Evolution of Auditing :
The term audit is derived from the Latin term ‘audire,’ which means to hear. In early days a person used to listen to the accounts read over by an accountant in order to check them. He was known as auditor. Auditing is as old as accounting and there are signs of its existence in all ancient cultures such as Mesopotamia, Greece, Egypt. Rome, U.K. and India. Arthshastra by Kautilya detailed rules for accounting and auditing of public finances.
Audit is performed to ascertain the validity and reliability of information. Examination of books of accounts with supporting vouchers and documents in order to detect and prevent error and fraud is the main function of auditing. The goal of an audit is to express an opinion on the financial or non-financial areas. Audit safeguards the financial interest of persons not associated with the management like partners or shareholders, acts as a moral check on the employees and prevents from committing fraud. However, due to constraints, an audit seeks to provide only reasonable assurance that the statements are free from material error. In case of financial audit, a set of financial statements are said to be true and fair when they are free of material misstatements. But recently, argument that auditing should go beyond just true and fair is gaining momentum in view of recent frauds by high profile organizations in connivance with the reputed audit firms.
Traditionally, audits were mainly associated with gaining information about financial systems and the financial records of a company or a business. However, recently auditing has begun to include non-financial subject areas, such as safety, security, information systems performance, and environmental concerns. With non-profit organizations and government agencies, there has been an increasing need for performance audit, examining their success in satisfying mission objectives of business.
In India the Companies Act, 2013 made audit of company accounts compulsory. With the increase in the size of the companies and the volume of transactions the main objective of audit shifted to ascertaining whether the accounts were true and fair rather than true and correct. Hence the emphasis was not on arithmetical accuracy but on a fair representation of the financial efforts. The Companies Act, 2013 also prescribed for the first time the qualification of auditors. After the independence in year 1956, Company Act, 1956 was implemented and detailed provisions were made in Act regarding Audit and auditors. Recently Companies Act, 2013 has been implemented w.e.f. 1st April, 2014 and this contains detailed provisions about statutory audit, Cost Audit, Internal Audit and Secretarial Audit.