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What is the Difference Between Compliance and Quality Assurance?

When you run a small business it can be difficult to know what all your legal obligations are, and how they fit in with everything else needed to run your business. Take compliance and quality assurance, for example; you may have heard about them, but do you know what they actually mean?

What is compliance?

There are many laws, regulations and guidelines in Australia that govern how you run your business—like the Corporations Act 2001 (Cth). They outline specific things you’re required to do if you run a business. These obligations are all called compliance.

If you’re a small business that is registered as a company, there are some specific compliance obligations that are overseen by the Australian Securities Institute of Australia (ASIC). These compliance obligations include:

  • registering your company name with ASIC and displaying it wherever you operate your business
  • having an Australian Company Number
  • having a registered office in Australia
  • telling ASIC the name, date of birth and address of each of your directors, and letting ASIC know if these change
  • keeping a register of your members (or shareholders) up to date
  • keeping minutes of your directors’ meetings
  • keeping your financial and business records up to date.

If you’re also a member of an industry body, like CPA Australia or the Financial Planning Association of Australia, they may also have codes of conduct and specific requirements that you must abide by to continue to be a member. These would also fall under the banner of compliance.

If you don’t meet your compliance obligations, in some circumstances, you may face penalties and possibly even criminal action.

How does quality assurance differ from compliance?

It can be overwhelming trying to keep track of all your company’s compliance obligations. That’s why many businesses put in place programs to make sure they can meet their obligations and identify any potential breaches of law, regulations or standards. These programs are often called quality assurance or quality control.

Quality assurance may include documenting your processes, having a specific organisational structure, or putting in place policies that guide how your business operates. These give your business a systematic approach to meeting its professional and legal requirements.

While every business is different, there are some general standards that businesses can be certified in, as developed by the International Organisation for Standardization (ISO). Although not always essential, following the ISO processes can bring trust and confidence to your staff and clients.

Putting in place quality assurance measures can benefit your business by:

  • ensuring you identify potential compliance issues and resolve them quickly
  • reducing your risk of missing any compliance obligations
  • improving how your business is run and giving your employees more certainty over how to do their job
  • reducing your risk if your business is subject to any legal issues or claims
  • increasing the efficiency of your business because you will be spending less time working out how to do things or fixing mistakes.

Quality assurance is part of running a well-managed business.

Do I need to do both compliance and quality assurance?

Compliance is not something you can choose to do; it’s legally required by bodies like ASIC. While quality assurance is not demanded by law, it is good business practice to put programs in place to help you meet your compliance obligations and run your business. Sometimes, suppliers or customers may even ask your business to have quality assurance programs in place.

Let’s take a look at an example of how compliance and quality assurance work together to help you comply with your legal obligations and run your business successfully.

While the Corporations Act doesn’t require small proprietary companies to prepare formal financial reports and lodge them with ASIC, they must keep written financial records that:

  • correctly record and explain its transactions and financial position and performance
  • enable true and fair financial statements to be prepared and audited.

Financial records include:

  • invoices
  • receipts
  • orders for the payment of money
  • bills of exchange, cheques, promissory notes and vouchers
  • working papers that explain how financial statements were created and any adjustments that were made to them.

These financial records may be kept electronically but they must be able to be converted to hard-copies if required.

A business must keep these financial records as a matter of compliance. ASIC has provided some guidance by suggesting the type of records or books that a business may keep, like:

  • a general ledger that records all the company’s transactions and balances
  • bank statements, deposit books, cheque butts and petty cash records
  • a list of debtors, invoices issued and all sales transactions
  • a list of creditors, purchase orders and invoices
  • wage and superannuation records
  • a register of property, plant and equipment
  • inventory records
  • all tax returns and calculations
  • any deeds, contracts and agreements.

If a business keeps any, or all of these, they will also form part of the compliance records of the business.

A business can also put in place procedures that outline which of these financial records they do use and how they use it. These procedures will form part of the quality assurance measures of the business.

For example, if your business has petty cash then your quality assurance may include a policy that outlines how, and by who, the petty cash can be used. It may also outline the procedures that employees must follow when they use petty cash, like recording how much they took and for what purpose in the petty cash book.

If ASIC (or anyone else like the Australian Taxation Office) asks to see your financial records then the petty cash book will form part of these compliance documents. The policy can also be produced to show them that you have put in place procedures and demonstrated good management.

While it may seem daunting for a small business, you can tailor your quality assurance to suit the size of your business. We recommend you seek legal and/or accounting clarification on the best quality assurance options for your company.

If you would like help streamlining your company compliance or advice on putting in place quality assurance, then get in touch with CCASA and save time and money.