19th May 2023 – New Chartered Institute of Internal Auditors business poll reveals risks to businesses driven by ongoing economic uncertainty.
With businesses continuing to grapple with an uncertain economic outlook – fuelled by interest rate hikes, high inflation, the cost-of-living crisis, and turbulence in the banking sector – six in ten Chief Internal Auditors report that concerns over the economic downturn are exacerbating financial, liquidity and insolvency fears. Last year financial, liquidity and insolvency risk ranked well outside the top five risks to businesses, trumped by other key risks like cybersecurity, changes in laws and regulations, and digital disruption. However, this new research ranks it as the number one risk (up from ninth place).
The sharp rise of financial, liquidity and insolvency risk has been revealed in a new poll of 799 Chief Internal Auditors commissioned by the Chartered Institute of Internal Auditors to monitor which risks are being most impacted by the economic downturn. Other top risks exacerbated by concerns about the economic outlook include market changes, competition and changing consumer behaviour, macroeconomic and geopolitical uncertainty, talent management and retention and supply chains. This means that businesses continue to face the perfect storm of interconnected risks.
Chief Audit Executives reported that the top five risks, which have been exacerbated by economic uncertainty are:
- Financial, liquidity and insolvency (62%)
- Market changes, competition and changing consumer behaviour (60%)
- Macroeconomic and geopolitical uncertainty (50%)
- Human capital, diversity, talent management and retention (48%)
- Supply chain, outsourcing and third-party risks (43%)
The results of this poll highlight the need for business leaders to work with their internal audit functions to ensure they are prepared for the unexpected. This should include reviewing business continuity and crisis management plans to ensure they are fit for the economic unknowns that could arise in the months ahead. As well as undertaking economic simulation exercises, along with financial stress testing based on a range of different economic scenarios.
The Chartered IIA is also using the results of this research to call on the Government to ensure there are no further delays to plans to reform the audit and corporate governance framework. Urging ministers to get on and publish the statutory instruments for Audit and Assurance Policies and Resilience Statements, as well as ensure there is a commitment in the first King’s Speech to an Audit Reform Bill. Making the case that these reforms are vital to enhancing the resilience of our major businesses to protect them from future economic shocks.
Anne Kiem OBE, Chief Executive of the Chartered Institute of Internal Auditors said: “This poll demonstrates that ongoing economic uncertainty means that businesses continue to face strong headwinds with financial, liquidity and insolvency concerns now front and centre.
This research underlines the need for boards to collaborate with their internal audit functions to ensure they have identified, managed, and mitigated the myriad of business-critical risks they now face. Internal audit has an important role to play in supporting the board in this.
The more risky, uncertain, and volatile environment businesses are now operating in, means that planned reform to the audit and corporate governance framework is more urgent than ever. We urge the Government to publish the statutory instruments for Resilience Statements and Audit and Assurance Policies without further delay, as well as ensure there is a commitment to an Audit Reform Bill in the King’s Speech. These reforms are vital to enhancing the resilience of our economy.”
