Compliance test definition
/What is a Compliance Test?
A compliance test is an audit that determines whether an organization is following its own policies and procedures in a particular area. An auditor engages in compliance tests in order to be assured that the evidence being reviewed as part of an audit is valid. If a compliance test reveals that policies and procedures are functioning properly, the auditor can reduce the amount of analytical review and validation procedures that would otherwise be used. The activities commonly used in a compliance test are as follows:
Asking employees about their duties
Observing employees in the conduct of their duties
Reviewing documentation to see if procedures have been followed
Example of a Compliance Test
A retail store has the following internal policy regarding its cash transactions:
“All cash refunds above $100 must be approved and signed by a store supervisor or manager.
Refund receipts must contain supervisor initials and approval date.”
An auditor conducts a compliance test to verify whether the store consistently follows its internal cash-refund approval policy for refunds greater than $100. The audit steps are as follows:
Sampling: Select a random sample of 30 cash refund transactions over $100 during the last quarter.
Examination: Inspect refund receipts for supervisor signatures/initials and approval dates.
Verification: Confirm the supervisor or manager’s authorization matches store records.
The finding from this analysis are that, of the 30 transactions tested, 25 fully complied (83.3%), while 5 were not compliant (16.7%). The auditor concludes that while compliance is relatively strong, additional training or controls may be needed to improve compliance. This test helps the store identify non-compliance and mitigate risk.
What is Compliance Testing in Software Development?
Compliance testing can also be applied to an organization’s software development processes, where it is used to ascertain whether these processes are using the firm’s mandated development methodology. The outcome is useful for identifying areas in which code is below expectations and requires additional work. Compliance testing also validates whether the associated documentation is complete.