An Overview History Of Auditing

By - - [ Education ]

From the religious perspective auditing can be back to the account of creation where God created Adam and Eve, place them in the garden and made them stewards with the task to manage His assets. The Holy book also made it clear that God the principal comes every evening to look into their daily events of His Stewards. From the creation story we can derive the theory of stewardship. The theory posits that there is a principal(shareholders, the owner of the business) employs an agent (manager or management or employee) whose responsibility is to manage the assets on behalf of the principal(principal-Agent relationship).

Historically, Auditing dates back to early Babylonia times, around 3000Bc. Evidence of auditing activities was also found in ancient China, Greece and Rome. In Rome, auditors heard tax payers such as farmers give public accounts to the results of their business and tax due. Thus, the word 'audit',came from the Latin word 'audire', meaning to hear. The Auditor was a hearer or listener. In China and Egypt, auditors were supervisors of the accounts of Chinese Emperor and the Egyptian Pharoah. The govt accounting system of Zhao dynasty in China included an elaborate budgetary process and audits all government departments. The dynastic era in very high estemm. Over the centuries, the role of auditors as hearers and verifiers of reports and documentation of double entry bookkeeping in Italy by a Catholic priest, Luca Pacioli in His Summa de Arithmetica dated 20 November 1494.He also recommended the verification of accounting records by auditors.

Modern auditing began around 1844 with the emergence of modern corporations at the dawn of the industrial revolution. Britain passed the Joint Stock Companies Act in 1844 which among other provisions, required company directors to report to shareholders through audited financial statements. In 1853,the society of accountants was founded in Edinburgh. Several other institutes emerged in Great Britain, merging in 1880 into the institute of Chattered accountants in England and Wales. The 1862 English Companies Act required the use of trained and specialized professionals to conduct an independent review of company financial statements and the preparation of the corrected accounts and financial statements. The role of Auditors became more important with the separation of ownership and management of corporations as these companies to grow in size and capital was provided by investors from different stakeholders groups.