Typically, an audit is an examination of the financial statements. A financial audit is an unbiased investigation and review of an organization’s financial statements to ensure they fairly and accurately reflect the transactions they purport to represent.

An outside Certified Public Accountant (CPA) firm or organization’s internal staff may conduct the audit. Almost all companies offer an annual audit of their financial accounts, including the income statement, balance sheet, and cash flow statement. 

Borrowers also agree to yearly accept the results of an external audit as part of their loan covenants. Due to the compelling arguments for purposeful misinterpretation of financial information to commit fraud, audits are a legal requirement for some firms.

Types of Audits:

  • External audits – Third-party audits may be very beneficial in removing any bias from evaluating a corporation’s financial situation. Business reviews aim to identify any significant misstatements in the financial statements.
  • Internal Audits – Internal auditors are chosen by the organization or entity they audit. The management and board of directors are given a direct presentation of the audit report’s findings.

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