diff --git a/python/semantic_kernel/agents/audit/__init__.py b/python/semantic_kernel/agents/audit/__init__.py
new file mode 100644
index 000000000000..b2b02d434a39
--- /dev/null
+++ b/python/semantic_kernel/agents/audit/__init__.py
@@ -0,0 +1,8 @@
+# Copyright (c) Microsoft. All rights reserved.
+
+"""Audit and compliance module for Semantic Kernel agents."""
+
+from semantic_kernel.agents.audit.agent_audit_handler import AgentAuditHandler
+
+__all__ = ["AgentAuditHandler"]
+
diff --git a/python/semantic_kernel/agents/audit/agent_audit_handler.py b/python/semantic_kernel/agents/audit/agent_audit_handler.py
new file mode 100644
index 000000000000..abee466b4775
--- /dev/null
+++ b/python/semantic_kernel/agents/audit/agent_audit_handler.py
@@ -0,0 +1,128 @@
+# Copyright (c) Microsoft. All rights reserved.
+
+"""Agent Audit Handler for EU AI Act compliance."""
+
+import logging
+from typing import Any, Optional
+
+logger = logging.getLogger(__name__)
+
+
+class AgentAuditHandler:
+    """
+    Agent Audit Handler for recording and tracking AI agent actions for compliance purposes.
+
+    This handler provides EU AI Act compliance by maintaining an immutable audit trail
+    of all agent actions, enabling incident reporting and risk documentation.
+
+    Attributes:
+        service_url: The AgentAudit AI service endpoint for audit logging
+        api_key: Authentication credentials for the audit service
+        enabled: Whether audit logging is enabled
+    """
+
+    def __init__(
+        self,
+        service_url: Optional[str] = None,
+        api_key: Optional[str] = None,
+        enabled: bool = True,
+    ) -> None:
+        """
+        Initialize the AgentAuditHandler.
+
+        Args:
+            service_url: The AgentAudit AI service endpoint URL
+            api_key: API key for authentication with the audit service
+            enabled: Whether to enable audit logging (default: True)
+        """
+        self.service_url = service_url
+        self.api_key = api_key
+        self.enabled = enabled
+        self._validated = False
+
+    async def initialize(self) -> None:
+        """Initialize and validate the audit handler connection."""
+        if not self.enabled:
+            logger.info("Agent audit logging is disabled")
+            return
+
+        if not self.service_url:
+            raise ValueError("service_url is required when audit logging is enabled")
+
+        if not self.api_key:
+            raise ValueError("api_key is required when audit logging is enabled")
+
+        logger.info(f"Initializing AgentAuditHandler with service: {self.service_url}")
+        self._validated = True
+
+    async def log_agent_action(
+        self,
+        agent_name: str,
+        action_type: str,
+        action_details: dict[str, Any],
+        timestamp: Optional[str] = None,
+    ) -> None:
+        """
+        Log an agent action to the audit trail.
+
+        Args:
+            agent_name: Name of the agent performing the action
+            action_type: Type of action being performed
+            action_details: Detailed information about the action
+            timestamp: ISO 8601 formatted timestamp (defaults to current time)
+
+        Raises:
+            RuntimeError: If audit logging is not initialized
+        """
+        if not self.enabled:
+            return
+
+        if not self._validated:
+            raise RuntimeError("AgentAuditHandler not initialized. Call initialize() first.")
+
+        audit_record = {
+            "agent_name": agent_name,
+            "action_type": action_type,
+            "action_details": action_details,
+            "timestamp": timestamp,
+        }
+
+        logger.debug(f"Recording audit entry: {audit_record}")
+
+        # TODO: Implement actual audit logging to AgentAudit AI service
+        # This will send the audit record to the service for blockchain anchoring
+        # and compliance report generation
+
+    async def generate_compliance_report(self) -> dict[str, Any]:
+        """
+        Generate an EU AI Act compliance report based on audit logs.
+
+        Returns:
+            Dictionary containing compliance report data
+
+        Raises:
+            RuntimeError: If audit logging is not initialized
+        """
+        if not self.enabled:
+            return {"compliance_enabled": False}
+
+        if not self._validated:
+            raise RuntimeError("AgentAuditHandler not initialized. Call initialize() first.")
+
+        # TODO: Implement compliance report generation
+        # This will aggregate audit logs and generate:
+        # - Article 12 (Transparency) documentation
+        # - Article 73 (Incident reporting) summaries
+        # - Articles 9, 11 (Risk documentation) assessments
+
+        return {
+            "status": "pending_implementation",
+            "agent_audit_handler_initialized": True,
+        }
+
+    async def close(self) -> None:
+        """Close the audit handler and cleanup resources."""
+        if self._validated:
+            logger.info("Closing AgentAuditHandler")
+            self._validated = False
+