An audit is an independent examination of a firm’s financial records, reporting practices, and supporting evidence to assess whether the accounts are fairly presented under the relevant standards.
Why audits matter economically
Managers know more about the firm’s true condition than outside investors, lenders, workers, or regulators. Audits help reduce that information asymmetry by making reported numbers more credible.
What an audit does
An audit does not guarantee that every number is correct or that fraud is impossible. Instead, it provides assurance based on testing, evidence, and professional judgment about whether the accounts materially reflect the firm’s position and performance.
Broader economic role
Auditing supports capital markets, lending, governance, and tax administration because outside parties can rely more confidently on published statements. Without credible verification, the cost of capital and monitoring would usually be higher.