The Origin of Auditing
The word audit means to hear something. It was first used by Henry I, also known as Henry Beauclerc, during his reign in England. Henry was King of England from 1100 to his death in 1135. During his reign, a monumental step toward the bureaucratized state that lay in the future was taken. During that time, the king sent auditors to corners of the territory where the barons were spending the money as they should. The Barons protected the assets, and the taxes were collected and sent back to the king.
The Progress in Sight
Early signs of auditing have been found in ancient cultures like the UK, Mesopotamia, Greece, Egypt, India, and Rome. In ancient India, dating back to 3BC, researchers can find scriptures in the Athashastra written by Kautilya. The Arthashastra’s Topic 6 outlines secret assessments and ongoing evaluations of the kingdom’s moral character of all ministers and high officials. Those who lack moral character or are easily seduced by money should not work in treasury or revenue collecting. In the early days of Egypt, Greece, and Rome, a system of crosses and checks was being used to maintain public accounts.
However, auditing can be traced back to 2000 BC. Still, it wasn’t used as the strict, standardized method for assurance and collection back then. In the Roman Empire, emperors used to appoint trustworthy young men called Quaestors. The king sent them to the edges of the empire to ensure that the governors were spending the money that Rome had sent correctly. They were tasked to ensure that the assets the money had bought were guarded and looked after. Most importantly, the taxes that were supposed to be collected were being collected and sent to Rome without the governor taking a slice or two for themselves.
The last decade of the 15th century was crucial for trade and commerce because of the Renassaince in Italy. As opposed to the previously used method of Cross and Checks, Double Entry bookkeeping was evolved and published in 1494 in Venice by Luca Paciolo. Fast forward to 1760, auditing changed extensively with the introduction of the Industrial Revolution. The revolution paired ordinary traders with each other and expanded the volume of trading transactions.
Back in the old days, there wasn’t a need for more than one income stream. But with the changes in industries and the familiarization with new products and inventions, people started to find ways to earn more money through investments. Joint stock companies and partnership firms joined together to form business enterprises.
The Investors became a part of the business processes. However, since it wasn’t their forte, they needed suggestions from professional advisors. They would only spend money on things they considered safe and secure. To facilitate this process, investors appointed trustworthy associates and friends they would call Auditors. The duty assigned was to ensure that the information provided by the company was fair and accurate. Auditing used to focus on the businesses run by the governor, king, or emperor themselves but slowly adjusted to make room for changes in the industries and later was used for investment purposes.
The Great Depression
Up until the 18th Century, Auditors were chosen primarily based on their morals and characters. Everything seemed to be going fine and dandy until the Stock Market Crash of 1929. The Great Crash was a precipitous collapse in US stock market values in 1929 that aided in causing the 1930s Great Depression.
It’s possible that a number of variables played a role in the stock market crash. The era of rife speculation was one of the more notable factors. In addition to losing the value of their investment. People who bought stocks via margin also owed money to the organizations that had provided the loans for the stock transactions. Businesses went bankrupt, factories stopped producing goods, and banks collapsed. Farm revenue also decreased by almost 50%.
The unemployment rate skyrocketed to 25%, with most job holders having to take significant pay cuts. The people having nowhere to live and no food to eat, would resort to shacks, caves, and even sewers while lining up at soup kitchens for food. The stock market crash brought about new revelations and drastically affected the auditing criteria. After that, Auditors needed to be qualified professionals to be considered for the job. Business people and investors put on a more enhancive focus on businesses’ profit and loss margins. This change would build on the financial reporting of the performances.
The Era of Computers
Now, this method may have been reliable to an extent, but it wasn’t very feasible in the big picture. It was time to spread businesses on a global range. On came 1960 and entered the computers! The curtain-raising of computers meant more accessible communication to the edges of the world and the option to digitalize the records for security and privacy.
Computers were being used to run whole organizations and keep the team intact with interaction and easy transmission. This change would mean a substantial evolution in the previously used methods. The entire auditing procedure was made much faster and easier with the machines. Accountability, a concern in the past, was slowly and steadily being approached. A computer may be an honest machine, but it needs a human to feed it information and run it.
The Era of Computers
It’s the last decades of the 20th century, and businesses are booming. Auditing was readily used by most prominent companies bearing the required results easily. However, the fake facade was soon broken after the Auditing Scandals of the 1980s – 1990s. One of the major ones was disclosed during the auditing of Enron. Enron was one of the major companies at the time, and a name as big as that required an auditor of equal footing.
Biggest Scandal in History
Arthur Anderson was one of the largest and most successful auditing firms back then and was responsible for auditing Enron. However, the deeds of one of the partners at the firm cost them a loss of more than 60 Billion Dollars in 4 years which ultimately drove the firm to file for bankruptcy. Arthur Anderson lost its reputation and got dissolved. Following the dissolving of the firm, stringent rules and regulations were introduced for choosing a trustworthy auditor.
Auditing used to be just about assets and finance in the start and leading up to the new generation. Yet, in recent years with the advancement in industries, it has been common for workflow and environment checks. Auditing nowadays focuses on the accountability of every minute detail in the workspace that may influence the production or process.
The Positive Impact of the Scandal
The scandals may have affected the business world negatively, but they also showcased the drawbacks of old auditing methods. All the imperfections showed ways the auditor would need to be chosen for businesses. It was concluded that a good auditor must possess Integrity. They must be independent of the company that they meant to audit, follow a complete standard of ethics and be technically competent. Before and after the revolution, business enterprise expansion was accompanied by an enhanced accounting system. The British Association of Accountants and Auditors was founded in January 1923, and passing this exam qualified a candidate to practice as a professional auditor. Human beings are a trial and error-based creation that are capable of unimaginable.
The advancement in IoT and AI will surely improve the standard techniques for auditing and make the process more effortless in the future. It is not only limited to the confines of industries. Nevertheless, it can be used in smaller-scale projects and activities as a means to uphold accountability.
Auditing in the Industry 4.0
Auditing has undoubtedly risen and transformed a lot over the past few centuries and will continue to do so. The introduction of Industry4.0 has opened up access to the wonders of Artificial Intelligence. IoT and similar technologies. These techniques have the potential to increase productivity further and reduce the chances of errors. AuditsIQ is one of the biggest admirers of the change in the system and adopts these methods to bring the best product to the clients. Users can use the system to convert the traditional auditing method into digital inspection. It also involves a few perks that make AuditsIQ the perfect inspection platform.