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Compliance audit definition holds this type of audit as the comprehensive assessment of a firm’s operations, activities, and practices to verify whether the firm follows regulatory guidelines or complies with the terms of agreement or contracts entered into for business purposes, to ensure that no fraud or misstatements takes place.
Evaluation assesses the worth or value of an activity in terms of its outcome or impact, and compliance evaluation is the systematic review of a firm’s activity and practices to determine whether it meets the desired regulatory or contract stipulations, to make necessary alterations to improve such compliance.
Audit reports consider norms to assess the ‘how’ of doing things, whereas evaluation considers best practices and concerns doing the right thing.
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Companies use compliance audits for a variety of purposes, such as
- To ensure employees follow standard operating procedures when fulfilling contractual obligations.
- To maintain professional workplace certifications or quality management systems, such as ISO 9000, Six Sigma, or total quality management (TQM).
- To measure and maintain non-financial aspects of business operations.
- For insurance purposes, to adhere to insurance policy guidelines.
Compliance evaluations find use to determine whether the systems and processes meets the desired objectives and identify the need for any change to comply with the guidelines.
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Comparing compliance audit vs compliance evaluation, the scope of both compliance audits and compliance evaluation depends on the type of organization, nature of business, the type of data involved, and the nature of stipulations laid down in the business contracts that become the basis for audit or evaluation standards. For instance, SOX requirements mandate reasonable disaster recovery infrastructure for companies that keep and transmit electronic data. The Health Insurance Portability and Accountability Act (HIPAA) lays down stipulations for providers that store or transmit e-health records, and PCI DSS lays down security standards for financial services companies that are transmitting credit card data. While compliance audit is concerned with meeting such regulatory guidelines, compliance evaluation primarily seeks to implement best practices that conform to such guidelines.
Independent, third-party audits determine the extent of conformity of any activity, process, deliverable, product, or service with the criteria of such specified standards. The management team through compliance evaluation strives to align the systems and processes of such specified standards.
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Audits generally take place at periodic intervals and are a report-card type of judgment on the things done. Compliance evaluation is a ‘learning-by-doing’ time or re-engineering exercise that takes place either during the middle or at the end of the process to learn from the mistakes as well as consider alternatives to make improvements. Compliance evaluation normally precedes compliance audit, to check whether the systems and processes are ready for the audit.
A compliance audit remains independent from core company activities or management process, and independent third-party public accounting firms or certified public accountants (CPA) usually undertake this exercise. Compliance evaluation, on the other hand, is a part of the in-house managerial activity and usually is an on-going activity.
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- SFIA Foundation. Compliance Audit. Retrieved from http://www.sfia.org.uk/cdv3/ah1038513.html%20on%2009%20October%202010.