Auditing Origins and Development

12 Questions

What is the main reason for the development of auditing in enterprises?

Due to the increasing complexity of accounting procedures

What does the Latin word 'audire' mean?

To hear

In early times, who was responsible for checking all transactions?

Every individual

What was the primary function of the auditor in ancient times?

To meet the concerned employees and hear their explanations

What was the significance of auditing in ancient civilizations?

To ensure the integrity of public accounts

What is the qualification required to audit accounts?

Only qualified accountants who are members of recognized professional bodies

What led to the creation of the company as a business organization in the late 15th century?

Individuals were unable to provide significant capital investment

What was the primary objective of audit in the early 1990s?

Verification and attestation of financial statements

Who published the principles of double-entry bookkeeping in 1494?

Luca Pacioli

What was the effect of developments in the United Kingdom on company legislation in India?

It had a significant effect on company legislation

What was the main objective of maintaining separate records by two different scribes before the year 1500 CE?

To detect fraud and prevent defalcations within the treasuries

What year did the Companies Act of India replace the earlier Act?

2013

Study Notes

Emergence of Auditing

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.

Origin of Auditing

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'.

Early History of Audit

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.

Development of Auditing in the UK and India

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.

Evolution of Auditing

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.