HISTORICAL

DEVELOPMENT
OF AUDITING
Lactaoen, Ria Jaya R.
AUDIT
Latin word "Audire"
- "to hear"
Has evolved in response to the need of
people or group of people of
information and
reassurance about the conduct or
performance of others in which they
have an acknowledged and legitimate
interest.
 Audit function
- means of social control
The aim of on audit has always been a
dynamic rather than a static one.
Historical development is divided into five
chronological periods.
(i)Prior to 1840, (ii)1840s to 1920s,
(iii)1920s to 1960s, (iv) 1960s to 1990, and
(v)1990s to present
Prior to 1840

Auditing is in the form of checking

activities, was found in the ancient
civilizations of China, Egypt, and Greece.
Greece (around 350 BC) closest to the
present day auditing. Proven by Aristotle's
quotation:
 Ten [logistae] and ten [euthuni] are chosen by lot.
Every single public officer must account to them. They
have sole control over those subject to [examination]
they place their findings before the courts.
Anyone against whom they prove embezzlement is
convicted and fined by the court ten times the sum
discovered stolen. Anyone whom the court on [their]
evidence of corruption, is also fines ten times the
amount of bribe. If he is found guilty of administrative
error, they assess the sum involved, and he is fined that
amount provided in this case that he pays it within nine
months; otherwise the fine is doubled.
Prior to kinds
Similar 1840of checking were found in the
ancient Exchequer of England
- special audit officers
- "auditor"
- prevent fraudulent actions
Italian City States - merchants of
Florence, Geneo and Venice used auditors
to help them to verify the riches bought by
captains of sailing ships
 City of Pisa - almost similar with Italian
Prior to 1840
City State
- to test the accounts of
government officials.
Auditing had a little commercial
application in this period
Audit objective in the early period was
primarily designed to verify the honesty of
persons charged with fiscal
responsibilities.
1840s to 1920s
Industrial Revolution
Large scale operations drove corporate
form of enterprise to come in existence
Share market was unregulated and highly
speculative
Joint Stock Companies Act (1884)
- "Directors shall cause the books of
the company to be balanced and a full
and fair balance sheet to be made up"
1840s to 1920s

Companies Act 1862 compulsory annual

presentation of the balance sheet &
statutory audit
Accountants - company manager; Auditors
- chosen shareholder
Objectives of auditing were
1. Detection of fraud
2. Detection of errors of principles
1840s to 1920s

Roles of auditors during this period was

mainly on fraud detection and proper
portrayal of the company's solvency in the
balance sheet
1920s to 1960s
Economy growth in US caused a shift in
development of auditing from UK to US.
Investments in business entities grew
rapidly
Audit function was mainly to provide
credibility to the financial statements
rather than detection of fraud and errors.
Concept of materiality and sampling
techniques were used
 Fundamental principles of auditing during
1920s to 1960s
this period were influenced by some major
auditing cases.
Audit Approach
1. Reliance on internal control of the
company and sampling techniques were
used
2. Emphasis on the truth and fairness of
FS
3. Shift of the Audit of Profit and Loss
Statement
1960s to 1990s
This period marked an important
development in technological
advancement and size and
complexity of the companies.
Enhancement of credibility of
financial statements
From "verifying the books" to relying
on system"
Auditors used analytical procedures
for cost-cutting(e.g. risk-based
auditing)
1960s to 1990s
Companies introduced computer
systems to their processes
Auditors placed heavy reliance on
advanced computing auditing tool
Auditors started to provide advisory
services to audit clients.
THANK YOU !!!