History and Legal Framework of Auditing and Internal Control

Origin and Evolution of the Audit

At first, the role of the audit was limited to mere surveillance to prevent errors and fraud. With the growth of companies, it has become necessary to ensure economic-financial stability. The origin of the audit is attributed to the United Kingdom, due to the Industrial Revolution. Currently, regarding legislative, technical, and research aspects, we can say that America is the pioneer country.

In the case of Spain, the introduction of the audit profession has been slow. In 1943, the Institute of Chartered Accountants of Spain (ICJCE) was born, and in 1982, the Register of Economists Auditors (REA) was established. In 1985, the Register of Auditors (REGA) was born. The legal framework of the auditing profession in the EU is defined by the fourth, seventh, and eighth directives.

Legal Regulation in Spain

In Spain, with the Audit Law 19/1988, the ICAC was created as an independent administrative body. With Law 19/1989 on the partial reform of commercial law, the process of adaptation to European standards began. This involved modifying the Commercial Code, the adoption of the Consolidated Corporations Law, the approval of the General Accounting Plan of 1990, and the adoption of rules for the formulation of consolidated financial statements.

Internal Control: Objectives and Elements

A company conducting business should have clearly defined objectives. The objectives can be summarized as follows:

• Authorization (Okay): For example, purchases made by a company must be authorized by management.
• Security and Registration: For example, chronological billing, daily bookkeeping, timing, and payroll.
• Settlement: For example, regular bank reconciliations.
• Assessment: For example, checking the inventory cost against market value and providing provisions.

Elements of Internal Control

• A plan of organization that defines and delimits responsibilities through the segregation of duties and coordination.
• Strategic planning and budgets which determine the business objectives and financial plans.
• A system of authorization and registration procedures.
• A useful information channel, both periodic and hierarchical, to take decisions at the right time.
• Personnel that is quantitatively and qualitatively adequate.