Compliance Audit: Definition, Types, and What to Expect

A compliance audit is a formal review of all aspects of an organization that ensures it’s adhering to any laws, regulations, and internal policies that apply. These types of assessments are necessary for a range of sectors, including finance, healthcare, and environmental services, among many others. While for some businesses a voluntary internal audit may be sufficient, for others these checks need to be conducted by a recognized external authority.

Compliance standards don’t just vary by industry, but also by where in the world a company operates. Ascot’s network of experts provides support for global compliance audits, unlike firms that focus on limited jurisdictional audits. As a result, we’ve created this article to help international business leaders to better understand the auditing process, the various types of audits, and what to expect along the way.

What Is a Compliance Audit?

Simply put, it is an assessment — usually performed independently — that verifies whether a company is following all applicable legal, ethical, and internal standards. 

Compliance audits are distinct from their financial counterparts, which focus entirely on accuracy of accounting practices and financial records. While assessment of financial activities may be involved, these are wider-ranging reviews that evaluate adherence to the full range of regulations and protocols.

The core objective of this type of audit is to ensure ongoing risk mitigation and operational integrity. By getting accurate data on laws and protocols, businesses can avoid costly penalties, operational setbacks, and reputational damage. 

Why Compliance Audits Matter for Global Businesses

There are some significant risks associated with non-compliance. Without alignment to regulations, the consequences can include fines and costly litigation, alongside potential license revocations and reputational damage that disrupts operations.

This is why compliance checks are so important, particularly for enterprises managing operations in multiple jurisdictions and therefore subject to more complex and varied regulations. When conducted regularly and thoroughly, assessments boost transparency, bringing potential areas of risk to light in a timely manner. This supports a company-wide culture of internal discipline and accountability that not only mitigates potential problems but also strengthens global operations.

Common Types of Compliance Audits

Compliance audits take a range of forms. The type required can depend on industry, jurisdiction, internal organisation policies, and other factors. The most common are:

• Regulatory audits – Reviewing a company’s international legal compliance and adherence to specific industry legislation. For instance, General Data Protection Regulations (GDPR) in the E.U., the Health Insurance Portability and Accountability Act (HIPAA) in the U.S., and global Anti-Money Laundering (AML) directives.
• Internal policy audits – Establishing whether staff, departments, and relevant third parties are acting in accordance with company-specific procedures, ethics guidelines, and other codes of conduct. Particularly important when updating corporate policies.
• Environmental audits – Assessing company compliance with local and international sustainability standards, including emissions controls and waste management.
• Data privacy audits – Understanding how both personal and company sensitive information is managed, stored, shared, and protected.
• Health & safety audits – Confirming that workplace standards are in compliance with regulatory safety laws in high-risk sectors such as manufacturing and construction.
• Vendor and supplier audits – Ensuring that third parties—usually partners in the supply chain—uphold standards that are consistent with the company’s corporate compliance benchmarks.

Key Elements Reviewed in a Compliance Audit

While compliance audits vary depending on company needs or legislation, there are certain key elements involved with most. Firstly, document control and recordkeeping will be reviewed, in which auditors examine related policies, historical records, and even the system for documentation retrieval.

Internal reporting mechanisms are usually assessed, too. Elements such as clear processes for reporting and sufficient protections for whistleblowers ensure there are secure ways to raise potential violations.

As employees will be key stakeholders in compliance, examinations to establish whether relevant training programs on regulations are in place are common. There should also be documents that show employees understand and acknowledge their responsibilities. Furthermore, compliance auditors usually assess the protocols a company has in place to update its internal guidelines following legal changes. 

Finally, auditors examine leadership’s role in compliance oversight. Whether this is a board of directors or executive team, there must be clarity on each member’s responsibilities alongside their scope for active involvement in and accountability for maintaining certain types of regulatory compliance procedures.

Who Conducts Compliance Audits?

