A smart contract audit is a security check done by cybersecurity professionals meant to ensure that the on-chain code behind a smart contract is devoid of bugs or security vulnerabilities.
A smart contract audit is a service offered by cybersecurity firms specializing in blockchain technology and decentralized applications. During such checks, experts look for vulnerabilities and bugs in the code that comprises a smart contract to ensure that there are no vulnerabilities.
Such checks are complex, as smart contracts often interact with each other and any integrations with third-party systems can also result in making the system vulnerable. Because of this, the checks are often expanded to other smart contracts involved in any interactions, and even those that the ones it interacts with are interacting with. Such checks usually include both running tests and manual code analysis.
Smart contracts often manage huge quantities of funds and a single bug or vulnerability can result in great losses. More precisely, the users and stakeholders of the decentralized application in question could lose all the assets that are part of the ecosystem.
One well-known example is The DAO hack, where a smart contract containing vulnerabilities resulted in 11.5 million Ether — at the time valued at about $50 million — being stolen.