How does a Legal Audit works in India

How does a Legal Audit works in India

Legal Audit

‘ LEGAL AUDIT ’ –  the word itself speaks a lot about the process. ‘Legal’ here means related to law and ‘Audit’ means inspection. In short, the process determines that the company is duly abiding by the overall guidelines and billing standards set by the government of India. 

‘Economy is a wider term and is made with the contribution of every single business unit/company operative in the country no matter it is a private or public entity and therefore it is crucial for every single company residing in the country to go through legal audit so that the economy is healthy and there are no un-necessary bugs in the system.

How Legal Audit Process Works

1. Foremost is that the personnel hired by the company has to fill the questionnaire that includes general details. This, in turn, will help the auditors to modify the audit process as per their requirements saving time and resources. For instance, the audit process for a construction company is way different from the audit process of an IT firm ad depending on the type of the business, the audit process will be different for both.

2. Secondly, the company needs to pool up all the relevant documents that are required by the auditors while they carry on with the process of Legal Audit. Documents are segregated into five categories. 

3. In the third step, there has to be a meeting of company management and other key personnel of the company to discuss the working of the company and also note the concerns faced by the company. Noting down of concerns will surely help in the 5th step. 

4. As we move ahead, in the fourth step, there is a proper reviewing of information/documents that were acquired in step 1. The concerned officers will check whether the information provided is in line with the practices, local laws, regulations and serving the requirements of the company. Any discrepancy occurring thereon needs to be noted and rectified.

5. Heading towards the fifth step of Legal Audit, it involves the preparation of detailed reports on the outcomes of the audit, noting down of errors (if any), payment related issues or other related discrepancies.

6. The sixth and final step includes discussion of problems encountered in the audit with the management. The management needs to clarify that they were prior aware of the errors or not and that they are in favor of it.

Lastly, the reports prepared and management’s explanations are discussed and the needful is done on that basis. 

Why Legal Audit is Recommended?

Legal Audit Importance Against Financial Audit, Tax Audit, Company Audit

Unlike Financial Audit, Company Audit or Tax Audit, the Legal Audit is held prior to starting a project in a company and therefore it is also popular with the name pre-audit. Whereas all the other audits happen at the end of the Financial Year.

Legal Audit focuses more on the legal domain of a company. Whether the company is abiding by the current norms of the government or is facing any legal issue or is into any legal dispute. The company along with all its operative outlets is audited in a legal audit. 

A legal audit is needed to judge the legal problems in the starting phase of the Joint Business ventures, Undertaking, Project, Collaboration arrangements, mutually agreed agreements. Also, a company becomes aware of the legal risks that might come while proceeding with any project, collaboration or venture.

Significance And Vitalness Of Legal Audit

Various litigations are running in Consumer Redressal Forums, Tribunals, Courts make the Legal Audit very important for Companies, Partnership Firms, Corporates, Individuals, Borrowers, Guarantors and Financial Corporations.It minimizes the risk of anomalies, lacunae, and deficiencies in the documentation, written papers, by-laws, agreements, and covenants performed. Legal Audit helps to reduce tension, legal expenses, worries at the time of ceaseless litigations.The Checklist or formal agenda of Legal Audit contains the overall documentation or financing policies or operational areas or objectives or trademarks or copyrights or assets formulated by the company comprising the press release and Companies’ policies, objectives and programmes under the view of legal laws.


Created & Posted by (Twinkle)
Accountant at TAXAJ

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you with a One-Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

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