In today’s complex business environment, it’s not enough for companies to simply report financials accurately. They also need to show that they are following the rules—laws, regulations, and industry standards. This is where audit procedures for compliance with laws become critically important.
At Aurora Financials, we’ve worked with clients across New Zealand to help them understand what these procedures involve, why they matter, and how they can support better governance. In this article, we break it all down in plain English—no jargon, no confusion—just a clear roadmap for understanding how compliance fits into the audit process.
Why Legal Compliance Matters in an Audit
Before diving into audit techniques, it’s worth asking a simple question: why does legal compliance matter in the first place?
When businesses don’t comply with laws—whether tax laws, environmental standards, or employment regulations—the consequences can be severe. We’re talking about penalties, legal action, reputational damage, and even the suspension of business operations. But beyond that, legal non-compliance can also misrepresent the financial health of a company.
That’s why audit procedures for compliance with laws are not just about ticking boxes. They’re about protecting the organisation and everyone who depends on it—investors, employees, customers, and the wider community.
At Aurora Financials, we help clients navigate this terrain carefully, because overlooking one regulation can turn into a costly mistake.
What Are Audit Procedures for Compliance with Laws?
In simple terms, audit procedures for compliance with laws are the steps auditors take to assess whether a business is meeting its legal obligations. This includes local legislation, international requirements, and industry-specific standards.
The goal is not to catch companies out—but to give honest, evidence-based assurance about how well laws are being followed.
These procedures typically include:
- Reviewing policies and internal controls to check how laws are being integrated into everyday operations.
- Inspecting documents and records such as tax filings, licenses, and employment contracts.
- Conducting interviews with staff to understand processes and identify gaps.
- Evaluating past incidents of non-compliance and the corrective actions taken.
- Assessing legal correspondence or pending litigation that could impact financial reporting.
Each of these steps is guided by professional auditing standards, and tailored to the size, industry, and risk level of the business.
The Difference Between Direct and Indirect Compliance
Not all laws affect financial reporting in the same way. This is an important distinction when planning audit procedures for compliance with laws.
Direct impact laws
These are laws that directly affect how financial statements are prepared. Examples include tax laws, Companies Act requirements, and financial reporting regulations.
Indirect impact laws
These laws don’t directly influence the numbers but still affect the business significantly. Think employment law, health and safety rules, environmental regulations, or data privacy laws.
Auditors have a greater responsibility when it comes to direct impact laws—they must gather sufficient evidence to confirm compliance. For indirect laws, the role is more about awareness: spotting potential breaches and ensuring the business has systems in place to detect them.
At Aurora Financials, we take a balanced approach. We look not just at what’s required, but at what’s responsible. Because in today’s climate, public trust hinges on more than just financials—it rests on integrity.
Real-World Example: What This Looks Like in Practice
Let’s say we’re auditing a mid-sized logistics company in New Zealand.
For direct impact laws, we’ll review whether:
- GST and income tax are filed correctly and on time.
- Financial statements follow NZ IFRS and Companies Act rules.
- Directors’ disclosures are complete and compliant.
For indirect impact laws, we might ask:
- Are there updated employment contracts that reflect current labour laws?
- Is the company meeting health and safety reporting standards?
- Have there been any past breaches or regulatory notices?
We’d then document all findings, identify any red flags, and discuss them with management.
This isn’t just about playing watchdog. It’s about partnering with clients to improve their systems and reduce risk—something we prioritise at Aurora Financials.
How Non-Compliance Affects Financial Audits
While most people think of legal issues as a separate matter from financials, the truth is: non-compliance can directly affect the audit opinion.
Here’s how:
- Material Misstatement – If a legal breach leads to inaccurate or incomplete financial data, it may cause auditors to issue a qualified or adverse opinion.
- Contingent Liabilities – Pending legal actions or fines must often be disclosed in the financials.
- Going Concern Risk – In serious cases, legal penalties can threaten the company’s future, which must be reflected in the audit.
In short, audit procedures for compliance with laws help ensure that legal risks are properly accounted for—not hidden behind numbers. And that’s crucial for stakeholders who rely on those reports.
The Auditor’s Responsibilities vs. Management’s Role
It’s important to understand that the ultimate responsibility for legal compliance doesn’t lie with the auditor—it lies with the business itself.
Auditors are there to assess and report on compliance based on available evidence. Management and directors, however, are responsible for:
- Setting up compliance policies and procedures.
- Monitoring legal obligations.
- Reporting issues to the auditor when relevant.
When we work with clients at Aurora Financials, we take time to educate and collaborate. We don’t just review—we help clients strengthen their internal frameworks so compliance becomes second nature.
Common Challenges in Compliance Audits
Even well-managed businesses can face compliance challenges. Some common ones include:
- Rapidly changing laws – Especially in areas like data privacy and ESG reporting.
- Inadequate documentation – A lack of audit trails makes it hard to prove compliance.
- Siloed departments – Legal and finance teams don’t always communicate effectively.
- Over-reliance on manual processes – This increases the chance of human error and missed deadlines.
The good news? These issues can be addressed with the right mix of awareness, automation, and audit support. We’ve helped many clients at Aurora Financials build smart compliance workflows tailored to their industry.
The Future of Compliance Auditing
As we move through 2025, expect audit procedures for compliance with laws to become even more central to audit strategy. Here’s why:
- Regulators are increasing enforcement. Penalties for non-compliance are rising across sectors.
- Stakeholders are demanding transparency. Investors and the public want to see responsible business practices—not just profits.
- Technology is changing how audits are done. From e-discovery tools to compliance dashboards, the process is becoming more data-driven.
Aurora Financials is already integrating these shifts into our workflow. We believe that proactive, tech-enabled compliance isn’t just a regulatory shield—it’s a competitive advantage.
Conclusion
Audit procedures for compliance with laws are no longer just a footnote in the audit plan—they’re a vital part of ensuring that businesses are playing by the rules and protecting their long-term value.
For companies in New Zealand and beyond, this means more than avoiding fines. It means building trust, improving transparency, and staying ahead of risk.
At Aurora Financials, we take pride in helping clients approach compliance not as a burden—but as a strategic strength. Our audit services are designed to be thorough, adaptable, and always aligned with the latest legal frameworks.
If your organisation is ready to move from reactive compliance to proactive assurance, we’re here to support that journey—one audit at a time.
FAQs
- What are audit procedures for compliance with laws?
These are the specific actions auditors take to evaluate whether a business is following relevant laws and regulations. It includes reviewing documentation, testing controls, and assessing legal risks. The goal is to ensure the financial statements reflect any compliance issues and that risks are properly disclosed. - Do auditors check for all types of laws during an audit?
Not exactly. Auditors focus more deeply on laws that directly affect financial reporting, like tax regulations or company law. For laws with indirect impact—such as health and safety or data protection—they review whether the business has systems in place to identify and respond to breaches. - How can businesses prepare for a compliance-focused audit?
Keep detailed records, regularly update policies, and ensure staff understand their legal responsibilities. It also helps to conduct internal compliance reviews throughout the year. Partnering with an audit firm that understands your industry—like Aurora Financials—can make the process smoother and more insightful.
