Legal Audits and Statutory Compliances

Legal Audits and Statutory Compliances are the backbone of an organization for smooth functioning without legal hassles. 

Legal Audit

• A legal audit is a comprehensive review of an organization's legal situation, risks, and processes. It establishes a baseline understanding of the organization's legal position, identifies potential risks, ensures compliance, and helps prevent unexpected legal exposures.
• The scope of a legal audit is based on its specific needs and concerns. It may include organizational structure, asset ownership, contractual arrangements, litigation, intellectual property, HR policies, and risk transfer agreements.
• Unlike financial audits, there is no standard procedure defined for a legal audit, allowing flexibility in addressing the unique challenges faced by each organization.
• The benefits of conducting a legal audit often outweigh the costs, making it a crucial tool for managing legal and financial uncertainties.
• A well-executed legal audit enables the Auditor to advise on identifying hidden risks and ensuring that the organization operates within the boundaries of the law.
• While legal audits are not formally required by law in many jurisdictions, they are becoming increasingly important as organizations navigate the complex and ever-evolving legal landscape.
• Different types of legal audits exist, with a comprehensive audit examining a wide range of legal compliance and risk areas for the organization.
• By regularly conducting legal audits, organizations can proactively address potential issues, minimize legal risks, and ensure the long-term success and sustainability of their operations.

Steps Involved in Preparing for a Legal Audit 

• Documentation: This includes incorporation documents, contracts, HR policies, IP filings, and regulatory compliance paperwork. Legal Auditee should use consistent naming conventions and store files securely so they can be made available for legal audit. 
• Verification: Should provide in-depth details on processes and procedures. Should verify that documentation aligns with real-world practices and remains up-to-date. Although the legal auditor investigates from different sources, the absence of such verifications leads to a negative remark.
• Review: Develop a timeline and assign responsibilities for gathering information and responding to auditor requests. Identify areas for improvement and take steps to address any issues or deficiencies noted in previous audits. This helps in allocating proper resources for an effective legal audit. 
• Communication and Implementation: Provide requested information promptly, clarify any questions, and be prepared to discuss the organization's legal risks and compliance status. Implement controls to protect sensitive data and ensure compliance with all relevant industry regulations.

When Should a Legal Audit Be Done?

• Merger or Acquisition: Conducting a legal audit helps identify potential risks, ensures compliance, and protects the organization's interests during the transaction.
• Significant Changes: Material changes, such as new projects, government support, or updates to internal control systems, may require a legal audit to assess their impact and ensure ongoing compliance.
• Sale or Transfer: A legal audit is a crucial step in preparing a business for a successful sale or transfer, as it helps identify and address any legal issues that could impact the transaction.
• Legal Compliance: If an organization suspects it may be violating labour laws, data security regulations, or other legal requirements, a legal audit can help identify and address the issues.
• Risk Management: Conducting periodic legal audits, even in the absence of specific triggers, can help organizations proactively identify and mitigate legal risks, ensuring long-term success and sustainability.

Statutory Compliance

• Statutory compliance is a mandatory requirement according to the provisions of the prescribed laws for firms, organizations, and companies. They must stay updated with the latest changes in statutory compliance requirements and ensure timely and accurate filings to avoid penalties and legal issues. Here are the key statutory compliances for firms, organizations, and companies in India
  • Income Tax Compliance: Filing of Income Tax Returns (ITR), deduction and deposit of TDS (Tax Deducted at Source) on salaries and payments, etc, advance tax payments, etc. 
  • Goods and Services Tax (GST) Compliance: Registration under GST, filing of GST returns (GSTR-1, GSTR-3B, etc), maintaining proper GST records, etc. 
  • Provident Fund (PF) Compliance: Registration of the company and employees under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, deduction and deposit of PF contributions, filing of PF returns, etc.
  • Employees' State Insurance (ESI) Compliance: Registration of the company and employees under the ESI Act, deduction and deposit of ESI contributions, filing of ESI returns, etc.
  • Professional Tax Compliance: Registration under the respective state Professional Tax Act, deduction and deposit of Professional Tax, etc.
  • Labour Law Compliances: Compliance with the Factories Act, 1948 (if applicable), the Contract Labor (Regulation and Abolition) Act, 1970 (if applicable), the Shops and Establishments Act of the respective state, maintenance of statutory registers and records, etc. 
  • Other Compliances: Compliance with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, compliance with the Maternity Benefit Act, 1961, compliance with the Payment of Gratuity Act, 1972, etc. 

How Can We Help You?

• Legal Advice: We have a team of legal experts dealing with legal audits and statutory compliance. Our legal advice is highly beneficial in ensuring thoroughness and mitigating risks in legal audits and statutory compliance.
• Legal Audits: In legal audits, we help define the audit's scope, prioritize key areas, collect and organize documents, and ensure these documents are accurate and up-to-date. We review past audits, recommend improvements, develop timelines, allocate resources, and ensure data security compliance. We also act as liaisons with auditors, clarifying legal questions and facilitating smoother processes. For significant business changes, we conduct thorough due diligence to ensure compliance and protect the organization’s interests. Regular audits with us help proactively identify and mitigate risks, ensuring compliance and sustainability.
• Statutory Compliances: In statutory compliances, we ensure accurate tax filings, correct TDS deductions, timely tax payments, and GST compliance. We facilitate PF and ESI registration, ensure proper deductions and filings, guide professional tax compliance, and ensure adherence to labour laws, including maintaining statutory records. We also ensure compliance with the aforementioned laws and regulations, providing necessary legal support as needed.

Conclusion

Legal audits and statutory compliance are important for corporations, businesses, and start-ups. We have a team of legal experts who help you with the necessary compliances and, if required, legal audits. Documentation is the most essential element of any business, and its absence can lead to serious consequences, such as departmental inquiries or legal action against a company. Every organization should have a dedicated legal professional to ensure the smooth functioning of the business. To know more, contact us.