Compliance audits ensure companies follow agreements and contracts, with public accounting firms or CPAs performing external audits. Internal audits are also used to ensure employees follow standard operating procedures. Compliance audits may be required for workplace certifications, quality management systems, and insurance purposes.
A compliance audit is an operational audit that determines whether a company is following the rules of an agreement or contract. Companies enter into agreements or enter into contracts for various business purposes. These agreements and contracts are carefully reviewed and checked to ensure that there is no fraud or misrepresentation as the company fulfills its contractual obligations. Public accounting firms or individual certified public accountants (CPAs) may be responsible for performing external compliance auditing on company contracts and agreements.
Public accountants typically receive the compliance audit contract or agreement at a meeting of the parties listed in the agreement. During this audit meeting, accountants will be given specific guidance on what they should check during a compliance audit. Once the audit is complete, the accountants will meet with both parties and discuss the results of the compliance audit. Internal compliance audits may also be required by contract or agreement between the companies.
Companies use internal compliance audits to ensure that employees follow a company’s standard operating procedures when fulfilling contractual obligations. Standard Operating Procedures are implemented to ensure that all products and services produced by the company meet the same standard. Internal audits are typically completed by accounting employees for the purpose of preparing internal documents for management review. Managers use these reports to determine if changes need to be made to business operations or if new guidelines need to be implemented.
Companies may also be subject to compliance audits to maintain professional workplace certifications or quality management systems, such as ISO 9000, six sigma or total quality management (TQM). ISO 9000 is a safety certification company that helps limit financial liability related to employee injuries in the workplace. Six sigma and TQM are quality manufacturing tools used by companies to ensure that the fewest errors occur during the manufacturing process or wasted economic resources are minimized. The compliance audit process helps companies measure and maintain these non-financial aspects of business operations.
In addition to workplace certifications or quality management tools, companies may be subject to compliance audits for insurance purposes. Insurance companies use compliance audits to determine if customers fail to meet agreed-upon statements of written insurance contracts. Failure to follow the guidelines of the insurance policy can result in the company being dropped by its insurance agency. Losing general liability or business insurance can cause the company to significantly scale back business operations in fear of not being able to cover employment or other legal issues.
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