Inflation Accounting Has Initiated in Capital Market Instrument Issuance Applications!

The Capital Markets Board ("CMB") has decided to apply inflation accounting to the annual financial statements of companies and capital market institutions subject to capital markets financial reporting regulations for financial years ending on or after 31.12.2023, starting from 28/12/2023 with Decision No. 81/1820.

In the context of this decision, some of the prominent issues regarding inflation accounting are as follows:

1. The sales period specified as January 1 - February 15 for non-publicly traded companies' shares to be offered to trading on the GIP for the first time in transactions where their shares are offered to trading on the GIP for the first time, and transactions where capital market instruments other than shares are offered to trading on the GIP have been extended until March 1, 2024, for the year 2024. In this context, the provision regarding the submission of independently audited financial statements of the last period, which should be used in the next period, in addition to the prospectus, specified in the first paragraph of Article 11 of the Prospectus and Issuance Document Regulation No. II-5.1, will not be applied for this sales period.
2. In the prospectus to be prepared for the initial public offerings of non-publicly traded companies' shares and partnership rights-giving capital market instruments, such as warrants and certificates issued by investment firms, the inclusion of inflation-adjusted financial statements has become mandatory in accordance with the principles and timeframes specified in Article 11 of Regulation No. II-5.1 for comparison purposes. (For example, in the prospectus for share issuance, inflation-adjusted annual financial statements for the financial years ending on 31.12.2021, 31.12.2022, and 31.12.2023 should be included, while in the prospectus for debt securities issuance, inflation-adjusted annual financial statements for the financial years ending on 31.12.2022 and 31.12.2023 should be included).
3. Similarly, in the prospectus to be prepared for the public offerings of publicly traded companies' partnership rights-giving capital market instruments, inflation-adjusted comparative financial statements starting from the financial year ending on 31.12.2023 have become mandatory in accordance with the principles and timeframes specified in Article 11 of Regulation No. II-5.1. (For example, inflation-adjusted annual financial statements for the financial years ending on 31.12.2022 and 31.12.2023 should be included along with the unaudited annual financial statements for the financial year ending on 31.12.2021).
4. From the date of the decision, internal resources included in the inflation-adjusted financial statements will be taken into account in capital increase applications to be made within the scope of Article 16 of Regulation No. VII-128.1 of the Public Offering.
5. Except for the matters specified in the above items, inflation accounting will be applied to annual financial statements starting from the financial year ending on 31.12.2023 in accordance with the principles and timeframes specified in the relevant Regulations in capital market instrument issuance applications.
6. Lastly, it is necessary for companies subject to special accounting periods to adapt the explanations provided in the above items according to their own accounting periods.
7. In the evaluation of the applications made to the CMB regarding the approval of prospectuses or issuance documents by banks and asset management companies subject to Banking Law No. 5411, insurance companies subject to Insurance Law No. 5684 dated 3/6/2007, and companies subject to Financial Leasing, Factoring, Financing, and Savings Finance Companies Law No. 6361 dated 21/11/2012, the financial statements and independent audit reports prepared in accordance with their own special regulations will be taken into account.

It is evaluated that with the Decision, inflation-adjusted financial statements will be made mandatory for the initial public offerings of non-public companies, providing investors with a more transparent and auditable financial view. Also, similarly in public offerings of publicly traded companies, inflation-adjusted financial statements will be presented, allowing for comparative analysis, especially for investors. Furthermore, considering that inflation-adjusted financial statements will be taken into account in capital increase applications, it is believed that financial reports will better reflect the true value of companies. Finally, since inflation accounting has been made mandatory for all capital market instrument issuance applications, it is envisaged that inflation accounting will become a standard practice for the entire market.