Human resource audit reviews the policies and procedures related to human resources. It adds to the confidence of the management in the way it has conducted and maintained employee relationship in the organisation. Like any audit the human resource audit keeps check over the internal operations and states the areas of improvement.

Human resource audit is generally performed by external auditors who can review the company policies free of personal bias. The first step involved is identifying the key areas of HR operations within the business entity. The different HR functions are compared to the set procedures and the samples are analysed for deviations. These deviations are prioritised on the basis of their level of impact within the organisation and the corrective measures are decided upon. The report on the suggestions is prioritised on the basis of their intensity to the human resource functions of the organisation. These reports are generally submitted before drafting the annual plan so as to facilitate the incorporation of these changes into the annual policy and to set aside the budget for bringing about the changes.

The human resource audit reviews the effectiveness of the recruitment process to the company. The recruitment process must be free of personal bias to convince the prospective employees that they are given equal opportunity and importance in the organisation. Any flaw in the procedure has the ability to make the company less attractive to the candidates.

The system also analyses that the budget allocated has been utilised effectively. It also evaluates the compliance to the various statutory requirements imposed by law. The statutory requirements changes with the number of people. The law states rule to ensure decent employee working hours, salary, health and safety measurements, etc. The auditor is to evaluate how successful the company has been in complying to set regulations. Though, strictly speaking, not in the scope of their work, the audit committee often suggest areas of improvement.

The audit also conducts surveys to verify the employee satisfaction. Employee surveys conducted provide accurate source of information regarding the compliance to company policies and procedures and to recognise areas of improvement. A sample study can aid the company to identify areas to be improved through training and development programs. The success of the communication system is also evaluated by the human resource auditor. Effective communication is a prerequisite for the success of any organisation. The auditor also keeps his eyes and ears open to analyse the relationship existing amongst the employees. The audit also recognises the key players in the organisation who contributes significantly to the organisation. This helps in succession planning. It also scrutinises the capability of the employee appraisal system and analyses how effective it is in evaluating the capability of the employee.

The human resource policies must move with the changes in the competitive market. This is required for the success of any organisation. Changes must be reflected in all areas of human resource functions like recruitment, staffing, compensation, training and development, health and safety measures, retirement and dismissal. Innovative methods must be brought into the organisation and weakness in the current system must be evaluated and corrected. An efficient system of period audits can prevent unpleasant surprises for the management. This results in decrease in the cost of production, increased profitability and satisfaction of employees, management, shareholders and others who have a direct contact with the company.