Overview
Almost every foreign group with a Turkish subsidiary runs into the same problem at the same moment: the local books are finished, the local auditor is satisfied, and the numbers still cannot be dropped into the group consolidation. That is not a sign that anything has gone wrong. Turkish statutory accounts are built for a different purpose than IFRS or US GAAP, and the distance between them has just become wider than it has been for years.
This article explains what your Turkish subsidiary’s books actually are, why the gap widened in December 2025, where IFRS and US GAAP part company on Turkey specifically, and what a conversion package that survives group audit looks like.
What your Turkish books actually are
A Turkish company keeps its statutory accounts under the Tax Procedure Law (Vergi Usul Kanunu) using the Uniform Chart of Accounts (Tek Düzen Hesap Planı). The chart is prescribed, the account numbers are the same in every company in the country, and the recognition and measurement rules behind it are tax rules. The purpose of that ledger is to compute taxable profit and support the corporate tax return — not to present a fair view to an investor.
Turkey does have a full IFRS framework. The Public Oversight Authority (KGK) issues TFRS, which is a direct translation of IFRS, and BOBİ FRS for large and medium-sized entities that are audited but not public interest entities. The point most foreign parents miss is that these apply only to companies that meet the KGK’s criteria. A typical foreign-owned trading, service or manufacturing subsidiary in Turkey falls below them and is under no local obligation to produce IFRS statements at all. It keeps one ledger, and that ledger is the tax ledger.
Your Turkish subsidiary almost certainly does not maintain IFRS books. It maintains tax books. The IFRS or US GAAP numbers your group needs are produced on top of them, as a conversion, not extracted from them.
What changed in December 2025
For the 2023 and 2024 accounting periods, Turkish statutory accounts were inflation-adjusted. Article 298/A of the Tax Procedure Law was triggered, and companies restated their balance sheets for the first time since 2004. That was painful, but it had one benefit for group reporting: the statutory numbers and the IFRS numbers were at least both expressed in end-of-period purchasing power, and the conversion could be built on that common starting point.
That has stopped. Law No. 7571, published in the Official Gazette on 25 December 2025, added Temporary Article 37 to the Tax Procedure Law: no inflation adjustment is to be made for the 2025, 2026 and 2027 accounting periods, even where the statutory conditions for it are met. Taxpayers who are required to apply inflation accounting continuously — broadly, the supervised financial sector — sit outside the suspension. The President may extend it by up to three further periods.
IFRS did not follow. Turkey remains on the standard-setters’ hyperinflationary list, and entities with a Turkish functional currency are required to apply IAS 29 for periods ending 30 June 2026 and beyond. So from the 2025 year-end onwards, a Turkish subsidiary with a TRY functional currency produces statutory accounts on a historical-cost basis and group accounts on a restated basis, from the same ledger, in the same year.
If your conversion package was built in 2024 on the assumption that the statutory inflation adjustment did most of the IAS 29 work for you, it no longer does. That is the single most common error we expect to see in Turkish reporting packs this year and next.
IFRS and US GAAP do not treat Turkey the same way
This matters more than most groups realise, because the two frameworks reach different numbers by different routes.
Under IFRS, a subsidiary whose functional currency is the Turkish lira restates its financial statements into the measuring unit current at the balance sheet date under IAS 29, recognises the gain or loss on the net monetary position in profit or loss, and only then translates the restated statements into the group’s presentation currency at the closing rate under IAS 21. Restate first, translate second.
Under US GAAP there is no price-level restatement. ASC 830 requires that a subsidiary operating in a highly inflationary economy be remeasured as though the parent’s reporting currency were its functional currency, with remeasurement gains and losses running through earnings. The mechanics, the line items affected and the resulting equity are all different.
A group that reports under both frameworks, or that has switched from one to the other, cannot reuse the same Turkish adjustment schedule for both. We have been asked to review packages where exactly that had happened and the difference ran into seven figures.
The functional currency question comes first
Before any of the above applies, one question has to be answered properly: what is the functional currency of the Turkish entity? Turkish law requires the statutory books to be kept in Turkish lira — a narrow exception exists for a small number of very large foreign-owned companies, and it is unlikely to apply to you. But the currency of the statutory ledger does not determine the functional currency for IFRS.
Many Turkish subsidiaries of foreign groups price in euro or dollars, buy their main inputs in euro or dollars, fund themselves from the parent in euro or dollars, and hold most of their cash in foreign currency. Where the evidence genuinely points that way, the functional currency is not the lira — and if the functional currency is not the lira, IAS 29 does not apply to that entity at all. The restatement disappears and the entity is simply remeasured under IAS 21.
This is worth getting right and documenting, because it is the difference between a conversion that takes a week each quarter and one that takes an afternoon. It is also the first thing a group auditor will challenge, in either direction.
