What type of audit analyzes how a business operates internally?

The correct answer is the internal audit because this type of audit focuses on evaluating and improving the effectiveness of risk management, control, and governance processes within an organization. Internal audits provide insights into how well the business processes function and whether they align with the organization's objectives. By examining internal operations, these audits can identify efficiency improvements, ensure compliance with regulations, and assess the safeguarding of assets.

In contrast, a financial audit primarily examines financial statements and reporting rather than internal operations. An external audit involves an independent review conducted by professionals outside the organization, focusing on the validity and accuracy of financial records. A compliance audit, while it may look at adherence to regulations and standards, does not provide the comprehensive operational insight that an internal audit does. Thus, the internal audit stands out as the most relevant type for analyzing how a business operates internally.