HISTORICAL BACKGROUND OF AUDITING

HISTORICAL BACKGROUND OF AUDITING

The practice of auditing in a primitive form can be trace back to ancient times. In the middle ages, the great landowner would not manage their own land but would appoint persons called Stewards to manage the land. This gave birth to stewardship accounting. It is the process whereby productive resources owned by one person or group of persons are managed by another person or group of persons.

Auditing as it exists today was established only in the later part of the nineteenth century due to the complexity of the modem business world companies which are owned by their shareholders, would not be manage by them but by directors appointed by the shareholders. So also the public or citizens of a country own the government resources including parastatal or corporation but they are managed by central government and persons appointed by them.

The means of reporting by stewards/managers to owners is known as financial statement, or annual report and account. This include a profit and loss account, balance sheet, directors report, fund flow statement etc but the problem is that can the owners believe the report? Because it may:

1.     Contain error

2.     Not disclose fraud,

3.     Fails to disclose relevant information

4.     Be deliberately misleading

5.     Be inadvertently misleading.