When and why do companies need a legal audit?

Why does a company need a legal audit?

Business can never be 100% sure that everything in the company is done correctly and according to the law: how well internal documentation is conducted, how personnel issues are resolved, whether tax, labor, environmental and other legislation is violated.

And it is good if legal shortcomings and errors are identified and corrected in a timely manner and independently, and not during verification by state bodies with all the ensuing consequences. And it is in order to avoid such negative aspects in the company’s work that a legal audit is conducted.


What is a legal audit?


In short, a legal audit is a check of whether the company’s processes meet the requirements of current legislation. In a broader sense, a legal audit is a collective concept for evaluating the legality of the business as a whole or its individual areas. Conducting an audit allows the company not to be afraid of sudden inspections by government agencies, criminal proceedings, or other troubles. The audit also allows you to identify weaknesses in the company and make the necessary changes before these shortcomings make themselves felt.


The goals and objectives of due diligence


Legal audits are conducted for various purposes:

  • Evaluate the company’s activities for compliance with the current legislation (the most common goal) – during the audit, all clear and potential violations of the law, risks in the enterprise are identified and measures are planned to eliminate them;
  • Identify all the weaknesses of the business that you plan to acquire – if you are planning a takeover or merger, you need to conduct a legal audit of the absorbed company to make sure that everything is in order with it and that unpleasant consequences will not be revealed over time;
  • Restructure the company – all operations to change the business structure are always under the close attention of the fiscal authorities since such actions are often used to minimize taxation and other fraud. Therefore, it is better to conduct a legal audit of the company, and only then restructure it;
  • Audit of the company by regulatory authorities – if you know that a planned audit of the company is possible in the near future, a legal audit can be excellent preparation for it.


All discrepancies can be identified and corrected in advance, which will protect the business during the audit.

The tasks of conducting a legal audit may also vary, from the overall assessment of the business to the control of its individual areas or processes (for example, the assessment of tax reporting or employee employment). Specific objectives of the audit are selected on the basis of its objectives, timing, and other nuances.


How do I conduct a legal audit in a company?


The first thing to understand is that the company will not be able to conduct a legal audit on its own. First, the lack of experience and knowledge, and secondly, it is always very difficult to notice your mistakes. Therefore, the legal audit should be entrusted to professionals, but at the same time, the company’s management should participate in the formation of the audit plan, monitor its progress, and discuss with the auditor’s possible measures that will correct the identified problems.


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