What is a financial audit?

A financial audit is defined as an independent examination of the financial information of any entity, such as a company or organization. This process involves evaluating financial statements, accounting records, and related documents to ensure accuracy, compliance with accounting standards, and adherence to laws and regulations. The independent aspect is crucial because it helps provide an unbiased assessment of the financial health and practices of the entity, instilling confidence among stakeholders such as investors, creditors, and management.

This independent examination typically assesses aspects like the fairness of the financial statements, the effectiveness of internal controls, and the overall financial reporting processes. By following a structured methodology, auditors gather evidence to support their conclusions, and the resulting audit reports can lead to improvements in financial practices and the detection of any misstatements or irregularities.

In contrast, other options do not accurately describe a financial audit. For instance, an internal review of employee performance pertains more to human resources and management practices rather than financial data. A budgetary analysis focuses on the planning and allocation of an organization's resources and is not necessarily an audit. Lastly, forecasting future revenues involves making predictions about future income and does not involve the assessment of existing financial statements or records. These distinctions highlight why the independent examination of financial information is the hallmark of a financial