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Auditing And Assurance Services 15th Edition - Development Background Scope and Objectives of Auditing

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The practice of auditing (as narrated by Anichebe, 2010:1), in a primitive form, can be traced back to the ancient times. But auditing as it exists today was established only in the ending of the 19th century.

During the 19th century, industrial activities were greatly expanded owing to the coming of the steam age and the consequent mechanization of the industry. The evolution of mechanized factory involved the provision of finance far in excess of that required by the industry under the old fashioned manual methods.

Originally, individual concerns were owned and financed by either a sole proprietor or a partnership, and naturally under this type of organization, the finance and credit available was limited to that which the owners themselves could provide and influence. For this very reason, the capital available for the industry was strictly limited.

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However, the introduction of joint stock company greatly hindered the possibility of raising more capital for the industry. As the liability of each shareholder was limited, it was possible to offer shares to the public and thus, there became a vast new supply of capital available for the industry. In the course of time, the joint stock company largely took the place of the small privately-controlled business ventures.

Under the company form of organization, the shareholders as a body delegates the management of the undertaking to a board of directors and periodically, the board submits to the shareholders the accounts of the company in order that the members may be enabled to see a true and fair view of the financial position and the profit or loss of the undertaking in which they are interested.

In these circumstances, the need arose for some means by which the shareholders as a body might be satisfied that the accounts presented to them by the board of directors show a true and fair view of the financial position and earnings of the company. It was for this reason that the appointment of auditors whose duties were to verify on behalf of the shareholders the accuracy of the directors' accounts and report back to them emerged. Obviously, it is impossible and impracticable for every shareholder of a company to examine the books and records of a company and therefore, the shareholders as a body appoint auditors to act for them.

Under the early company's acts, the auditors appointed were one or two of the shareholders of the company. The chosen auditors commonly had no technical qualifications, they were probably not able to carry out a very effective audit. They were not paid also for the work they did although a later act made a provision for them to employ a clerk to do some work whose remuneration should be provided for by the company.

In Nigeria, under the Company and Allied Matters Act (CAMA) 1990, it is mandatory for every registered company to appoint independent auditor and provide full remuneration for them. It was undoubtedly the rapid increase in the number of joint stock companies that took place in the late 19th century and the compulsory professional audit provided for in the UK companies Act at that time that gave the great impetus to the development of the accountancy profession. Today, the accounts of every company and the majority of partnerships among other establishments are audited by professional accountants and in recent years, the accountancy profession has expanded greatly in many other directions and dimensions.

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Auditing And Assurance Services 15th Edition - Development Background Scope and Objectives of Auditing Auditing And Assurance Services 15th Edition - Development Background Scope and Objectives of Auditing Reviewed by Ikpokolo Francis on Saturday, August 02, 2014 Rating: 5

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