A financial audit is a process in which the financial status of a person or a business entity is evaluated. The goal is to determine the accuracy of the financial statements of the person or entity being audited. In general, a financial audit is supposed to be conducted by an external party in order to ensure objectivity.
For individuals, a financial audit does not occur regularly. In fact, when one uses financial audit in the individual sense, they usually refer to the audit that the Internal Revenue Services (IRS) requires when there are red flags in an individual’s tax returns. These audits are not that commonplace, however, and can be easily avoided by filing accurate tax returns regularly.
For businesses and corporations, financial audits are more commonplace. In many companies, financial audits are conducted on a yearly basis. In this case, an external accounting firm is usually hired to conduct the audit. Depending on the size of the business, the auditor can be one Certified Public Accountant (CPA) or a team of CPAs may be required.
A business financial audit takes several days - even weeks, depending on the scale of the company’s operations. The auditors will pore over all the financial records as well as the accounting procedures that the company follows. The result of a business financial audit can be critical, especially when the company is looking to sell in the near future.
When conducting a financial audit, it is imperative that transactions are represented honestly. Otherwise, problems may occur between the auditor and the entity being audited.