directors |
| Credit and Investor Package | Financial information and statements requested by the credit institution or investor | Reporting package arranged to fit the request; if audited statements are required, an independent auditor’s report is needed separately |
| Financial Review Support | The target company’s financial records, liabilities and tax position before an acquisition or partnership | Review report listing the findings and open issues |
| Currency and Interest Rate Sensitivity | Breakdown of foreign currency assets and liabilities and of floating-rate loans | Position summary and scenario tables |
Process of the Analysis Work
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Defining the Purpose and Scope
We agree in writing whom the report is for and which decision it supports, and the periods and topics to be covered. If the requesting institution wants an independent audit report, a certification report or a valuation report, we state at the outset that these reports must be issued by the relevant authorised professional or institution.
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Collecting the Data
The analysis is based on the company’s records and documents.
- Balance sheets and income statements for the last two or three years
- Current trial balance and account statements
- Lists of bank loans and collateral
- Ageing schedules for receivables and payables
- Breakdown of foreign currency assets and liabilities
- Tax returns and the tax office statement of debts
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Comparing the Data with the Records
The amounts used are compared with the statutory books and bank records. Reconciliation differences are listed separately; for this work, see our Account Reconciliations page.
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Analysis and Reporting
Ratio, cash flow, capital loss and sensitivity tables are prepared; the findings and the limitations of the data are set out in the report.
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Evaluating the Results
The report is reviewed together with the company’s management. Decisions on the measures to be taken, and their implementation, rest with the company’s management.
Frequently Asked Questions
Does a Financial Analysis Report Replace an Audit Report?
No. Financial analysis is a review and interpretation of the records; it does not contain an audit opinion. Independent audits are performed by auditors and audit firms authorised by the KGK. (TTK Art. 400/1)
Can an SMMM Prepare This Type of Report?
Yes. Examination and analysis based on documents, and the preparation of written opinions and reports on financial statements, are among the activities of a certified public accountant (SMMM). (Law No. 3568, Art. 2/A) Certification (tasdik), by contrast, belongs to sworn-in certified public accountants (YMM). (Law No. 3568, Art. 12)
When Does Capital Loss Become Significant?
If, according to the latest annual balance sheet, half of the total of the capital and the statutory reserves has become uncovered due to losses, the board of directors immediately calls the general assembly to a meeting and presents remedial measures. If this ratio reaches two-thirds, the general assembly meets without delay; if it does not resolve to content itself with one-third of the capital or to replenish the capital, the company is automatically dissolved. (TTK Art. 376/1, 376/2) The analysis covers the calculation of this ratio; decisions rest with the company’s corporate bodies.
Which Documents Are Needed for the Analysis?
Usually the balance sheets and income statements for recent periods, the current trial balance, lists of loans and collateral, ageing schedules for receivables and payables, and tax returns are requested. The scope varies with the purpose of the work.
What Does a Financial Review Cover?
Before an acquisition or partnership, the target company’s financial records, liabilities, tax returns and financial obligations arising from significant contracts are reviewed; the findings and open issues are reported. Legal due diligence and company valuation are not within this scope. For acquisition processes, see our Mergers and Acquisitions page.
Can a Package Be Prepared for a Foreign Investor?
Yes. The package is arranged in the format and for the periods the investor requests. If the investor requires financial statements that have undergone an independent audit, they must be audited by an auditor authorised by the KGK. (TTK Art. 400/1)
Legal Basis
- Law No. 3568 on Certified Public Accountancy and Sworn-in Certified Public Accountancy (3568 sayılı Serbest Muhasebeci Mali Müşavirlik ve Yeminli Mali Müşavirlik Kanunu) Art. 2, 12, Official Gazette 13.06.1989, 20194
- Turkish Commercial Code No. 6102 (6102 sayılı Türk Ticaret Kanunu) Art. 376, 400
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