The effect of participation banks' compliance with auditing standards on financial performance

Participation Banks, which operate on interest-free principles, are critical to the banking sector and, therefore, to the economy of our country. The participation banking industry, which has demonstrated a strong growth trend since its beginning, requires a proper auditing activity in order to maintain this growth and achieve its goals. The auditing of participation banks operating in our country is still not carried out within the scope of interest-free principles. Financial reporting and auditing standards of participation banks operating within the scope of interest-free principles have been regulated within the framework of interest-free principles in many countries. In addition, in order to ensure that the participation banks operating in our country are carried out in line with the principles of interest-free in terms of auditing standards, the Public Oversight Accounting and Auditing Standards Institution (KGK) has translated the auditing standards published by The Accounting and Auditing Organization For Islamic Financial Institutions (AAOIFI) in 2019 and has published interest-free financial auditing standards to make it available for voluntary use. The goal of our study is to determine whether there will be an increase in the financial performance of participation banks operating in countries that actively implement the auditing standards published by AAOIFI, in case of an increase in compliance with both general auditing standards and interest-free financial auditing standards. As a result, a prediction has been made concerning whether the financial performance of our country's participation banks would improve or not if they begin to implement audit activities in line with the KGK's interest-free financial auditing standards. Our study consists of four sections and the first three sections contain theoretical explanations of the subject. The fourth section consists of an application that assesses the influence of the topics whose theoretical explanations are provided in the previous three sections in accordance with our research aim. A Case Studies Method was used in the application between 2011 and 2020 to determine the level of compliance with auditing standards of the participating banks in our research. In the second stage of the application, the TOPSIS (Technique for Order Preference by Similarity to Ideal Solution) method was used to measure the financial performance of participation banks, whose compliance with auditing standards was determined through case studies. According to our study findings, as the level of compliance with auditing standards increases, the financial performances of the participating banks that voluntarily (gradual) use the AAOIFI's interest-free financial auditing standards and are included in our research also increase. Key Words: Participation Banking, Audit, Auditing Standards, Interest-Free Financial Auditing Standards, Financial Performance.