Legal Audit, Insights

Legal Audit as a Crucial Response to the Legal and Financial Uncertainties Faced by Organisations in the 21st Century

If we are left intact, we would try to fix the department to what it ought to be –effective, efficient and responsive to the public. I see myself as part of the solution. This audit is something we requested.
Helen White

INTRODUCTION
The term legal audit may sound unfamiliar in the Nigerian businesses due to the fact that the common man as well as the average organization is well acquainted with the term financial audit. Financial audit can be defined as the authentication of the financial statements or records of a company with the intention of expressing an audit opinion. It also means the critical investigation of a company’s financial records and documentation. Most importantly, businesses, with the exception of nonprofit organizations are run for the sole reason of maximizing profit and not for encouraging loss. Thus, financial audits are conducted with the aim of giving shareholders; board of directors and investors a clearer standpoint on the location of a company in the profit and loss margin. Presently, financial audit has become a house-hold name and a friend that helps organizations keep their businesses above sea level by giving them an accurate picture of the financial reliability of their organizations. In sum, financial audit creates awareness to organizations on their profit and loss margin while correcting errors in their financial statements.

Generally, organizations and the businesses they carry on are governed by law. Failure to comply with the specific laws governing a particular organization can attract penalties and/or legal liabilities in the form of litigation. However, the nature of law is such that it might be difficult for an in-house counsel to identify all the existing loopholes in the entire departments of an organization. Moreover, the major function of an in-house counsel is to vet legal documents or proffer solution to legal liabilities incurred by the organization.

The function of the in-house counsel more often than not does not cover the following: the examination or analysis of the intricacies of the law; the interpretation of complicated sections of the law with hidden legal implications; the continuous development of the law in dynamic sectors; the systematic compliance with provisions of the law; and the numerous legal restrictions of the law which can be used as a tool to hold an organization legally responsible for an action or omission. Such risks cannot be easily foreseen or prevented by equipping an organization with the best in-house counsel or by conducting a financial audit on an organization. Legal audit on the other hand is quite different from financial audit but encompasses financial audit by ensuring that financial audits have been conducted in addition to ensuring that a company has observed the laws and policies which are applicable to that company.

Therefore, the above analysis boils down to this question: Is legal audit necessary for organizations carrying out businesses in Nigeria? This paper examines the concept of legal audit by tracing the history of audit, it thereafter examines the meaning of legal audit and how it applies to organizations carrying on business in Nigeria. It also analyses the benefits attached to conducting a legal audit as well as provides a description of the various types of legal audit. It concludes by suggesting legal audit as a means of putting an end to endless court cases, financial liabilities and avoidable legal liabilities in organizations.

THE CONCEPT OF LEGAL AUDIT
Historically, audit originated from England in 1314 when Queen Elizabeth demanded for an audit to be carried out. Subsequently, the auditors of the Imprest were established in 1559 with the formal task of auditing Exchequers payments. In 1866, the audit system in England experienced tremendous improvement when William Gladstone changed the monitoring procedure as a reform program on public finance. The monitoring procedure also included expenditure of the parliament. Thereafter, financial audits became broadly regulated by government bodies, courts, financial institutions and company investors…

 

 

 

 

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