Currently, there is a lot of confusion in distinguishing between compliance auditing and internal auditing. In fact, these are two completely different activities, although both aim at managing risks within a business.
1. Define
Compliance audit Compliance audits are conducted by independent auditors from independent audit firms providing compliance audit services or by regulatory bodies. These auditors typically follow a checklist based on compliance audit principles of regulations, standards, regimes, and norms to assess compliance. Compliance audits help ensure objectivity and independence, with the assessment results provided by an external party to the business.
Internal audit This is carried out and undertaken by internal auditors within the enterprise or by employees acting as internal assessors. Their role is to check compliance and ensure that the organization consistently adheres to regulations and standards.
Independent auditors can use the findings of internal audits in understanding the control environment to assess the risks of reporting errors and identify factors that may affect their independent audit performance.
2. Why is compliance auditing important?
Compliance audits serve many purposes, such as:
- Xidentify the holes Gap in the system: One of the objectives of a compliance audit is to examine whether policies and procedures meet regulations and compliance requirements. If non-compliance is found, as well as gaps in the system's operation, the auditor will document and report this to the company's management.
- Ghelp improve and fix the vulnerability: When vulnerabilities are discovered, the company can consider corrective and preventative actions to close the loopholes and improve the quality and efficiency of its work.
- GMinimizing risks and paving the way for compliance with other frameworks.Closing loopholes in the system not only improves work efficiency but also helps the company minimize risks from its production and business operations. Furthermore, when a company prioritizes compliance, compliance can be easily expanded and quickly implemented when new requirements or standards arise from investors and partners.
- Avoid penalties or legal trouble. This is what companies always want. Avoiding penalties, large fines, and legal troubles helps companies maintain their position and reputation in the market. In addition, it saves the company money on avoidable expenses, optimizes capital, and enhances profitability.
3. Preparations for a compliance audit
First, your company and your auditing firm must schedule the formal audit date. A compliance audit report (including non-conformities and recommendations) is issued after the audit is completed. Depending on the level of non-compliance, your company may need to implement immediate solutions or develop a remediation plan to address system deficiencies.
Here are some steps to prepare for a compliance audit:
- Prepare the necessary documents. The documents must clearly outline the work process, how your company operates, and its compliance with regulations. Additionally, other documents that need to be provided to the auditor upon request must also be included.
- Conduct an internal assessment first. Self-assessment aims to identify gaps and gain an overall understanding of your company's situation before an external auditor conducts their audit. Self-assessment facilitates clear and prompt communication between the company and the auditor when jointly addressing or discussing emerging issues.
- The relevant departments understand the need for compliance audits: During the audit process, employees may inadvertently fail to comply with regulations. Depending on the severity, this can lead to risks ranging from low to high, which may manifest immediately or require a longer timeframe. Therefore, ensuring employees understand the necessity of compliance audits to mitigate these risks will enhance the effectiveness of the audit.
Understanding the difference between compliance auditing and internal auditing helps businesses proactively find and implement the right services to meet their risk control objectives. For advice on compliance auditing services, please contact EXPERTIS's Consulting Department for assistance.