The role of auditors from the historical perspective

Prior to 1840
Auditing as a form of ancient control activity has been found in ancient
civilizations of China (Lee, 1985), Egypt and Greece (Boyd, 1905). The
auditor's role was limited to examining each transaction in detail. The purpose
of the audit in its early stages was mainly to verify the integrity of the persons
entrusted with fiscal responsibilities.
1840s-1920s
Auditors were required to conduct a thorough review of transactions and
produce accurate accounting and financial statements. Little attention was
paid to the company's internal controls. It was impractical for auditors to
review every transaction. The role of the auditor in these years was primarily to
detect fraud and accurately represent the solvency (or bankruptcy) of the
business in the balance sheet.
1920s-1960s
The auditor's role was primarily to provide credibility to the financial
statements prepared by the company's directors for their shareholders. The
main purpose of the audit function was to add credibility to financial
statements, not to detect fraud or errors. As per Porter, the major
characteristics of the audit approach during this period, among others, were as
follows:
● Reliance on the internal controls of the company and sampling
techniques used.
● Audit evidence was gathered through both internal and external sources.
● Emphasis on the truth and fairness of financial statements.
1960s-1990s
Auditors played a key role in functioning capital markets in the 1970s. Porter
et al highlighted three major developments in audit-ing techniques in this
period.
 ● Heavy reliance on sophisticated computerized audit tools to facilitate
audit procedures
● The focus is on collecting audit evidence from various sources. H. Check
audit clients, both internally and externally.
● Use of risk-based auditing. Risk-based auditing is an audit approach
where an auditor will focus on areas most likely to contain errors.
The auditor's role is always closely related to such advisory services.

The present role of auditors

The Sarbanes-Oxley Act (The US):
Outlines rules regarding auditor independence, including audit quality
controls, audit partner rotation, and prohibition of conflicts of interest. In
addition, the law also requires auditors to report to the audit committee on
material matters.
Ramsay Report (Australia):
● Include a statement in the Corporations Act that auditors must be
independent.
● Require auditors to declare to the Board Of Directors that their
independence is maintained
● Prohibit special relationships between auditors and clients.
● Establishment of Audit & Supervisory Board independent from auditors
● Establish an audit committee to oversee the issue of non-audit services,
auditees, scope disagreements, and auditor-client relationships
Practice Review Programme and Public Oversight Board (PCAOB)
(Malaysia):
● Refocusing the public interest, redefining the audit relationship,
ensuring the integrity of financial reporting, and separating non-audit
functions from other advisory services.
● Audit methods revert to basics — i.e Increased interest in risk awareness,
fraud awareness, objectivity and independence, and the needs of
financial statement users.
The role of auditors in the future
The future auditor role is expected to include the following duties:
● Giving an opinion on a client's financial statements published on the
Internet.
● To report on the audit client's risk identification and management
process and the effectiveness of its internal control system.
● To test and comment on the veracity and adequacy of all information
(financial and non-financial) provided by management in the annual
report.
● Conduct management efficiency and effectiveness (or cost effectiveness)
audits.

Possible Solutions
Review the role of auditors to bring them closer to public expectations.
Unreasonable expectations of auditors should be ignored. Audit regulators
should consider revising “imperfect standards” and introducing a legal
obligation for auditors to fulfill these duties. Future research is needed to
measure the potential for poor performance by auditors.