The history of internal auditing goes back several decades. Of course the auditing we know today is quite different to that of the early 1900’s. There are a number of established standards that have evolved over the years, to make internal audits what they are today.
Internal auditing started gaining popularity in the 1940’s in America. In 1941, the Institute of Internal Auditors (IIA) was formed. In these early stages of development, the IIA had only a meagre number of members (24).
The IIA can trace its development back even further to an American called Lawrence Sawyer – a man who was ahead of his time and developed many of the concepts and processes that form the basis of modern internal auditing. Sawyer regarded the internal auditor as an influencer that would make a positive contribution to a business. Another way of putting this is that he saw them not as an adversary but, instead, a friend of the company or organisation they were helping.
At this point in time managerial sciences were gaining prominence as a genuine aspect of business and part of the auditing standard. From this time onward, the internal auditing structure was steadily exported from America to other parts of the world, including the UK.
1976 in the UK
In the UK the first internal auditing standard was implemented in 1976. Before this time the standards were set out by the professional bodies who oversaw internal audits. In 1976 the Auditing Practices Committee was established as a means of formalising the auditing process.
Two years after the creation of the Auditing Practices Committee the first draft of the standards booklet was released. This booklet contained standards and codes, which linked all the best practices from the different professional bodies. These standards also included suggestions regarding the application of the codes.
1980 – 1991
The first actual standards were published in April of 1980, and were numerically listed. The first standard was listed as 101 and the guidelines were listed as 201. By 1989, the APC started to issue Practice Notes, which were created to assist with the application of the guidelines and standards.
1991 – 2004
In 1991 the APC was completely restructured and the Auditing Practices Board was created. The Practice Notes that were in existence were adopted by the APB. It was stated that these notes would continue to be in effect until new APB guides were released.
Present Day Purpose
The business world has had its fair share of scandals – perhaps the most notable example of which is Enron. It is therefore not a surprise to find that an act was passed in the United States in 2002 to help protect industries from deceptive practices that might harm profit and endanger jobs. Known as the Sarbanes-Oxley Act, this new form of governance divided itself in to eleven key sections designed to eliminate fraud. One of its overall aims was to make senior members of companies responsible for creating, maintaining and developing internal controls.