The Importance of Internal Auditing and Relevant Information in Decision-Making

The Importance of Internal Auditing and Relevant Information in Decision-Making

Introduction:

Internal auditing plays a crucial role in ensuring the success and efficiency of an organization. By providing relevant and reliable information, internal auditors help entities achieve their goals, improve operations, and make informed decisions. In this article, we will explore the key characteristics of relevant information in internal auditing and discuss the significance of events subsequent to the accounting period.

Characteristics of Relevant Information in Internal Auditing:

1. Sufficiency:

One of the fundamental characteristics of relevant information in internal auditing is sufficiency. Information should be factual, convincing, and easily understood by both a prudent and informed person as well as the internal auditor. It should provide a comprehensive understanding of the entity's operations and financial situation.

2. Adequacy:

Adequacy refers to the reliability of the information provided. This can be achieved through the correct use of internal auditing techniques. It is essential for auditors to gather accurate and complete data to ensure the credibility of their findings and recommendations. Adequate information enables decision-makers to have confidence in the internal audit process.

3. Relevance:

The information provided by internal auditors must support the conclusions and recommendations of their audits. It should be directly related to the entity's goals and objectives. Relevant information helps decision-makers understand the impact of internal controls, identify areas for improvement, and make informed decisions based on the audit findings.

Events Subsequent to the Accounting Period:

Events occurring after the end of the accounting period but before the authorization for the issuance of financial statements are also crucial in internal auditing. Such events may or may not require adjustments to the financial statements, depending on their nature and impact. For example, if an entity decides to close its operations in a particular location, it is essential to consider the financial implications of this decision.

In the case of a company closing its operations in the State of Minas Gerais, a restructuring plan was developed and communicated to stakeholders in March 2017. The closure occurred in May 2017, and the assets were sold to another entity in July 2017. The proceeds from the sale were received in August 2017. These subsequent events are significant in assessing the financial position and performance of the entity.

Actionable Advice:

1. Stay updated on relevant accounting standards:

To ensure the accuracy and relevance of internal audit information, it is essential for auditors to stay informed about the latest accounting standards and regulations. This will help them align their findings and recommendations with industry best practices and ensure compliance.

2. Foster effective communication:

To provide relevant information, auditors must establish effective communication channels with all stakeholders, including management, employees, and external parties. This will help them gather accurate data, understand the entity's goals, and address any concerns or issues that may arise during the audit process.

3. Embrace technology and data analytics:

Incorporating technology and data analytics into the internal audit process can enhance the relevance and reliability of information. By leveraging automation tools and advanced analytics, auditors can conduct more comprehensive and efficient audits, identify patterns and anomalies, and provide valuable insights to decision-makers.

Conclusion:

Internal auditing plays a vital role in providing relevant and reliable information for decision-making. By ensuring sufficiency, adequacy, and relevance of information, auditors contribute to the entity's success and improvement. Additionally, considering events subsequent to the accounting period allows for a comprehensive assessment of an entity's financial position. By following actionable advice such as staying updated on accounting standards, fostering effective communication, and embracing technology, auditors can further enhance the value of their audits and support informed decision-making within organizations.