Auditing Origins and Development

Study Notes

The development of auditing arose from the need for independent examination of accounts by party auditors rather than relying solely on directors.
As enterprises grew in size and complexity, auditors' skills became increasingly important, making it crucial to have qualified accountants from recognized professional bodies audit accounts.

The word 'audit' originates from the Latin word 'audire', meaning 'to hear'.
In early times, accounting was simple and transactions were few, allowing individuals to check all transactions themselves.
When owners suspected fraud or misappropriation, they would appoint an official to check accounts, who would meet with employees and hear their explanations.
This official became known as the 'auditor'.

Ancient civilizations, such as Egypt, Greece, and Rome, recognized the importance of accountability in financial affairs and used systems of checks and counterchecks to ensure integrity.
The duties of auditors were limited in ancient times.
In the 15th century, Luca Pacioli published the principles of double-entry bookkeeping, describing the duties and responsibilities of an auditor in detail.
The Industrial Revolution led to the creation of companies, which required auditors to verify financial statements.

The Institute of Chartered Accountants of England and Wales was established in 1880.
Professional accountants became prominent as auditors by the early 1990s.
In India, the Joint Stock Companies Act of 1857 introduced voluntary annual audits, and the Companies Act of 1913 made audits compulsory.
The Chartered Accountants Act of 1949 established the Institute of Chartered Accountants of India.
India's Companies Act of 1956, replaced by a new Act in 2013, contains provisions regarding auditors' qualifications, appointments, and powers.

Before 1500 CE, accounting focused on government activities.
The primary objective of early auditing was to detect fraud and prevent defalcations within treasuries.
The goal was also to minimize erroneous recording of transactions.