This historical study provides an account of the Australian Audit Office from its formation in 1901 until the end of the term of Australia's first Auditor-General in 1925. The Audit Office was created to assist the Commonwealth Government in discharging and reporting on its accountability for the economical use of resources. The philosophy upon which the Audit Office was created was one based on small government where a minimalist role for the audit function was envisaged. Accordingly, the initial Audit Act dictated a detailed audit methodology. However, the expansion of Commonwealth activities due to the outbreak of the First World War, the realities of a decentralised Commonwealth administration and the more commercial activities of government created numerous problems for both the Office and government. The Auditor-General was unable, or unwilling, to adapt his audit methodologies to suit the changing circumstances of Australian public administration and the workload of the Audit Office periodically fell into backlog. Relations with the executive became strained over these matters prompting intervention by subsequent governments. This early period is important historically as it provides a window through which to view the development of the public sector audit function and its contribution to an efficient public sector. In addition, the events of this period illustrate the importance of relations between the Audit Office and the government, and the role of the Auditor-General in contributing to an efficient public administration.