Types of Audit – Compliance Audit

A compliance audit is a type of audit service that pays more attention to whether the entity adheres to the related rules as well as local laws and regulations. This type of audit also examines whether an entity follows its internal rules, policies, procedures, regulations and decisions. Both internal auditors of the firm or the external audit firms in Johor Bahru can conduct this audit.

The entities should adhere to local laws and regulations. If not, they have to face fines or penalties (Also see Compliance Tips New Business Owners Need to Know).

Generally, the auditors will perform a compliance audit by complying with specific requirements.

Local laws and regulations

A company needs to ensure that its operation adheres to the law and to achieve this, it may require to establish proper processes and procedures. In some occasions, they may need the advice from legal consultants before they make any decision.

Sometimes, the company may even set up a legal department to review particular essential processes. It needs to ensure that it minimises the penalty and they are implementing the procedures which follow the law. Thus, it requires the internal audit department (Also see How to Ensure an Efficient Internal Audit?) to review whether it adheres to the requirements of the local laws. Besides, the internal auditors may not only need to examine the crucial processes and procedures but also examine particular official documentations.

Frameworks and regulations associated with business

Also, the compliance auditors may require to examine if the business is running following business-related framework and regulation. For instance, a corporation which is listed on the share market outside of the country which they are running their business needs to ensure that it follows the requirements of the share market (Also see Types of Audit – Statutory Audit and Non-statutory Audit). Moreover, the compliance auditors have to review several areas and check if the current practices of the related entities adhere to those requirements.

If not, the compliance auditors need to discuss with the relevant departments and the chief executives about their findings so that the related parties may take the actions required. Then, they may provide some suggestions to the related parties.

Processes, procedures and policies of the entity

Apart from that, compliance auditors would also perform their audits against the entity’s processes, procedures, as well as policies. These are the essential elements for the sustainable growth of the entity. If the entity fails to follow its procedure and internal policy, its operation may use up extra resources and time unnecessarily. Serious incompliance may cause grave fraud to occur (Also see How Does Internal Control Help in Overcoming Payroll Fraud?).

Sometimes, the compliance officers will perform compliance audits, while on some occasions, it is the internal auditors. Some big firms will possess compliance departments that operate separately from the internal audit departments.

Who will usually conduct compliance audits?

Both the internal and external auditors may perform a compliance audit (Also see The Audit Objective of Internal and External Audit). An entity may choose to look for audit services from an independent audit firm when its internal audit department does not possess enough resources or expertise to conduct compliance audits.

An internal audit department is independent, and the audit committees would supervise it directly. After the audit, the auditors will send the compliance audit report to relevant divisions or department, CFO and CEO. They will also direct the reporting result to the audit committees and the board of directors.

For sizable corporations, it is the responsibility of the compliance officers to enforce each department, unit or division so that they follow the required laws, regulations, policies, as well as procedures. In some occasions, they will perform compliance audits as well.