Quality Audits for Improved Performance
Auditing is simply the systematic examination and analysis of data through an independent procedure. Important to note is that auditing is not just about data, it also deals with statements, performances, records and operations. A myth that needs to be demystified is the misconception that auditing deals with financial issues or statements. This is not true. Auditing deals with overall performance, financial or otherwise. Any subject matter, in essence may be audited. Auditing therefore, aims at collecting data upon which is gathers evidence and makes judgment.
The prevalence of organized systems of governments as well as businesses way back at around 4000BC necessitated the need for record keeping. These records were both financial and non-financial. These organized governments and businesses needed a way through which they could correctly account for their receipts as w3ell as their disbursements. Moreover, this was a period in which tax collection had just been unvented. There was a need therefore, to ensure that the taxes that were collected by the government could be accounted for to prevent any form of misappropriation of the limited government resources as well as public funds. The consequent need for audits as well as the indication of audits can be traced in Babylonia. This was specifically the public finance systems in Babylonia. The rise of this technique can as well be traced back to city states of Italy, Rome and Greece. Specifically the public finance systems of these areas. The governments in these particular areas had begun to question the authenticity of records that were kept in these areas. The accuracy and competency of officials was also being questioned. As a result, there was a need to come up with a system that could take care of these errors of misappropriation, accuracy and incompetence. In a couple of years, there was a need to come up with a way of making accurate records. The consequence of this is that the European systems of book keeping and auditing were introduced in the Non- European countries. CITATION Den07 l 1033 (Arter, 2007) This saw the introduction of auditing in the United States. During this time, businesses were constant increasing in terms of their sizes as well as their complexities. They also grew in terms of their scope. This growth created the need of the creation of a separate unit that would create assurance, internal assurance to be more specific that would verify the accounting information provided by the company. The verification of this information was very important in the sense that the accounting information provided was used in decision making processes. As a result, it was very vital to ensure that the financial information provided had to have high degrees of accuracy. This necessitated the need to come up with a procedure that would ensure the accuracy of such information. The best way to gauge this information provided was through the process of auditing. It therefore became a prerequisite for managers, reporting agents and accounting expertise to constantly review and summarize their reports in a way that it could be given meaning. The aim of this was to ensure sufficient objectivity in the records that were provided. It also instilled discipline in the procedures that were necessary in accounting. However, this proved not is enough as some of the stakeholders still revealed some degrees of incompetence. However, this process did not fail entirely. The process has a couple of successes that can be attributed to it. The process had one major success. It led to the creation of the auditing technique. One may ask how. Auditing came along as a way of ensuring that even these timely and accurate records and reports that had to be submitted were subjected to preview and analysis. The result of this was the creation of the Institute of Internal Audit in the United States of America. This was extremely important since it ensured that the organizations, whether governmental or non-governmental, came up with ways to ensure complete independence and objectivity. CITATION Der08 l 1033 (Derek Matthews, 2008)The process of auditing has its own historical journey. Initially, this technique existed with the sole aim of accounting for the government and specifically, it was concerned with record keeping. However, the industrial revolution saw auditing evolving from this level to the next. The industrial revolution, which took place between 1750 and 1850, saw the process of auditing having more serious functions. During this period, auditing was given another meaning. The objectives of conducting auditing also change auditing became a necessary process with the aim of detecting fraud as well as ensuring financial accountability other than its initial function of keeping records. This is because the period of Industrial revolution was coupled with intense business growths. Businesses grew into very large enterprises. As a result, it became increasingly difficult for business owners to constantly keep watch over their businesses. This necessitated the creation of a technique that would help keep an eye on all the financial procedures. The functions of auditing were therefore given numerous branches. At this time, auditing was mainly aimed at ensuring accuracy and preventing fraud. CITATION San08 l 1033 (Sandy van Esch, 2008)In the early 20th century, there was a need to standardize the testing methods that were used by auditors as well as their reporting practices. The main reason behind this transition was to ensure uniformity in the auditing field. This period saw to it that the roles of auditors, their methods of auditing as well as their auditing practices were all comprehensive through a well-defined procedure. As a result, auditors came up with a system of examining a selected sample from a company in detail as opposed to analyzing each and every transaction made by the company in detail. This is because the role of auditors was becoming increasingly important and consequently, the demand for their services grew as well. They therefore had to come up with a system that would help greatly when it came to the issue of time consumption. This was the sampling system. However, it is important to note that the sample chosen had to be representative in the sense that the reasons for its choice needed to be justifiable. This system of sampling is still in use to date since it has been found to be less costly as well as time saving. However, it is not used all the time. Its use is subject to a couple of limitations. For instance, in the case of gross errors and serious fraudulent activities, sampling is used. Instead, the whole company is audited. This is because such issues require very high standards of precision. This is referred to as risk based auditing whereby it is first established whether an auditing is needed. Thereafter, a full scale audit, instead of a representative audit follows. CITATION Rob09 l 1033 (Moeller, 2009)The demand for auditing, and in this case, both internal and external auditing, has its source in the 19th century. During this time, there was the Industrial Revolution As