Audit of Sports Clubs and Sports Joint Stock Companies
Introduction
Failure to ensure financial stability in sports clubs may result in sporting failure and loss of confidence at the international level. While the Law No. 7405 on Sports Clubs and Sports Federations (“Law No. 7405”), which was enacted to solve these problems in Turkey, is a reform in sports governance, the ‘Regulation on the Audit of Sports Clubs, Sports Joint Stock Companies and Supreme Organizations’ (“Regulation”), which was published in the Official Gazette dated 12.10.2024, stands out as a means of implementing these reforms. The Regulation contains critical legal mechanisms for sports' financial and administrative regulation.
This Newsletter will examine the Regulation and the regulations and mechanisms it envisages in light of Law No. 7405.
Legal Framework of the Regulation and its Relationship with Law No. 7405
Law No. 7405, the basis of the Regulation, encouraged the incorporation of sports clubs and provided a legal framework for financial transparency and audit processes. The Regulation is a normative source that concretizes the general provisions of the Law and regulates the implementation principles.
Article 13 of Law No. 7405 authorizes the Ministry of Youth and Sports (“Ministry”) to audit sports clubs and joint stock companies. The Regulation concretizes this authority and details the procedures and principles of inspection. Furthermore, Articles 18 and 20 of Law No. 7405 contain provisions on sports clubs' financial discipline and budget management.
The Law aims for transparency, accountability, and proportionality, which are embodied in the provisions of the Regulation. These issues determine the fundamental principles on which the audit is based. For example, Article 5/3 of the Regulation states that the documents requested from sports clubs during the audit should be limited to the subject matter of the audit.
Principles of Audit and Scope
The Regulation supervises the activities of sports clubs and sports joint stock companies in administrative, financial, and legal aspects. These processes pursue the objectives of efficient use of public resources, economic order, and management transparency.
First and Second Group Distinction:
The scope of inspections is differentiated according to the organizations’ league status in sports competitions. Organizations competing in the top leagues are subject to stricter inspection mechanisms, while Ministry staff at the local level are authorized to inspect the second group of clubs.
Types of Audit:
The Regulation categorizes audit reports as general audit reports, inspection reports and criminal complaint reports. Criminal complaint reports ensure that acts contrary to the legislation are reported to the Chief Public Prosecutor’s Office. This is clearly stated in Article 8/1-c of the Regulation.
Importance of Independent Audit and Contribution of the Regulation
The Regulation aims to guarantee the accuracy of financial statements and financial transparency, with a particular emphasis on independent audit processes. Independent audit firms authorized by the KGK (Public Oversight, Accounting, and Auditing Standards Authority) examine the financial reports of sports clubs and joint stock companies and perform audits by international standards.
When the special regulations for publicly traded companies are analyzed, Article 15 of the Regulation stipulates that publicly traded sports joint stock companies are subject to capital markets legislation and that special provisions may be applied in their financial audits. This situation allows for an audit structure in parallel with the Capital Markets Law.
Declaration Obligation and Criminal Penalties
Sports clubs and joint stock companies must submit declarations containing their annual financial activities and balance sheets to the Ministry regularly. The Regulation has accelerated the process by introducing provisions for these processes to be carried out electronically.
When the relationship between declarations and audits is analyzed, incomplete or incorrect declarations cause sports clubs to be subject to direct audits. This situation has increased the obligation of club managers to prepare financial statements carefully.
Regarding penal sanctions, the Regulation provides severe administrative and penal sanctions for managers who fail to submit information and documents or obstruct audit duties. This regulation is an important mechanism for promoting accountability in sports clubs.
International Practical Overview
The Regulation’s regulations align with the financial transparency and fair-play principles of international sports authorities such as FIFA and UEFA. In particular, UEFA’s “Financial Fair Play” rules aim to ensure the financial sustainability of clubs and are similar to the Regulation’s independent audit regulations. However, it should be noted that further technological investments and specialized audit personnel are needed to increase the harmonization of audit mechanisms in Türkiye with international standards.
Implementation Challenges and Solutions
The provisions of the Regulation face some difficulties in implementation. For example, the training and number of inspection staff is insufficient, and there are deficiencies in the compliance processes of clubs with the legislation. To overcome these difficulties:
- Training of audit teams to international standards,
- Strengthening the infrastructure for electronic audit processes,
- Awareness of corporate governance in sports clubs needs to be raised.
Conclusion
The Regulation provides a critical framework for sports clubs and sports joint stock companies to achieve financial sustainability and accountability. However, the full realization of these goals depends on the practical implementation of audit processes and the compliance of sports management actors with legal regulations. The Regulation is an essential step towards the modernization of sports law and has the potential to bring the understanding of sports governance in Turkey to international standards.
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