The adjustments that appear in almost every conversion
Severance provision (kıdem tazminatı). Turkish employees with the required length of service are entitled to a termination payment of one month’s gross pay per year of service, capped at a ceiling that is reset twice a year. In the statutory books this is generally recognised when it is paid, because that is when it becomes tax-deductible. IAS 19 and ASC 715 treat it as a defined benefit obligation: it must be measured actuarially, with assumptions for turnover, salary growth and discount rate, and under IFRS the remeasurements go to other comprehensive income rather than profit or loss. In a company with long-serving staff this is one of the largest single adjustments.
Leases. Statutory accounts capitalise only leases that qualify as financial leases under Law No. 6361; office space, warehouses and the company car fleet sit in rent expense. IFRS 16 and ASC 842 bring substantially all of them onto the balance sheet as a right-of-use asset and a lease liability. Turkish subsidiaries lease heavily, and long lira-denominated property leases in a high-interest-rate environment produce a discount effect that is anything but immaterial.
Deferred tax. Turkish statutory accounts contain no deferred tax at all. The whole temporary-difference schedule has to be built from scratch in the conversion, and it has to be built on top of the other adjustments — including, where relevant, the IAS 29 restatement, which itself creates temporary differences against the unrestated tax base. The current corporate rate is 25%, 30% for financial sector companies, with a domestic minimum corporate tax of 10% applying from the 2025 period, so the rate applied to the schedule needs a moment’s thought rather than a default.
Receivables and expected credit losses. A doubtful debt provision is deductible in Turkey only in narrow circumstances — broadly, where the receivable is the subject of litigation or has been formally protested. Statutory balance sheets are therefore systematically under-provided by IFRS standards. IFRS 9 requires a forward-looking expected credit loss model that has no statutory equivalent, so this adjustment is always built rather than reclassified.
Revenue. Turkish revenue recognition follows invoicing rules, and the invoice is a tax document with its own timing requirements. In a straightforward goods business the result is often close to IFRS 15 and ASC 606. In service contracts, multi-element arrangements, contracts with variable consideration, and any arrangement where an invoice is raised in advance of performance, it is not. Principal-versus-agent conclusions also have to be reached independently — the statutory ledger has no view on them.
Foreign currency balances. The statutory year-end valuation of foreign currency monetary items follows prescribed rates and rules; IAS 21 uses the closing spot rate. The difference on any single balance is usually small. Across a balance sheet where most payables are in euro, it is not always small.
Does the subsidiary need a second set of books?
Usually not, and we normally advise against it. A parallel IFRS ledger doubles the maintenance, doubles the places an error can hide, and creates a permanent reconciliation problem between two sets of numbers that must both tie to the same underlying transactions.
What works for most groups is a single statutory ledger plus a controlled conversion layer: a standing schedule of adjustments, each with an owner, a supporting calculation and a documented basis; a mapping from the Uniform Chart of Accounts to the group chart that is maintained rather than rebuilt each quarter; and a trial balance that reconciles from statutory to group in a form the auditor can follow in one pass.
A second ledger becomes worth the cost in a narrower set of cases — typically where the entity is large enough to be caught by the KGK criteria in its own right, where it is being prepared for sale, or where the group needs IFRS-basis management information monthly rather than at reporting dates.
Common mistakes we correct
Treating the statutory inflation adjustment as if it were IAS 29. They were never the same — different indices, different scope, and a different destination for the net monetary result, since the 2023 statutory first application went to equity rather than through profit or loss. From 2025 the statutory adjustment is not there at all.
Assuming the functional currency is the lira because the ledger is. The ledger currency is a legal requirement. The functional currency is a judgement about the primary economic environment, and it changes whether IAS 29 applies.
Recognising severance only when it is paid. Common, understandable, and wrong for group purposes in every year in which the workforce is stable and long-serving.
Reusing an IFRS adjustment schedule in a US GAAP group, or the reverse. On a Turkish entity in a highly inflationary economy the two frameworks do not converge.
Leaving the conversion to the local bookkeeper without a brief. A Turkish accountant is trained on the Tax Procedure Law and is usually excellent at it. Group reporting under IFRS or US GAAP is a different discipline, and the work has to be scoped as such.
What to do next
If you have a Turkish subsidiary and a group reporting deadline, three questions will tell you how much work is in front of you: what is the entity’s functional currency and can you evidence it; does your existing conversion package assume a statutory inflation adjustment that no longer happens; and do you have a severance actuarial valuation, a lease schedule and a deferred tax schedule that a group auditor has already accepted.
We prepare and maintain conversion packages for foreign-capital companies in Turkey, work directly with group finance teams and their auditors in English, and are happy to review an existing package rather than replace it. If you would like a view on yours, get in touch.
Note. This article describes the general position and is not advice on your specific circumstances. Turkish tax and financial reporting rules change frequently, and the inflation accounting position in particular is subject to further legislation; verify the current position before acting. Written by Baran Özongan, SMMM (Certified Public Accountant, Türkiye), Founding Partner of Monetics.
