The study examined the relationship between auditing practices and financial performance of Kasese Municipal Council in Western Uganda. The research was motivated by persistent concerns about financial management and accountability in local governments, which often resulted in service delivery gaps. Using a cross-sectional research design, data were collected from 78 respondents including council staff, auditors, and financial managers through structured questionnaires and interviews. The study employed both descriptive and inferential statistics, including Pearson correlation and regression analysis. Results revealed a strong positive correlation (r=0.782, p<0.01) between internal audit effectiveness and financial performance. The regression analysis showed that audit quality explained 61.2% of variance in financial performance (R²=0.612, F=48.367, p<0.001). Specific findings indicated that internal control systems (β=0.456, p<0.01), audit independence (β=0.389, p<0.01), and compliance auditing (β=0.312, p<0.05) were significant predictors of financial performance. The study concluded that strengthening audit functions significantly enhanced revenue collection, expenditure control, and overall financial accountability at the municipal level. Key recommendations included: increasing budgetary allocation to the internal audit department, recruiting qualified audit personnel, establishing an independent audit committee, and implementing computerized financial management systems. The study contributed to the literature on public sector financial management and provided practical insights for local government administrators and policymakers seeking to improve financial performance through enhanced auditing mechanisms.