History of Auditing

Companies turn to auditors to test the integrity of their accounting procedures and the accuracy of their financial data. Auditing evolved alongside standardized accountancy as a way to identify and prevent fraud. Today, it is a critical step in the effort to ensure that the financial information companies release to the public is reliable.

  1. Auditors' Essential Role

    • Auditing concerns itself with assessing the internal financial status of a business and comparing it to the picture presented to the outside world. A company prepares its financial statements -- such as the balance sheet, income statement and cash flow statement -- and then submits them to auditors, who evaluate them according to industry standards for accuracy and relevance. Audits are extremely important to shareholders, potential investors, regulators, customers and others affected by the company's operations. A negative report from a firm's auditors can seriously damage that firm's reputation.

    Genesis in Industrial Revolution

    • Auditing initially existed primarily for governmental accounting and was concerned mostly with record-keeping rather than accounting procedures. It wasn't until the Industrial Revolution, roughly from 1750 to 1850, that auditing began evolving into a field of fraud detection and financial accountability. As businesses grew to unprecedented sizes during this period, company owners couldn't directly oversee all their operations and had to hire managers to do so.
      Those owners recognized an increasing need to monitor managers' financial activities, both for accuracy and for fraud prevention.

    Era of Standardization

    • The early 20th century saw the standardization of auditors' testing methods and reporting practices. Auditors developed a system for examining a representative sample of a company's transactions, rather than examining each transaction in detail, allowing audits to be completed in less time and at lower cost. Audit findings were also presented in a standard "Independent Auditor's Report" accompanying a firm's financial statements.

    Risk-Based Auditing

    • Sampling of transactions is now the industry standard for performing audits. It is only when gross errors or fraudulent activities are uncovered that comprehensive audits are performed. As business have increased in complexity, "risk-based" auditing has arisen to make auditing more efficient and economical. Risk-based auditing starts by assessing whether an audit is even needed, based on a review of information in the financial statements. If the review finds discrepancies, irregularities or suspicious activity, then a full-scale audit will follow.

    The State of Auditing Today

    • Auditing today is seen not just as a process for verifying a company's financial statements, but also as a way for a firm to gain insight on its own activities. It is a labor-intensive job -- one that is in high demand. Audits are now performed in a more streamlined and efficient way and are intended to offer companies correction in their activities and to advise them on how to avoid the financial misreports in the future.

Related Searches


  • Photo Credit Courier Times, OnPoint L.L.C.

You May Also Like

  • The History of Accounting Standards

    History of Auditing. Audits are performed to manage and confirm the correctness of a company's accounting procedures. Auditing evolved as a business...

  • What Is Financial Audit Risk?

    Audit risk is the probability of external auditors giving an unfavorable opinion on the company's financial statements. ... History of Auditing.

  • Can the IRS Check Your Credit Report When You're Audited?

    IRS audit flags are based on calculations of income and deductions filed with a taxpayer's annual income tax return, not their credit...

  • The History of the Arthur Andersen Accounting Firm

    Arthur Andersen LLP was the largest Big Five public accounting firm, providing audit, tax and consulting services in 84 countries. The firm...

  • About the Auditing Standards Board

    The Auditing Standards Board (ASB) ... History of Auditing. Audits are performed to manage and confirm the correctness of a company's accounting...

  • What Is an External Audit Firm?

    Audit firms mainly employ professionals who hold a certified public accountant (CPA) designation. ... A Brief History of Tailgating. Connecting the Dots.

  • The Advantages of International Standards on Auditing

    International standards of auditing are quite different from American accounting standards. ... The Importance of Accounting Standards; History of Auditing;

  • Auditing & Taxes in Accounting

    Auditing & Taxes in Accounting. ... History of Auditing. Audits are performed to manage and confirm the correctness of a company's accounting...

  • Purpose of Auditing Financial Statements

    Audited financial statements are an important piece of information for investors and economists when judging the health of a company and the...

  • Internal Audit Training

    Internal audit training initiatives help audit staff learn and understand generally accepted auditing standards ... and how management responds to such evolution.

  • Job Audit Procedures

    Whether you're auditing bookkeeping records, an employee's performance with a company or the history of a current customer, the auditing process is...

  • Tuv ISO Certification

    Founded in the 1870s in Germany and staffed with two ... Today TUV has become a global player in auditing and certifying...

  • How to Find the History of Your House in Ohio

    Information such as the owner's history, building layout, taxes paid and property square footage for each property in Ohio is kept by...

  • Completing the Accounting Cycle

    Historical Development of Accounting. Duties of an Accountant. Comparing Accounting Software. How to Identify the Steps in the Accounting Cycle. About Accounting...

  • The History of Environmental Management Systems

    Companies then have an external audit to help them find ways to reduce their impact and ensure regulatory compliance. ... History of...

  • How to Track Client Internet Usage in a Network

    How to Delete Usage History in Windows; Audit Tools for MS Exchange Server; How to Track Internet History in Mac Osx; How...

  • The Role of Auditing in a Corporate Governance

    Organization for Economic Co-Operation and Development: Auditing and Its Role in Corporate Governance; Proceedings of Annual London Business Research Conference: ...

  • History of Forensic Accounting

    The Journal of Forensic Accounting, Auditing, Fraud and Taxation began publication in 2000. ... Read more: History of Forensic Accounting ...

  • How to Audit a Financial Statement

    Financial statement audits are ordinarily prepared by independent CPAs. It is important that these CPAs maintain their independence so that they can...

  • Development Audit Checklist

    A development audit checklist is used by management when developing a new item or service. The checklist is designed to guide management...

Related Ads

View Blog Post

Can Certain Colors Cause You to Spend More?