What is a Financial Audit?

A financial audit is the examination of the financial records of an entity by a certified third party examiner. This examination by a knowledgeable outsider is needed to provide credibility to an organization's financial statements. If an auditor does not find any issues, then he or she releases an auditor’s opinion, which accompanies the certified financial statements when they are issued. Lenders, creditors, and investors want to see an audit opinion, as proof that the financial statements are correct.

An auditor will conduct a variety of tests to verify that the financial records are complete, and fairly represent the financial results and condition of an organization. These tests may include tests of controls, tests of transactions, analytical procedures, and tests of balances. Financial audits are most commonly conducted for the financial statements of a firm, but may be targeted at more specific areas, such as tax records.

Advantages of a Financial Audit

There are major advantages to having a financial audit performed. First, it results in an auditor’s opinion regarding an entity’s financial statements, which is required by many lenders and investors. It is also a requirement for any publicly-held company. In addition, the auditors will notify management of any issues found during their work, which can then be corrected. This typically results in a more robust system of controls.