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Conducting Compliance Audits

The purpose of compliance audits is to see how well a company is following applicable rules, policies, and regulations. For example, as an internal auditor your job may be to see how well various departments in your company are abiding by the corporate bylaws (rules governing how the company operates) or by relevant government standards.

  • Examining regulatory compliance: This type of audit addresses whether the company is following local, state, or federal laws applicable to its type of business. For example, you may determine whether the business is complying with U.S. Environmental Protection Agency (EPA) standards on the dumping of toxic waste. Or you may look at whether a credit card company is following federal law with regards to charging its cardholders allowable fees and interest. Independent CPAs hired by the company, internal auditors employed by the company, or governmental auditors representing the U.S. government can evaluate regulatory compliance.

  • Satisfying the IRS: In the United States, a huge number of compliance audits involve Internal Revenue Service (IRS) agents who examine personal and business tax returns to gauge compliance with Internal Revenue Code. IRS agents refer to their work product as examinations rather than audits because tax returns are prepared according to the Internal Revenue Code, which differs in many regards from GAAP (the standard most often used for financial statement audits).

  • Conducting state income tax and sales tax audits: These types of audits, conducted by the auditors working for a state’s Department of Revenue, evaluate whether companies and individuals are paying income tax per state statute. They also check to make sure that sales tax on purchases is collected for all taxable transactions and that the company collecting the tax is remitting all of it and in a timely fashion.

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