The adoption of financial improvement and audit remediation initiatives (FIAR) is evidence of the expanded appreciation of auditing. This article aims to add to that appreciation by offering a historical perspective of how difficult it was for auditing of government to have begun and how transformative it was for civilization when it did.
Auditing for Early Civilization
Auditing occurred in early civilization. Historian Richard Brown writes, "Whenever the advance of civilization brought about the necessity of one man being entrusted to some extent with the property of another, the advisability of some kind of check upon the fidelity of the former would become apparent." (1) The legal code of Babylon included rules for receiving and recording transactions. The ancient Greeks used slaves as comptrollers and auditors so that torture could serve as a disincentive for graft and error. And, Emperor Augustus of Rome carved his public accounts on walls for his subjects to judge his handling of affairs. (2) The word "audit" comes from Latin auditio, which means "audience" or "a listening," and reveals the essence of auditing from ancient civilization to this day.
Auditing did not just coincide with early civilization; it played an integral role in creating it. A traditional (but problematic) explanation for ancient Egypt's early rise and long existence is that an aspiring leader united the region through the ability to meet the peoples' needs for security during trade and through the public works of large scale irrigation. (3) But a new explanation has won growing support. The leader did not unite people through a common need, but rather found it easy to stop them from fleeing his grasp. Because the Nile runs through desert, only its flood plains could sustain agriculture. As such, the leader could easily employ auditors and tax collectors to locate food storage units and seize portions to sustain the state. (4) Tax evasion was nearly impossible. The auditor, taking advantage of this convenient geographical control against tax evasion, was key in making Egypt the stable social order that we now endow with the title of "ancient civilization." While this predatory role of the auditor is hardly inspiring today, the rest of this article will show that the auditor will play an opposite role for later civilizations--ushering in unprecedented protections against predatory sovereigns.
The Morality of Accounting
The widespread adoption of auditing occurred slowly. Auditing for complex operations needed accounting, and accounting needed innovation to make it reliable. Between the 10th and 15th century, Europe adopted Arab numerals, which dramatically improved speed and accuracy, and allowed math to come to the service of decision-making. Around 1300, double-entry bookkeeping emerged as a key tool for tracking capital and liabilities across time and for evaluating investment quality. Finally, between 1660 and 1715 the concept of probability arose and slowly thereafter the math to assess risk, properly insure operations, build annuities, and engage in cost accounting. Through these developments, merchants found a way to accurately and reliably measure profit--information which inspired them to tinker, invent, and eventually bring about the critical mass of ingenuity and industriousness which was the Industrial Revolution.
But accounting also needed moral approval. Religious leaders from Jesus' disciple, Saint Matthew (the reformed profiteering tax collector) to Saint Ambrose (337-397) to Saint Thomas Aquinas (1125-1274) characterized money management as an immoral undertaking, a distraction from God's purpose. (5) As a result, churchmen and nobles in the middle ages consistently showed disdain toward the merchant and the bookkeeping methods which contributed to his success. Accounting ledgers were evidence of both moral and legal impropriety. When the Black Death arrived in the 1340s, it was seen by many as a moral reckoning against this rising class of people.
It would be in Italy where accounting and auditing first challenged this moral status quo. The Italians, with their access to...