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A compliance Audit, simply put together, is a tool of compliance which is utilized by both the internal and external auditors for the assessment and verification of an organization’s adherence to the applicable laws and relevant rules and regulations imposed by the concerned authority over the organization.
A number of bodies have tried to define Compliance audit:
ISSAI 4100 defines compliance audit in the following manner:
Compliance Audit checks the degree to which the audited entity follows rules and regulations, laws, policies, established codes, or agreed upon terms and conditions etc. This Audit covers a range of subject matters.
Another attempt has been made in CAG’s Regulations[1] on Audit and Accounts, 2007 to define compliance audit in the following manner:
Compliance Audit is an assessment of an entity whether it is in compliance with the provisions of the Constitution of India, relevant laws, applicable rules and regulations made there under and various other rules and regulations that are issued by the competent authority from time to time.
The objective of audit is to enable the auditors to assess whether the activities carried out by the audited entity is in accordance with the rules, regulations and laws laid down by the authorities governing the audited entity. It checks whether the activities, financial statements and transactions and the information given is in accordance with the applicable laws of the concerned authorities. It is actually an audit of regularity and propriety.
The scope of this audit is not restricted to assessment of applicable rules, regulations, laws but also to every matter which according to the auditor seems to be involve extravagant, unnecessary, excessive and wasteful expenditure of money and resources despite having complied with all the laws, rules and regulations prescribed by the relevant authorities.
A summary of the non-compliances of the audited entity
Following are some of the benefits of having the audit done from independent auditors:
A number of challenges can prop up in successful execution of audit:
From the above discussion, the importance and necessity of compliance audit can be clearly concluded. Every organisation must engage auditors to conduct the audit to avoid any kind of non-compliance which may pose problems in the future such as penalties, suspension of business etc. Therefore, it is recommended that independent auditors should be appointed for fair and independent compliance audit.
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