Emergence of Corporate Contract Set, Governance and Accountability: Standing Orders of the East India Company, 1600-1621
March 1, 2015
Purpose – This paper explains the origins and evolution of auditing and control by linking the changes in the manner in which audits were conducted with the changes in the institutional function and development of the English East India Company (EIC).
Design/methodology/approach – Using Sunder’s contract theory of a firm as an interpretive framework, this paper introduces to the debate material documenting the evolution of the auditing practice during a period of 40 years using the single case of the EIC.
Findings – Auditing in the EIC evolved from a simple adjudication on allowable expenditures to ex post verification of transactions, and from using volunteers to paid auditors. Initially, the company was organized into a series of separate, terminable stocks, and simple verification by volunteer auditors chosen from among the shareholders was sufficient to secure the latter’s interests. When the increasing number, size, and complexity of transactions by the EIC rendered the adjudication approach insufficient, ex post verification of financial transactions was added. With a clearer separation between ownership and control at the time of the introduction of permanent joint stock, the audit function assumed a more professional form.
Originality/value – This paper contributes to the research on the early modern period at a time of the formation and rapid development of the first joint-stock organization. It offers a dynamic picture of the evolution of control and auditing as a response to the growth of business, organizations, and the attendant challenges of governance.
Number of Pages in PDF File: 24
Keywords: accounting history, auditing, corporate control, East India Company, governance
JEL Classification: M41, N73
Date posted: July 15, 2008 ; Last revised: January 17, 2017