What is a compliance audit and when is one needed?
Businesses are routinely subject to audits, which are official inspections of company accounts to ensure that they're in accordance with legal and financial regulations. A compliance audit is one such audit that authorities conduct regularly. Knowing what a compliance audit is and understanding why they're necessary is integral to the success and survival of a business. In this article, we answer the question 'What is a compliance audit?', explain when they're necessary, how they work and what a compliance auditor does.
What is a compliance audit?
If you have an interest in business or finance, you may have asked the question, 'What is a compliance audit?'. A compliance audit is an investigative evaluation that assesses a company's compliance with any relevant laws, regulations, guidelines and other statutory requirements. A financial agency or government body carries out a compliance audit independently of the company. This means that audit completion is dependent on someone that has no prior connection to the company and can assess the company's compliance objectively.
What is a compliance auditor?
A compliance auditor is someone that carries out compliance audits. They undergo specific training to ensure a fair and objective investigation takes place. Compliance auditors are most commonly hired by professional auditing companies that provide their services to businesses. Some compliance auditors are internal to a single company and only conduct audits for them. Compliance auditors are most commonly hired on a full-time basis. Compliance auditors can also work part-time if they have existing commitments. A compliance auditor splits their working time between their own office and the location of the company they're investigating.
When is a compliance audit necessary?
Compliance audits usually occur when a company's suspected of not complying with relevant rules and laws. When these suspicions arise, the suspecting party orders a compliance audit to determine whether this is the case. Compliance audits are also routine, though the exact frequency depends on the company. Newly instigated processes, services or deliverable manufacturing are likely to require more frequent compliance auditing to confirm that a company is following correct practices. If there are no new major developments, businesses typically expect compliance audits on a quarterly basis.
What is the purpose of a compliance audit?
The purpose of a compliance audit is to evaluate a company's practices in relation to the rules it abides by. Compliance audits examine how thoroughly and consistently a company is implementing the correct procedures that allow it to follow the necessary guidelines. Compliance audits also serve to determine whether any further action is necessary, such as handing out a penalty or completing additional investigations.
How to conduct a compliance audit?
Fully trained compliance auditors conduct audits for companies. This compliance auditor is external to the company that's under audit, eliminating any possibility of bias. Although the compliance auditor has no known connection to the company, they have extensive training in the compliance auditing process. Here are the steps that a compliance auditor takes when carrying out their investigations:
1. Complete initial planning
Before the auditing process itself begins, the designated auditor completes an initial plan. This plan is as thorough as possible and addresses several preliminary questions. These questions include the following:
What concerns is the audit aiming to address?
What have been the outcomes of previous audits for this company?
What significant changes have occurred since the previous audit?
2. Arrange a meeting
Once initial planning is complete, the compliance auditor arranges a meeting with the required parties. This includes any key stakeholders that wish to remain informed of the auditing process and eventual outcome. The main purpose of this meeting is to gather any information that parties think would benefit the auditor. The pre-audit meeting also serves to outline compliance checklists and address concerns.
3. Evaluate a company's controls
The first step of the audit itself is to evaluate the company's overall control. This is an umbrella term that encompasses multiple facets of a company, such as the effectiveness of policy implementation by a team's managerial members. Assessing the overall culture surrounding risk management is another aspect that the compliance audit completes during this stage. The auditor also evaluates employee performance, document organisation, internal controls and compliance at a departmental level. This is to gain as much information as possible about the company and allows the auditor to reach a conclusion about its state of compliance.
4. Evaluate a company's risks
Moving on from assessing the company's controls, the auditor also evaluates its risks. The risk assessment is proactive as opposed to reactive, meaning that the auditor attempts to identify and anticipate responses to future risks while assessing how the company is responding to risks in the present moment. Some of the many risks that a compliance auditor looks at are changing trends within the company's sector, wider economic, political and societal contexts and any internal conflicts that threaten the company's overall productivity and wellbeing.
5. Analyse company operations
Once the evaluation of risks is complete, the compliance auditor analyses the company's broader operations. This includes reviewing how employees work, how managers lead their respective departments and the efficiency of company practices. Auditors examine this information with the relevant regulations in mind to confirm whether the company is performing within the established limits.
Compliance auditors also work with people within the company to glean as much insight as possible into its operations. This includes employees at every level, such as assistants and line managers. When analysing company operations, the auditor keeps wider business objectives and long-term strategic plans set by the company in mind.
6. Compile the information
Compiling all the gathered information is an important step of the compliance audit process. It enables the auditor to draw clear conclusions without the risk of missing out on vital data. Compiling the information also makes it easier to discover anything that requires further investigation before the auditor reaches a conclusion. The compilation of information is additionally useful when presenting findings to other interested parties, such as the appropriate regulatory bodies or key stakeholders.
7. Confirm findings
The final step of a compliance audit is to confirm its findings. The compliance auditor communicates the conclusion of the audit with the company, sharing information with the individuals and organisations that require it. After confirming the results of the audit, auditors propose actionable responses and arrange for their completion. If the compliance audit shows that complete compliance is in place, no further action is necessary.
What skills are necessary for compliance auditors?
Becoming a compliance auditor requires many skills, plus formal training on correct auditing procedures. Most skills that ensure a compliance auditor is successful in their role are interpersonal or soft skills. Here are some of the main skills required to be a compliance auditor:
Organisation: A compliance auditor is well-organised throughout their investigation as this makes data collection and the reaching of a conclusion easier and swifter.
Critical thinking: A compliance auditor can approach each case with a critical frame of mind, allowing them to cover all possible scenarios.
Tact: A compliance auditor is tactful across each investigation, as there are likely to be instances in which a company resists assessment or is handling sensitive information.
Conflict resolution: A compliance auditor can resolve conflicts calmly and confidently when a company doesn't meet compliance requirements, especially as this may cause tensions to flare.
Communication: A compliance auditor communicates the findings of the audit in a clear and concise manner, both verbally and in writing. This especially applies to presenting numerical data, which might be difficult to understand.
How much does a compliance auditor make?
The national average salary of a compliance auditor is £31,635 per year. The more experience a compliance auditor is, the higher their earnings are likely to be. Salaries may also differ depending on the individual audit that the auditor has agreed to carry out. Audits on high-profile companies often entail a higher salary. Your location may also have an impact on how much you make.
Salary figures reflect data listed on Indeed Salaries at time of writing. Salaries may vary depending on the hiring organisation and a candidate's experience, academic background and location.
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