Today, the need for transparent and reliable management of economic processes has increased the importance of audit services. An audit not only checks whether accounting and financial reports are prepared correctly, but also provides an objective assessment of a company’s activities.
Mandatory audit is a form of audit that is regulated by law and required for certain organisations.
This article explains how audit services are organised, with particular focus on the legal, economic and practical aspects of mandatory audit.
The word audit comes from the Latin word “audire”, meaning “to hear”. According to historical sources, early audit practices can be traced back to the Roman Empire. In its modern form, audit services began to develop in the late 19th century.
The first professional audit associations were established in the United Kingdom and the United States, where audit standards also began to develop.
In Azerbaijan, audit activities started to be regulated by legislation after independence. Today, the main regulations are based on the Law of the Republic of Azerbaijan “On Auditor Service”.
The law covers the concept of audit, the scope of audit services, cases where voluntary and mandatory audits are required, and other related matters.
Audit can be classified in different ways depending on the criteria used. Based on how it is organised, audit can be divided into the following types:
| Type of audit | Description |
|---|---|
| Internal audit | Conducted within the company and aimed at strengthening internal controls. |
| External audit | Conducted by an independent audit firm. |
| Compliance audit | Checks whether the company operates in accordance with legislation and internal rules. |
| Operational audit | Focuses on efficiency, cost control and productivity. |
Mandatory audit can be considered a form of external audit and is carried out based on legal requirements.
Failure to comply with mandatory audit requirements may result in administrative liability under Article 464 of the Code of Administrative Offences. In 2025, the fines under this article ranged from AZN 300 to AZN 600 for individuals and from AZN 1,500 to AZN 2,500 for legal entities.
In addition to mandatory audit, a company may also choose to conduct a voluntary audit. In this case, the audit may be performed by the company’s own specialists as an internal audit or by external auditors.
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At this stage, the auditor collects initial information about the company, identifies the areas to be reviewed and assesses possible risks. An audit plan and programme are then prepared.
This is one of the main stages of the audit. Accounting documents, contracts, reports and other supporting information are reviewed. The auditor forms an opinion based on the evidence collected.
The collected information is analysed. Risks, inconsistencies and recommendations are documented.
At the end of the audit, an objective and well-supported audit opinion is prepared. The opinion may be unmodified, qualified, adverse or a disclaimer of opinion.
During the audit process, key principles such as professionalism, objectivity, independence, confidentiality and professional ethics should be followed.
These principles are consistent with the standards of international organisations such as IFAC and INTOSAI.
In Azerbaijan, the categories of business entities subject to mandatory audit are regulated by Article 91.4 of the Civil Code, Article 2 of the Law “On Auditor Service”, as well as relevant regulations adopted by the Cabinet of Ministers.
These may include:
Examples of international approaches to mandatory audit include:
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When selecting an audit firm, companies should consider the following factors:
Whether the audit is voluntary or mandatory, a relevant agreement should be signed with the external auditor or audit firm.
The agreement should include:
A professional auditor generally performs the following functions:
Mandatory audit can have several positive effects on companies and the wider economy:
Considering all these factors, the proper organisation of audit services, particularly mandatory audit, is an important tool for economic security and transparency in the business environment.
A professionally organised mandatory audit can contribute to the development and reliability of both the public and private sectors.
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