The origin of ‘Audit‘ comes from the word ‘Audire.’ With the advent of the Industrial Revolution, ‘auditing’ evolved as a financial accountability tool.
The word “audit” has Latin origins (audio, audire, means listening). This word has known many definitions and classifications during this time. Generally, it is a synonym to control, check, inspect, and revise.
Auditing was primarily a method to maintain governmental accountancy, and record-keeping was its mainstay.
From the time of ancient Egyptians, Greeks, and Romans, the practice of auditing the accounts of public institutions existed. Checking clerks were appointed in those days to check the public accounts.
The main objective of auditing of those days was to locate frauds and to determine whether the receipts and payments were properly recorded by the person responsible.
It wasn’t until the advent of the Industrial Revolution, from 1750 to 1850, that auditing began its evolution into a field of fraud detection and financial accountability.
Businesses expanded during this period and brought in large-scale production, steam power, improved facilities, and better means of communication. This resulted in the origin of the joint-stock form of organizations.
Shareholders contribute to the capital of these companies but do not have control over the day-to-day working of the organization.
Management was hired to operate businesses in the owners’ absences, but the shareholders who have invested their money would naturally be interested in knowing the company’s financial position.
So they found an increasing need to monitor financial activities for accuracy and fraud prevention.
This originated the need for an independent person to check the accounts and report to the shareholders on the accuracy of the accounts and the safety of their investments.
In the early 20th century, the reporting practice of auditors, which involved submitting reports of their duties and findings, was standardized as the “Independent Auditor’s Report.”
The increase in demand for auditors leads to the development of the testing process. Auditors developed a way to strategically select key cases representative of the company’s overall performance.
This was an affordable alternative to examining every case in detail, requiring less time than the standard audit.
Table showing the auditing origin and evolution throughout history.
| Period | Audit ordinates | Auditors | Objectives of the audit |
|---|---|---|---|
| Up to 1700 | Kings, emperors. Churches and the state | People of the state or scribes | – The punishment of the thieves for the funds changing direction. – Protecting assets. |
| 1700 – 1850 | States, Courts, and shareholders | Accountants | – Repressing fraud and punishment of the authors. – Protecting the assets. |
| 1850 – 1900 | The state and the shareholders | Professional accountants or lawyers | – Avoiding fraud and errors and attesting to the viability of the balance sheet. |
| 1940 – 1970 | The state and the shareholders | Professionals in audit and accounting, and counseling | – Attesting the honesty and regularity of the historical financial data/ |
| 1970 – 1990 | The state, the third, and the shareholders | Professionals in audit and counseling | – Attesting the quality of the internal control and respecting the accounting norms and the audit norms. |
| 1990+ | The state, the third, and the shareholders | Professionals in audit and counseling | – The protection against international fraud |
Conclusion
The financial audit has progressed and perfected itself step by step, with economic development answering society’s challenges.
It has also progressed from the historical point of view, being present in different forms in all the periods, from the concept point of view, and mostly from the objective point of view.
