The Accounting Historians Journal
Vol. 10, No. 1
James L. Boockholdt
UNIVERSITY OF HOUSTON
A HISTORICAL PERSPECTIVE ON THE AUDITOR'S ROLE: THE EARLY EXPERIENCE OF THE AMERICAN RAILROADS
Abstract: The paper explores the origins of the auditing profession in the United States. It is suggested that the development of the audit function in this country can be traced to reporting by internal and shareholder auditors in the American railroads during the middle of the nineteenth century. Evidence is presented that a recognition of the need for audit independence existed, and that the provision of advisory services and reports on internal control by American auditors have been an inherent part of the auditor's role from that time.
In recent years the structure of the auditing profession in the United States has been subjected to much scrutiny by governmental agencies and the general public. This attention has been intensified with the passage of the Foreign Corrupt Practices Act of 1977, which contains requirements for a system of internal accounting controls in most publicly held companies, and establishes responsi-bility for the adequacy of such controls with management and cor-porate directors. As a result, increased attention is being devoted to the role of corporate internal auditors and directors' audit com-mittees in assuring that accounting controls are adequate and func-tioning as intended.
The objective of this article is to examine these roles during their initial development in the United States. The origins of the corpo-rate auditing function in America will be traced among the nine-teenth century railroads. Evidence of an early recognition of the need for audit independence will be cited, and the use of auditors and audit committees for evaluating, advising, and reporting on in-ternal control will be described. It will be seen that pressures to extend the auditors' role have existed since the development of the corporate form of business organization in the United States.