An audit is an independent evaluation of an entity’s financial statements by a qualified auditor, ensuring accuracy and compliance with relevant accounting standards. The auditor examines financial records,transactions, and internal controls to express an impartial opinion on the fairness of the statements. Audits can be statutory (required by law) or voluntary (initiated by the company it self for internal or investor purposes).


Example: A tech startup undergoes an annual audit to provide transparency to investors. During the audit, the auditor reviews the company's revenue recognition practices and expenses to confirm compliance with accounting standards. This rigorous examination reassures investors that the startup’s reported profits and losses are accurate and that their investments are secure.