History of auditing

Audits are performed to manage and confirm the correctness of a company's accounting procedures. Auditing evolved as a business necessity once it became evident that a standardised form of accountancy must exist to avoid fraud. It has developed into a standardised yet complex field that is regarded as an important procedure in the management of business finance.


Auditing is a branch of financial management concerned with assessing the internal financial status of a business. Audits are evaluations of the financial capability of a company. Companies prepare financial statements of their activities, which represent their overall performance. These financial statements are evaluated by auditors, who assess them according to the industry's generally accepted standards. They are examined for accuracy and fairness in their reporting. Companies are expected to pass their audits, as the results are very important to the company's reputation and success. Audits are very valuable to external company affiliates, such as shareholders and investors, because they provide an extra reassurance of their choice in investments when issues arise.


Auditing existed primarily as a method to maintain governmental accountancy, and record-keeping was its mainstay. 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, resulting in increased job positions between owners to customers. Management was hired to operate businesses in the owners' absences, and owners found an increasing need to monitor their financial activities, both for accuracy and for fraud prevention. In the early 20th century, the reporting practice of auditors, which involved submitting reports of their duties and findings, was standardised as the "Independent Auditor's Report." The increase in demand for auditors lead to the development of the testing process. Auditors developed a way to strategically select key cases as representative of the company's overall performance. This was an affordable alternative to examining every case in detail, and it required less time than the standard audit.


Auditing standards differed between America and Britain. American audits continued to evolve away from being solely a method of detecting errors and fraud, while Britain kept this as its main function. Now, both in America and Great Britain, audits are a standard way of providing a monitoring of a business's financial integrity. Fair reporting practices are used to analyse their financial statements. Audits provide feedback on a company's financial information and reporting, as well as an analysis of any fraudulent activity, potential and actual.


Testing is now the industry standard for performing audits. It is only when gross errors and fraudulent activities are discovered that detailed audits are performed. Audits have also commanded the need to establish preventive measures of monitoring the financial activities within a business to lessen the need for frequent audits and to provide simplified follow-ups, should the need for an audit arise. As business increased in complexity, risk-based auditing arose to make auditing more efficient and economical than before. Risk-based auditing actually assesses the need for an audit, based on the information in the financial statements. If many discrepancies are discovered, then it is decided to perform an audit of its financial activities.


Auditing is now the method of assessing a business's financial statement, with insight on its success as a company. It is a very tedious and involved profession that is in high demand. Due to its competitive fee, audits are now performed in a more streamlined and efficient way. They are intended to offer companies correction in their activities and to advise them on how to avoid the financial misreports in the future.

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About the Author

Naima Manal's articles on health, diet, nutrition, alternative medicine, education, parenting, crafts, travel, home and garden and home improvement have appeared on various websites. Manal received her Bachelor of Science in biology/pre-medical studies from Molloy College in 1994 and has been a freelance writer, teacher and homeschooling mom since 1993.

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