What is Compliance Audit?
Compliance Audit is the process of verifying the business function to ensure the regulatory requirements and contractual obligation as per the law. There are specific rules and regulations defined for particular set of business or in particular to a specific function/ process in a company. These requirements are either enforced by the law/ statute or the agreed terms or conditions between parties to the contract/ agreement. These requirements are mandatorily required to be adhered to carry on the business or a particular function/ operation. Compliance audit is done on a company to assure that the company is following the defined rules or requirements.
An organization can have compliance audits to review adherence to regulatory requirements in various department like finance, IT, manufacturing, human resources, and others. It also depends upon types of financial firms, marketing and sales.
Purpose of Compliance Audit
The main purpose of having Compliance audit is to assess the overall effectiveness of a compliance practices and protocols adopted by a business. A compliance auditor determines whether the item being examined complies with established standards while examining processes and transactions. To ensure that the compliance requirements of the statute are complied. Whether the terms and conditions are adhered to while carrying on day-to-day operations will be evaluated.
The Flow on Compliance Engagement as per SAE 3100
- To understand the business environment
- To perceive the requirements and suitable criteria
- To understand the internal compliance function
- Assess the risks of non-compliance
- To develop procedures and audit approach to respond to risks
- To perform the audit defined procedures
- Evaluate the evidence
- Reporting
Procedures for Compliance Audit
The procedures of the compliance audit may be done internally but many times are usually initiated by the certifying organization. In cases, where the compliance audit is not a mandatory requirement by law or statute, the Management may initiate a compliance audit to assure that the company’s compliances are effective and adhered as required at any given point in time. The ideal procedure is as below:
- Initial Meeting
The first procedure included in Compliance audit is meeting between the Auditor and the Management.
- Employee Review
To review employee’s performance & ascertain the level of individual compliance.
- Department Review
To review operational, financial & other paperwork from business departments/ function.
- Draft Report
Auditors will draft report on the non-compliance with the mandatory regulatory requirement, non-adherence to the stated terms & clauses of law/ statute/ act or contract. The report will also include all the mathematical errors, posting problem, authorized payment which is not paid, any discrepancies and other audit concerns etc. Non-compliance of regulatory requirements, if any and deviations from agreed contracts also be included.
- Final Report
Auditors will have a final meeting with company management upon completing the compliance audit.
What is the Risk of Non-Compliance?
Many times, the management fails to measure the risk appetite of the business. Risk appetite is the risk-taking capacity of a business. Non-compliance with the defined rules, regulations or non-adherence to the terms and conditions may turn out to be riskier for the business. Non-compliance may result in penalties, fines or sometimes even the liquidation of the company or surrender or termination of license or registration.
A compliance audit is different from an external audit since under compliance audit, the auditor is not forming an opinion on the financial report, but on the client’s compliance with specified clauses as per provisions of the law or contract.
Ahmed Saleh Al Nuaimi Auditors and Accountants is a leading Auditing firm in the UAE. If you are looking for Financial Control Audit, Audit & Assurance Services in the UAE, then you are in the right place. Al Nuaimi Auditors provides highly qualified professionals in the related field of work by providing a wide range of Audit and assurance services all over UAE – Dubai, Abu Dhabi, Ajman, Sharjah, Fujairah & Ras Al Khaimah. Al Nuaimi Auditors also provide the following related services,
• Internal Audit
• Financial Control Audit
• Operational Audit