discussed above and therefore there was a dire need of creating an accounting procedure. This was aimed at cutting down of errors that came with record keeping, checking finance misappropriation, asset misappropriation as well as cased of fraud within organizations that are not business conformed as well. The need and origin of auditing is traced to the period slightly after the evolution of accounting. In the case that someone did not trust the honesty of another man, there arose the issue of fidelity. As a result, this necessitated the need to come up with a process through which the honesty of this man could be tested. This gave rise to the process of auditing. CITATION Rob09 l 1033 (Moeller, 2009)Necessity is surely the mother of invention. It became necessary to come up with a system that could easily provide a way in which accounting was put into perspective. This led to the creation of the auditing technique. However, it is very important to note that even with the invention of auditing, there came a couple of challenges. For instance, the gap between management and action constantly increased. This made it extremely necessary to come up with a means through which businesses could be managed efficiently. The result of this was the diversification of the roles of auditing. Instead of counterchecking financial records and detecting frauds, auditing was given other functions. For instance, the technique was now using d to; ascertain the extent to which the assets of a company are held account for. This included the extent to which these assets were safeguarded from any form of losses.; checking the degree of quality of the performance with regard to the carrying out of certain responsibilities; review and appraisal of the levels of adequacy, soundness and generally the application of specific financial tools as well as tools of operation; the technique of auditing was also expected to establish the extent to which organizations, rather, the departments in organizations complied to the policies that had to set out. This was also to establish the level to which these departments complied with the set out plans and strategies of their institutions… Finally, auditing was also assigned another major role. It was charged with the responsibility of ascertaining the level to which accounting and data provided by accounting could be relied on. Clearly, the functions of auditing had become diversified compared to the time when the technique was invented. CITATION Rob09 l 1033 (Moeller, 2009)With t5ime, auditing was divided into two major categories; internal auditing and external auditing. The former refers to the process by which the financial and organizational records of a company are checked by expertise within the organization. This is the reason as to why each and every organization ought to have an internal audit section. The latter, just like its name suggests involves the process of auditing by expertise from outside the organization. External auditing is extremely important in the sense that it allows non-partisan expertise to gauge the performance of the organization. As a result, external auditing is believed to give a clearer picture of what is happening in the organization. Internal auditing was charged with certain responsibilities; it was meant to assist in the process of communication within the organization in terms of the scope, the performance and the objectives of the organization. In other words, it helped to organization to establish the objectives that it had not meet so far through the gauging of the performance, it also helped to establish the successes as well as the failures of an organization. Consequently, this helped, or rather still helps organizations to come up with well laid out strategies that could ensure that they meet their objectives as well as reconcile their failures. CITATION Den07 l 1033 (Arter, 2007)The history of auditing can be said to be greatly connected to disciplines that are associated with communication of information that deals with economic events. This is regardless of whether the institution in question is part of the government or whether it is an institution is in the private sector. The development in the communication of economic activities therefore goes hand in hand with the developments in auditing. Writing for instance, led to the need to record the exchange or transfers of economic goods. The developments in accounting and auditing created the need for the establishment of accountability of the people in authority. The benefits that came with trading as well as the economic benefits of private sector investment came as a result of having accounts of transactions whether it was transactions with others or accounts of trading activities. The reasons for the measurement in one’s permanent income or rather one’s wealth led to the need for one to be able to account for and audit his or her own equity. There was also the need of chartering companies with limited liability. This limited liability was subjected to a series of certain specifications of reporting requirements. These reporting requirements are basically reports from auditing firms. All these were as a result of the rising demand for capital with the huge business projects in the Industrial Revolution. CITATION San08 l 1033 (Sandy van Esch, 2008)Today, the process of auditing has made great milestones ever since the time of its inception. To put this issue into perspective, we have seen the various stages that auditing has gone through. The functions of auditing have also been diversified. Currently, auditing is not only aimed at detection of frauds and financial accountability of the employees of a company .Auditing has also given a platform for companies to have an insight into their own activities. This is one of the reasons as to why internal audits are carried out. It is now described as a very labor intensive job, however, very important for the success of any organization. It offers correction to organization after detecting irregularities. It also gives the way forward for companies by providing ways through which the technical financial mishaps detected in the auditing process can be avoided in future. It is also very clear that the history of auditing made a great, actually the greatest mark in history in the Industrial Revolution. The Industrial Revolution saw massive growth of businesses which required constant checking and counterchecking of the financial records which were subject to various manipulations by incompetent officials. Today, auditing firms are one of the major profit making firms due to the high demand of their services. Auditing has become extremely important in today’s society and its importance can never be underestimated. CITATION Der08 l 1033 (Derek Matthews, 2008)
l 1033 Arter, D. R. (2007). Quality Audits for Improved Performance. ASQ Quality Press.
Derek Matthews, . P. (2008). The Auditors’ Talk;An Oral History on the Profession. New York: Psychology Press.
Moeller, R. R. (2009). Brink’s Modern Internal Auditing. New York: Wiley and Sons.
Sandy van Esch, . P. (2008). The Principles and Practice of Auditing. Jutaonline Publishers.