19.01.2021

When to conduct a legal audit?


Every business is exposed to a number of legal risks. How to effectively manage such risks ensure appropriate protection of the organization and at the same time encourage its growth? One of the tools to facilitate this is a legal audit.

Risk management obligations result from the applicable regulations, but more and more often they are also required by the market. Currently, most corporations and large companies expect their business partners to at least adapt their security management to generally accepted standards, e.g. ISO 27001. This results in the need for companies to introduce formalized procedures, greater discipline, a better internal control ratio, and to take appropriate measures against managers and employees in the event of violations.

Liability for risk management

Risk management is an issue for which all members of a given organization should be responsible – including members of the management board and operational managers.

Failure to comply with the applicable requirements and standards may pose a threat to the reputation and even the very existence of an organization. At the same time, it may result in liability for damages of a given entity towards its trading partners and in some cases even administrative or criminal liability of members of the management board and possibly individual managers.

The goals of legal audit

How to verify that an organization meets the requirements set by the applicable regulations and trading partners and how does this process take place? The most effective tool is to conduct a legal audit (legal due diligence), where an external auditor will comprehensively examine the condition of the company and its individual assets. As a result, it will help to identify and eliminate already existing or potential legal risks.

Legal audit may help to:

  • identify compliance issues,
  • determine the role and mutual relations between individual departments in the company and decision making process as regards individual business actions,
  • reorganize or streamline the company’s structure,
  • enter the stock exchange,
  • adapt to the requirements of trading partners,
  • prepare for a potential inspection of the company by state authorities,
  • alter or expand the company’s business.

Legal audit is also essential when selling a company or its assets.

Legal due diligence allows, above all, to obtain comprehensive information about the company and its activities. It supports the transparency policy of the company’s activities and its bodies and helps to assess the profitability of actions taken and contracts concluded.

Why is it worth to complete a legal audit?

  • It involves a detailed review and assessment of the operations, the correctness of actions taken and the risk applied, it can reveal the areas of activity where the existing practices should be verified or supplemented with internal procedures / regulations;
  • Legal audit may identify risks that may put the company’s operations at risk in the future;
  • Helps to obtain information allowing to introduce additional solutions  securing the company’s interests or aimed at achieving higher profits;
  • It will help to introduce solutions that mitigate legal risks, develop and implement corrective actions and required security measures;
  • The audit team will present its final report which will allow to assess the company’s position or chances for future investments. The audit report may include elements of a security plan, a recovery plan or a roadmap of future actions;
  • Legal audit may also reduce liability of the management board for the company’s activities and ensure legal comfort throughout the company’s operations.

The scope of a legal audit will also depend on individual needs of the organization and will take into account the specific issues of the industry in which the company operates. It may cover the entire operations of the company or focus on selected aspects.

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Learn more: Legal audit – how can we help?


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