How do performance audits differ from financial audits?

Performance audits and financial audits serve distinct purposes within an organization, each focusing on different aspects of operations and compliance. Performance audits concentrate on evaluating the efficiency and effectiveness of a program or operation. This includes assessing whether resources are being utilized effectively towards achieving program objectives and whether outcomes are meeting the intended goals. Essentially, these audits look at 'how well' things are being done and whether improvements can be made.

On the other hand, financial audits primarily focus on verifying the accuracy and compliance of financial records. They ensure that financial statements are presented fairly in accordance with accounting principles and that the organization complies with relevant laws and regulations. Financial audits are concerned with what has been reported in terms of financial performance, ensuring that there are no discrepancies in financial reporting.

The distinction is significant: while performance audits analyze the operational efficiency and effectiveness, financial audits provide a level of assurance regarding the integrity of financial reporting. This fundamental difference in focus is why the correct response clearly identifies how performance audits and financial audits differ in their aims and methodologies.