Boards Urged to Collaborate With Internal Audit Amid Rising Interest Rates as Recession Fears Grow

• New poll reveals the risk level posed by economic uncertainty is now viewed as high or very high by over half of all businesses.
• Cash flow and liquidity concerns, along with changes in consumer demand and behaviour, are now the top risks being exacerbated by the downturn.

As businesses battle against economic turbulence, driven by stubbornly high inflation and an interest rate rise shock, the Chartered Institute of Internal Auditors is urging boards to work alongside their internal audit functions to build resilience against a possible recession.That is the key message of a timely new report published today called: “Adapting to Economic Uncertainty: Internal Audit’s Journey“, which provides guidance to internal audit and boards on navigating the multitude of risks associated with the economic downturn. The report examines lessons learned from previous economic shocks, the current response to economic uncertainty, and how internal audit can support the path to recovery.The findings of the report, based on a survey of over one hundred internal audit executives from a range of sectors across the UK and Ireland, revealed:

• 56% of respondents perceive the risk level posed by economic uncertainty to their organisations as high to very high.
• The top risks most impacted by economic volatility were financial capital, cashflow and liquidity risk (26%), along with changes in consumer demand and behaviours (22%).. 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%), auditing cost savings measures (58%), and supply chain risk assessment (49%). 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 organisations 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.

Anne Kiem OBE, Chief Executive of the Chartered Institute of Internal Auditors said:  “During these more risky, uncertain, and volatile economic times boards and internal audit teams need to forge a strong partnership. Working closely together will ensure they can diligently and effectively identify, manage, and mitigate the long list of risks exacerbated by economic uncertainty. Greater collaboration can help ensure that the organisation is resilient enough to weather the economic storm and support greater preparedness for unforeseen economic shocks in the future.”

Richard Chambers, Senior Internal Audit Advisor of AuditBoard said: “With over half of internal audit executives saying that economic uncertainty is a high to very high risk to their organisation, now is the time for internal audit to seize the opportunity to showcase their internal control and risk management skill set. These volatile economic times mean internal audit professionals need to keep their eyes firmly focussed on what may be coming over the horizon, as well as be agile and responsive to what is a rapidly evolving macroeconomic risk environment. Close engagement and collaboration with the board is also key.”