INTRODUCTION
Regulatory audits have become an important part of doing business across many sectors. A bank may face an examination by a financial regulator, a pharmaceutical company may be inspected by a drug-control authority, or an industrial plant may be reviewed for environmental compliance. The applicable audit or inspection framework, however, depends on the nature of the entity, the sector in which it operates, the regulator concerned, and the obligations applicable to it. Organisations that prepare in advance are generally better placed to respond effectively when an audit or inspection occurs. Audits are more than compliance exercises; they test whether an organisation understands its obligations, maintains evidence of compliance, and can explain its processes to an external authority. This blog sets out a practical framework for preparing for regulatory audits and inspections, while distinguishing statutory requirements from recommended compliance practices.[1]
CARRY OUT ROUTINE INTERNAL AUDITS AND ASSESSMENTS
Waiting for a regulator to identify compliance gaps before conducting an internal assessment is a passive approach that leaves limited room for corrective action. Businesses should instead make periodic self-assessment part of their compliance framework. As a matter of good practice, internal compliance reviews may be conducted quarterly, half-yearly or at another risk-based interval appropriate to the organisation. This recommended frequency should not be confused with the statutory internal-audit requirement under section 138 of the Companies Act, 2013, which applies only to prescribed classes of companies. For companies to which section 138 applies, the manner and intervals of internal audit are governed by the applicable rules and the company’s governance framework; they are not a universal quarterly or half-yearly requirement for all businesses.[2]
Internal reviews should be sufficiently detailed to test not only whether compliance policies exist, but whether they are actually followed.
UNDERSTANDING THE RELEVANT REGULATORY ENVIRONMENT FOR THE BUSINESS
Understanding which laws, rules and regulatory requirements apply to a business is the starting point for audit preparedness. The relevant framework may include sector-specific legislation, corporate and accounting requirements, labour and tax laws, data-protection requirements, environmental regulation, licences and conditions imposed by regulators. The exact obligations vary according to the nature of the entity, the sector, the size and activities of the business, and the jurisdiction in which it operates.[3]
The position becomes more complex where a company operates across multiple jurisdictions because different legal and regulatory requirements may apply to the same activity. A company should therefore maintain an up-to-date regulatory register identifying the laws, rules, licences, regulatory authorities and key compliance obligations relevant to its operations. This register should distinguish mandatory requirements from internal policies and voluntary best practices.
A company should create an up-to-date list of all laws, rules, licences and regulatory authorities relevant to its activities, together with the specific compliance obligations arising from each source implemented in practice. This distinction is important because regulators may examine the effectiveness of controls rather than merely the existence of written policies. Findings from internal reviews should be documented together with responsibility for corrective action, target dates, and evidence of closure. This allows the organisation to demonstrate how identified gaps were addressed if a regulator later raises similar questions.
KEEP DOCUMENTATION WELL ORGANIZED AND ACCESSIBLE
One of the most common weaknesses during a regulatory audit is not necessarily non-compliance, but the inability to produce reliable evidence of compliance promptly. Regulators may request licences, approvals, policies, records, communications, training materials, audit reports or other supporting documents within a specified period. Even where an organisation has complied with a requirement, poor record-keeping can make it difficult to demonstrate that compliance.
Companies should therefore maintain a centralised and accessible documentation system, organised according to the applicable regulatory requirements, date and responsible function. Important records such as licences, approvals, board decisions, official communications, training materials, compliance assessments and previous audit reports should be easy to retrieve. Version control is also important because an auditor may need to understand not only the current policy but also when and why it was amended. The precise record-retention requirements will depend on the applicable law, regulator, and sector.[4]
ESTABLISH A WELL-DEFINED COMPLIANCE OWNERSHIP MODEL
Uncertainty about responsibility is a common problem during audits. If a regulator asks a question and different employees provide inconsistent answers, this may indicate weaknesses in the organisation’s internal controls or communication processes. A clear allocation of compliance responsibilities helps avoid this problem.
Organisations should assign ownership of each material compliance area to appropriate personnel, depending on their size, structure and sector. Depending on the applicable legal framework, this may include personnel responsible for data protection, environmental compliance, 56YU matters, financial regulation or other specialised areas. These individuals should understand the relevant requirements and know how to respond to regulators accurately and without speculation. The appointment of a particular statutory officer should not, however, be treated as a universal requirement; it depends on the legislation and regulatory framework applicable to the organisation. Under section 10 of the Digital Personal Data Protection Act, 2023, for example, the obligation to appoint a Data Protection Officer is an additional obligation of a Significant Data Fiduciary, rather than a requirement applicable to every organisation. Section 10 is part of the Act’s phased commencement and, under the commencement notification issued in November 2025, is scheduled to come into force eighteen months from publication of that notification (calculated as 13 May 2027).[5]
CONDUCT MOCK AUDITS AND TRAINING FOR EMPLOYEES
A mock audit is a useful way to test an organisation’s preparedness. External consultants, lawyers or internal teams from different departments can simulate the types of document requests, interviews and control testing that may occur during a regulatory audit or inspection. This can reveal practical weaknesses, such as delays in retrieving documents, uncertainty about who should respond to a regulator, inconsistent employee answers or gaps in the audit trail.[6]
Employee training complements mock audits. Employees at operational levels may be the first people to interact with auditors or inspectors during site visits, interviews and document requests. They should know whom to notify when a regulator arrives, what information they are authorised to provide, when a request should be escalated, and how to avoid making inaccurate or unauthorised commitments. Training should be tailored to the organisation’s sector and the regulator most likely to interact with it.
