The Evolution of Auditing

Brief History of Auditing

Up to 1840s

For the period up to the 1840s, a touch of auditing techniques was first found in ancient civilization of China, Egypt, and Greece. Auditing practice in this time included a system of checking activities. “The audit objective in the early period was primarily designed to verify the honesty of persons charged with fiscal responsibilities.” During this period, there were no such thing as testing and sampling or internal control procedures involved in the auditing process.

1840 – 1920

During the 1840s to 1920s the economy seen a vast increase in the production of goods. This led to large amounts of capital investments in companies. The need of auditors became greater to detect three things: “(1) the detection of fraud, (2) the detection of technical errors, and (3) the detection of error of principles.” It was the job of the auditor to find fraud or mistakes in the financial statements of a company and to determine if it represented the company accurately.

1920s – 1960s

From the 1920s to 1960s immense changes took place within the auditing profession. “The audit function was mainly to provide credibility to the financial statements prepared by company managers for their shareholders.” The main concern in this time was to give credibility to the financial statements instead of detecting fraud. Sampling techniques were introduced in this time to evaluate financial statements without looking at everything within it. Materiality was also introduced during this time to facilitate the sampling techniques during the audit. The consideration of internal control was first developed and directed auditors to investigate “the system on which the books are kept.” Due to the case of McKesson and Robbins, observation of physical assets became a necessary part of the audit. This period introduced a wide variety of auditing principles/techniques to the profession that have impacted the way we audit financial statements...