An audit is an official inspection of financial records. An independent auditor examines a company's books to verify that they are accurate and follow accounting standards. The auditor issues an opinion. A clean opinion says the statements are fairly presented. A qualified opinion flags problems. An adverse opinion says the statements are misleading.

Audits serve several audiences. Shareholders rely on them to trust management. Regulators require them for public companies. Lenders use them to assess creditworthiness. Tax authorities conduct their own audits to verify compliance. Internal audits, performed by company employees, check controls and processes rather than financial statements.

The work is detailed and often tedious. Auditors sample transactions, confirm balances with banks and customers, and test internal controls. They look for fraud, errors, and misstatements. The 2001 Enron scandal exposed how auditors can miss or ignore problems, especially when they also earn consulting fees. Reforms followed, separating audit from consulting in many cases. Audits are not guarantees. They are reasonable assurance, and the distinction matters.

Common types

• External audit
• Internal audit
• Tax audit
• Forensic audit
• Compliance audit