Responsibility for compliance auditing usually depends on the context of the assessment. When reviews are part of a company’s wider governance or risk management practices, then a trained internal auditor who has a deep understanding of the company’s principles and priorities will often undertake the process. In instances when companies want to ensure objectivity and impartiality, compliance reviews tend to be conducted by an external auditor or firm that stakeholders and regulators consider credible. When it comes to mandatory assessments—often as part of enforcement actions or certification procedures—regulatory bodies operated by government or industry-specific authorities will perform the audit.

The Compliance Audit Process: What to Expect

There are generally four phases in the auditing process.

• Preparation – The first step is in-depth preparation. This involves leaders or teams gathering all relevant data, reviewing documentation, and checking policy alignment with applicable standards. Legal compliance consulting firms often assist here.
• Execution – Depending on the situation, audits may be performed on-site or remotely. The auditors will interview staff, observe key business processes, and perform sample tests on systems.
• Reporting – Following the execution phase, auditors will provide a full report on their findings. This will highlight compliant practices alongside areas of risk or that require corrective action. A time frame for improvements may be specified.
• Follow-up – There will be a period of remediation for any non-compliant practices, after which the auditor may return to re-evaluate. They’ll outline how effectively the recommended or required changes have been executed.

Preparing for a Compliance Audit

Effective auditing starts with solid preparation. Businesses need to compile and organize any relevant policy documents, training records, and internal communication protocols. This isn’t only a way to streamline compliance assessment processes, but it also aids transparency that supports thorough audits. It’s also important to designate a key member of staff as a point of contact to both assist auditors and coordinate the flow of documentation. In some instances, it’s wise for businesses to conduct pre-audit evaluations or gap analyses to identify and address any weaknesses prior to the formal review.

How Compliance Audits Fit into a Broader Governance Framework

Audits aren’t standalone tools—they’re vital components of a company’s ongoing compliance program and governance ecosystem. These assessments provide supporting evidence that the business is actively engaged in staying on top of its legal responsibilities. Performing them regularly also results in up-to-date metrics that validate the program’s efficacy.

Beyond evidence of regulatory commitment, audits are also valuable for informing enterprise risk management (ERM) practices. In essence, audits contribute to feedback loops that influence better strategic decisions and boost accountability, which supports both operational success and stakeholder assurance.

Common Challenges in Audit Compliance

The audit process isn’t necessarily easy, with businesses navigating common challenges. Firstly, inconsistent compliance documentation and missing records can complicate execution, potentially producing inaccurate results. When companies operate in multiple jurisdictions, varying global regulations may create conflicting standards or regulatory overlap that confuses matters.

Poor preparation due to a lack of audit readiness culture or insufficient internal training can create hurdles to a regular and thorough assessment program, too. Furthermore, when companies are over reliant on outdated policies or software, it can inhibit the company’s ability to maintain real-time and relevant compliance.

These challenges make it all the more important to commit to a culture of auditing, informed by experts with experience in both global and local compliance practices.

FAQs

What is a compliance audit?

It’s a formal review that assesses the organization’s alignment with relevant local and international laws and regulations, alongside internal policies.

Who performs a compliance audit?

Auditing can be performed by internal teams, independent external consultants, or official regulatory and government authorities. This depends on the type of audit and its objectives.

How often should businesses conduct compliance audits?

Compliance checks should be performed at least annually. Organizations navigating high regulatory risks or subject to industry mandates may require them more frequently.

What industries require regular compliance audits?

Sectors such as finance, healthcare, manufacturing, logistics, or those subject to international exposure and licensing requirements.

What happens after a compliance audit?

Organizations will receive a full report outlining the auditor’s findings. They’ll need to address and correct any non-conformities.

References

European Commission. (2024). Auditing of companies’ financial statements. Europa.eu. https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/auditing-companies-financial-statements_en

FATF. (2024). FATF Recommendations. FATF. https://www.fatf-gafi.org/en/topics/fatf-recommendations.html

Hayes, A. (2025, April 10). Enterprise Risk Management (ERM): What It Is and How It Works. Investopedia. https://www.investopedia.com/terms/e/enterprise-risk-management.asp