The ‘Legal Audit’ includes two words primarily such as LEGAL + AUDIT. So, these two words of Legal Audit have separated to understand the meaning for the business, Private Sectors, Individuals, Corporates and for all who want to know the true significance of the word to use in welfare.
Now, the Legal Audit is necessarily important and relevant for the overall growth and prosperity of the economy. The quality of the economic framework relies on the foundation and up to the grassroots, apart from other corresponded features regarding the economy, regardless of it is public or private division.
How Legal Audit Process Works:
A Legal Audit has following steps to proceed:
1. The very first step here for a company’s delegated agent is to answer a question-set that renders general details permitting the auditors to change the audit as per the specific requirements of the company to save the time and energy. Therefore, the audit requirements of any construction company are very different as compared to that of a software consultant, as the audit does not go in the same way for all the companies.
2. The next step in the Legal Audit process includes accumulating all the documents for the Legal Audit process. The necessary documents can be fragmented into five categories but you can divide in further as well as per the business and corporate structure nature:
(I) Corporate Issues: It includes company charters examination by registries for stockholders, minutes, administrators, regulatory body obligations such as permits, business registrations, and licenses.
(II) Contractual Issues: It comprises examinations of Employment, Distributor, Partnership, Licensing, Purchasing, Facility and Equipment Leasing, Order agreements and Warranty and Sales.
(III) Labor Issues: It includes examinations of applications, training, disciplinary measures, terminations, agreements, employment documents.
(IV) Tax Issues: It includes documents of asset structures, loan, and debt.
(V)Governance Issues: It includes company functioning documents and internal manuals updated on daily basis.
(VI) Publicity Issues: It comprises sales aid, product literature, website content, trademarks, copyrights, promotional activities, promotions, press releases and marketing documents.
3. The 3rd step of a Legal Audit includes a meeting of selected employees and management to really understand the working of the company and pen down the concerns which are different. This helps in the 5th step.
4. The 4th step of Legal Audit includes reviewing the documents included in the first step, to ascertain that all the information is according to practices, local laws, regulations and serving the requirements of the company protecting the documents. Any errors highlighted and suggested the need to be corrected or irregularities are pen downed.
5. The 5th step of Legal Audit includes detailing about the findings during the audit which comprises posting problems, mathematical errors, payments authorized without payment and other discrepancies.
6. The 6th step of Legal Audit includes management responses that whether they favor or not the problems listed in the audit. At the closing, all party commonly discusses the report and management reactions. if there is something remaining, done at this point.
What Makes Legal Audit Mandatory:
The Legal Audit is very prudent in order to prevent laws generated with copious and serious discretion and aware to divide with any legal actions rising in upcoming future and resultantly may end in getting fined, sued, penalty imposition and prosecuted in evadable legal actions due to lacunae or deficiencies residing in the agreements, statutes, undertakings, documents and laws accomplished by the companies, partnerships, individuals, Corporate Undertakings, Governmental Undertakings and banks Undertakings, in outstep of the laws and provisions of the Governmental Enterprises, Organization, Company, for instance, moving from the Articles of Association of the Private Limited Company and the laid down Memorandum and laws relying on certain acts and enactments in force.
Legal Audit Importance Against Financial Audit, Tax Audit, Company Audit
The Audits such as Company Audit, Financial Audit, Tax Audit, and other Audits are done after the financial year end, whereas the Legal Audit starts from the first day of the projects or in the starting of the project in the office to be imposed. Therefore, we can say Legal Audit as a pre-audit.
The Legal Audit is performed to judge the present legal problems in the starting phase of the Joint Business ventures, Undertaking, Project, Collaboration arrangements, mutually agreed agreements ready for the Legal Audit of the Corporate company to review and inspect the operations, Company’s plans and strategies to make less effective not to remove weak legal risks concerning company perspective.
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, bye-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.
Benefits Of Legal Audit:
Legal Audit ascertains efficient, profitable and optimum growth of the working of the operations, achievements, and objectives under the laws of land along with company laws.
To reduce the legal expenses and legal risks in order to avoid unnecessary litigations and remain away from fines and penalties made by Courts and Government for not complying with the Rules and laid down laws, in effect.
It is helpful in order to eliminate the disability laws and clauses of the written undertakings, covenants and agreements. It as well helps to rescue from payment of damages, reduce risk factors along with accuracy and perfection, claim compensation and check the legality of the document. Make one to revise the records, registrations, licenses as per the new laws of the land.
Advice on certain ways to eliminate or reduce the tax liabilities, financial commitments made to the creditors, careful operations in working and on government issues along with enhanced approach.
It also assists to protect dues from borrowers, making proper drafting with customers for agreements realize the dues without concerning with the Courts visit. To provide best solutions for prime employees issues such as workers’ claim compensation cases, overtime payments, salaries issues, disputes in wages, unfair labor practices, fixation in salaries and others.
To accommodate various facilities for maintaining and reviewing the Wills, Trusts, superannuation plans and to be away from the payment of compensation and various claims, and to protect the interest of individual in case of divorce, dissolution, death, cancellation of partnerships and winding-up of the Company.