The Origins of Auditing
Although records exist of government auditing in 11th century BC China and 4th century BC Greece, the modern audit evolved in the 19th century when public activities involving the movement of large amounts of money around the world made an independent and objective assessment of financial management a prudent idea. In Great Britain, the Office of Comptroller-General was created in 1857, and in 1921, the U.S. created the U.S. General Accounting Office (which became the Government Accountability Office in 2004).
Types of Audits
Financial audits determine if an organization’s financial statements fairly represent the results of an organization’s financial operations and the organization’s financial position while conforming to generally accepted accounting principles.
Compliance audits determine if the organization has followed the laws and regulations that may materially affect the financial statements. Financial and compliance audits are often combined.
Economy and efficiency audits determine if an organization is economically and efficiently managing and using resources, such as personnel, space, and property; the causes of any problems in this area; and if the organization has followed laws and regulations relating to this area.
A program results audit looks at a specific program to determine if the desired results or benefits are being achieved and if the desired results can be achieved at a lower cost.
Internal vs. External Audits
External auditors come into organizations from outside for the purpose of providing an independent opinion on accounting and financial records. All publicly traded companies are required by law to have their financial statements externally audited.