Page 34 - Internal Auditor M.E. (English) - June 2018

audit revolution TO cOMMenT on the article,
eMail the author at lunelamcy@hotmail.com

By: Noorah Rashed Al Hamrani Al Shamsi
A brief history about Internal Audit practice

The Definition of Internal Auditing states the fundamental was established in 1711. The company had been given a promise
purpose, nature, and scope of internal auditing. by the British Government to have all types of trade in the Spanish
“ Internal auditing is an independent, objective assurance and Colonies in South America in exchange for taking over the
consulting activity designed to add value and improve an national debt that has risen by the war of Spanish succession.
organization’s operations. It helps an organization accomplish The war ended in 1713 and tightened the scope of trade
its objectives by bringing a systematic, disciplined approach opportunities for the South Sea company by confirming Spain’s
to evaluate and improve the effectiveness of risk management, rule over its new world colonies. This left the company with
control, and governance processes.” limited options in the
The auditing profession has evolved throughout the years to meet slave trade and the interest to be paid by the government on the
the needs of the changing business environment. Auditing existed loan from the South Sea Company. Although unsuccessful in
since the beginning of human civilization. It is known that the trade, the company was able to convince the British government to
Sumerians developed the first known elaborate systems of law and approve the conversion of successive portions of the national debt
government. In the Babylon city existed a man named Hammurabi into company shares.
who was a great law maker who established laws that were
imprinted on a stone pillar. These are now on display at the Louvre The company started to trade stock at a f128 (f stands for shilling).
in Paris. Those laws were used at the time to punish crimes and to This caused the share price to rise to f175. Due to the rise in share
protect people from any committing fraud. price, the government recommended a proposal from the company
In the Zhao dynasty in China (1122 – 256 B.C) they have created to assume yet move of the national debt in exchange for shares in
an official record keeping systems as their worries about correctly company. This caused share price to rise in three months to f330.
accounting for receipts are documented. This caused a general interest in joint-stock investment
During reign of calif Omer bin Al Khattab (may God be pleased opportunities. This event occurred 1720 and was called “Bubble
with him), he implemented the internal and external audit concept year” and as a result of this the South Sea company established a
among cities that were under his rule at that time. This rose from Charter which was an essential item for any company to join stock
the idea that high profile officials may use their position for unfair market.
benefits. By early July 1720, South Sea Company started to sell off and the
From then onwards, all the upcoming dynasties were share price of the company started to fall gradually. By September
concentrating on decreasing accounting errors and ensuring of the same year, the share prices reached f175. In 1721 an
accuracy. Therefore, throughout the centuries, auditing concept investigation launched revealed deception, corruption and bribery
started to arise in the accounting practices. as the causes that led to this fall in share price between company
and government officials and caused bankruptcy and the closure of
The concept of auditing started to gain importance in the the company.
beginning of 20th century when business activities started to
grow in size and scope. There was a vital need for a separate At the end, I would like to conclude that audit was practiced since
internal assurance function which was needed to authenticate all the beginning of the human beings as it was an essential item
accounting records for decision making. that was needed to monitor and keep the records of all monetary
activities to protect both people and business and country rights
Victor Z. Brink and Lawrence B. Sawyer were the most two and to avoid any deceptions activities, which might increase crime
influential individuals in the IIA’s history. They have created the activities and cause insecurity feeling in society.
auditing standards which are now used by the auditors during
their audit inspections. Noorah Rashed Al Hamrani Al Shamsi.
An example of a fraud case which was famously known in the 18th accounting Processing Supervisor
century is “South Sea Bubble” scandal. The South Sea Company @ Federal Water and electricity authority

32 INTERNAL AUDITOR - MIDDLE EAST JUNE 2018