DEVELOP AUDIT RESPONSE PROCEDURES
A prompt and coordinated response to an audit or inspection notice can significantly improve the organisation’s ability to manage the process. A company should maintain an audit-response procedure addressing:
- Whom to notify when an audit or inspection notice is received
- Who will act as the primary contact with the regulatory authority
- How the scope of the audit will be assessed and communicated internally
- How documents and information will be collected, reviewed, and produced within the specified timeframe
- When internal or external legal counsel should be involved, particularly where the audit may lead to enforcement action or legal proceedings [7]
The procedure should be reviewed after mock and actual audits so that lessons learned are incorporated into future responses. The exact response process will depend on the powers and procedures of the relevant regulator. For example, section 206 of the Companies Act, 2013 gives the Registrar statutory powers to call for information, inspect books and conduct inquiries in specified circumstances. It does not, by itself, establish a general audit-response procedure applicable to every regulatory authority or organisation.
SEEK LEGAL ADVICE BEFOREHAND, RATHER THAN AFTER
Legal advice can be valuable before and during a regulatory audit, rather than only after a show-cause notice or enforcement proceeding has been initiated. Counsel can help assess the organisation’s regulatory position, identify potential gaps, prepare legally accurate responses, and advise on issues that may create exposure to sanctions or litigation. However, obtaining legal advice and claiming legal professional privilege are separate questions. Section 132 of the Bharatiya Sakshya Adhiniyam, 2023 protects specified professional communications between a client and an advocate, subject to the statutory exceptions, including communications made in furtherance of an illegal purpose and facts observed by an advocate showing that a crime or fraud has been committed since the commencement of the advocate’s service. The Supreme Court has also clarified that full-time in-house counsel are not entitled to the privilege under section 132 because they are not advocates practising independently; the Court further explained the limited protection available under section 134 for communications with a legal adviser. Accordingly, organisations should not assume that all communications with in-house legal personnel are privileged.[8]
Legal advice is particularly important where an audit may result in penalties, enforcement proceedings or litigation. Early legal involvement can help an organisation understand the scope of the regulator’s powers, preserve appropriate confidentiality, respond accurately to requests and avoid unnecessary admissions. This does not mean that every regulatory interaction requires external counsel; the need for legal assistance should be assessed according to the nature and seriousness of the audit.
LEARN FROM PAST AUDITS AND KEEP ON TOP OF REGULATORY TRENDS
Every audit or inspection can provide useful institutional learning. Organisations should maintain records of findings, regulator observations, corrective actions and lessons learned, and use them when updating internal policies and controls. They should also monitor relevant legislative amendments, regulatory circulars, guidance, enforcement trends and industry developments. Keeping track of these changes helps organisations anticipate the areas that regulators may scrutinise in future audits. Such monitoring should be tailored to the organisation’s sector and the authorities that regulate its activities.[9]
CONCLUSION
Regulatory audits and inspections should not be treated as one-off events. They are opportunities to test whether an organisation’s compliance framework works in practice and whether it can demonstrate compliance when required. The objective is not simply to avoid deficiencies, but to understand the requirements applicable to the organisation, maintain reliable evidence of compliance and respond effectively when a regulator seeks information. By mapping applicable regulations, conducting risk-based internal reviews, maintaining organised records, assigning clear responsibilities, training employees, establishing audit-response procedures and obtaining legal advice where appropriate, organisations can make regulatory audits a more manageable and routine part of compliance.
Author(s) Name: M. Srujana (Alliance University)
References:
[1] Data Security Council of India, GDPR Preparedness Survey Report (Deloitte 2026)
[2] Companies Act 2013, s 138; Companies (Accounts) Rules 2014, r 13
[3] ‘Regulatory Compliance in India Across Sectors: Guide to Business Owners’ (Gadi & Associates) <https://gnalawyers.com/blog/regulatory-compliance-in-india-across-sectors-guide-to-business-owners/> accessed 12 July 2026
[4] ‘Internal Audit Documentation Requirements in India: Complete Guide (2025 Update)’ (PKC Management Consulting) <https://pkcindia.com/blogs/internal-audit-documentation-requirements/> accessed 12 July 2026
[5] Digital Personal Data Protection Act 2023, s 10
[6] Arun Kumar Jain, ‘A Study of Digital Auditing in India: Evolution, Challenges, and the Curriculum Shift from Manual to Intelligent Automation’ (2022) 7(5) International Journal of Novel Research and Development 50 <https://www.ijnrd.org/papers/IJNRD2205224.pdf> accessed 12 July 2026
[7] Companies Act 2013, s 206
[8] Bharatiya Sakshya Adhiniyam 2023, s 132; Municipal Corporation of Greater Bombay v Vijay Metal Works AIR 1982 Bom 6
[9] Prem Lal Joshi and Golrida Karyawati Purba, ‘The Institutional Theory on the Internal Audit Effectiveness: The Case of India’ (2021) 15(1) Iranian Journal of Management Studies 35 <https://ijms.ut.ac.ir/article_79981.html> accessed 12 July 2026