From: Courtney Lancaster
Date: October 15, 2013
Subject: History of the Auditing Profession
Similar to all aspects of the accounting profession, the auditing focus in the business world has evolved considerably over its history. The main drive behind the changes has been new legislation and a strict enforcement standard which more times then not was influenced by the fraudulent activity delivered by corporate management. By the creation of oversight policies and standard setting entities, these countless scandals have shaped the accounting and auditing profession into what we know today.
In 1986 the state of New York passed legislation in ...view middle of the document...
Any governing body never mandated these principles. During this time congress also began looking at the first standardization for the profession as a whole. In 1933 congress brought about the Securities Act of 1933 and soon after the Securities Exchange Act of 1934, which also brought about the Securities and Exchange Commission. The greatest growth the accounting profession ever saw was when the SEC made it required that all publically traded companies bring in internal CPA firms to audit their financial statements.
As we continue to travel down the auditing profession timeline you will see that while auditing financial statements became a requirement before there was standardized auditing procedures by which to conduct an audit by. Auditing firms were left without regulation by which to evaluate a company’s accounting practices, and without any form of assessment standards, which ultimately limited the effectiveness, and reliability of any audit. In the years after the AIA continued to publish bulletins on what was believed to be “substantial authoritative support” in regards to auditing procedures. The first set of standards concerning the professional requirements of an auditor during an engagement was published in 1947 under the title “Generally Accepted Auditing Standards.” It is important to make note that while these standards were wildly accepted by the CPA community they were still only advisory, never authoritative and there was no follow up in place to hold auditors accountable.
It has been said that a large part of the standard setting problem can be traced back to audit firms (formerly known as the Big 8) that had voting power within the AIA. As a result of this the Committee on Accounting Procedures was abandoned and the Accounting Principles Board was formed. While some of the outside influence problem was eliminated with its creation, the APB still was not completely successful in standard setting. In 1971 the AICPA formed a group referred to as the Wheat commission. This “study group” which was under the direction of former SEC commissioner Francis Wheat was in charge of analyzing the...