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Conducting Compliance Audits

Compliance audit is defined as “a review and examination of system records and activities in order to test for adequacy of system controls, to ensure compliance with established policy and operational procedure, to detect breaches in security and to recommend any indicated changes in control, policy and procedures. Compliance audit might be conducted to check how effectively the company complies with the rules and regulations imposed by external parties like the Government and internal policies and procedures drafted by the management.

Compliance audit is conducted to gauge the effectiveness in various business operations. Every year the annual plans are drafted to ensure that the activities of the company are directed to the company objectives. Attainment of the short term goals is the first objective of the company operations. The auditor is to check for the discrepancies in the processes and analyse the cause for the same and provide the corrective measures to prevent their occurrence. He could be an internal or an external auditor.

The compliance audit is to check the compliance of the management practices and policies of the entity. The auditors are to check the relevance of the short term and long term goals in relation to the company’s overall objectives. He is to analyse the flow of movements between the vertical and horizontal levels of the organisation to ensure quick retrieval of data at any point of time within the organisation as a whole. He is to ensure that the responsibility and authority are not misused between the employees. The compliance auditor is to make sure that the finances of the company are properly utilised and is appropriated in accordance with the budgetary statements. The auditor is to verify the cost of production to prevent misappropriation of funds. The auditor’s check is also spread out to recruitment functions. He is to ensure compliance of the company policy is strictly followed in the appointment procedures of the employees. The efficiency of the appraisal system and the succession plans are also monitored to avoid unnecessary labour animosity. The work force must be assured of a free and fair system in evaluating their performance. Monitoring of the company policies and providing solutions to enhance performance also gives room for the standardisation of the procedures. The compliance auditors also check on the company’s social responsibility and provide the guidance for a better relationship.

There are various statutory laws that bind the companies to ensure protection to the employees and investors. The ESI Act, Minimum Wages Act, the Companies Act, Income Tax Act, Sales Tax, etc all keep check over the company activities. The Companies Act for instance expects the companies to reveal a true and fair view of the company finances. The procurement of funds by public limited companies and its disbursement must be stated in the financial statements of the company which should be submitted to the shareholders. The Companies Act also empowers the Central Government to order a cost audit to verify the cost records of the company. Failure to comply the statutory laws forces the company to pay penalty and in some cases, imprisonment of the authorities responsible for the non-compliance. Thus the role of the compliance auditor is wide and varied.

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