The Chartered Institute of Internal Auditors has published a new survey-based report which finds that the risk level posed by economic uncertainty is now viewed as high or very high by over half of all businesses in the UK and Ireland.
Cash flow and liquidity concerns, along with changes in consumer demand and behaviour, are now the top risks as businesses battle against economic turbulence, driven by stubbornly high inflation and an interest rate rise shock.
In the light of this, the Chartered Institute of Internal Auditors is urging boards to work alongside their internal audit functions to build resilience against a possible recession.
The report, ‘Adapting to Economic Uncertainty: Internal Audit's Journey’, provides guidance to internal audit and boards on navigating the multitude of risks associated with the economic downturn. It examines lessons learned from previous economic shocks, the current response to economic uncertainty, and how internal audit can support the path to recovery.
Key findings include:
- 56 percent of respondents perceive the risk level posed by economic uncertainty to their organizations as high to very high.
- The top risks most impacted by economic volatility were financial capital, cashflow and liquidity risk (26 percent), along with changes in consumer demand and behaviours (22 percent). Market and trading risks, as well as fraud, bribery and financial crime also featured prominently in the survey results.
- Internal auditors are most engaged in supporting risk management and framework assessment (73 percent), auditing cost savings measures (58 percent), and supply chain risk assessment (49 percent). Other key measures internal auditors are engaged in include auditing pricing strategies, budgeting and forecasting reviews, contingency planning evaluation, financial stress testing, and economic scenario planning.
- Despite the many economic resiliency measures internal audit functions are engaged in, they are often an overlooked key asset in supporting organizations to navigate economic uncertainty. The report calls on boards to better harness this asset by working with their internal auditors to implement robust assurance measures and foster a culture of resilience during times of economic uncertainty. Implementing economic scenario planning, financial stress testing and financial and economic simulations can ensure the response to the ongoing economic challenges is proportionate, relevant, and impactful.