A financial audit is an independent assessment of the financial statements of an organisation. Its goal is the evaluation and confirmation of the reliability of the financial statements of the given accounting unit, i.e. if the financial statements paint an accurate and true picture of the state of the organization and if they conform with the current legislature. A financial audit is usually carried out by an independent person who is called an auditor.
A financial audit in practice: A financial audit is always conducted in accordance with auditing standards. These are either the standards of ISA or others which have been harmonized to comply with ISA (e.g. GAAS). During a financial audit, primarily the state of the assets of the organisation, its obligations and the results of its business activity are assessed. The output of a financial audit is called an audit report which is a standardized document which lists the conclusions of the auditor. The audit report has to be compiled by the auditor exactly according to the instructions provided by the applicable standards.
Audits need to be conducted in order for an organisation to have their financial information confirmed by an independent body. This requirement arises when owners want to know the real state of their organisation or in negotiations with investors, creditors, or for tax or other reasons. In a number of countries, a financial audit is a legal requirement for companies which exceed a certain size. The stakeholders of a given organisation are certainly also interested recipients of a financial audit report.