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Chartered IIA highlights impacts of COVID-19 on internal audit

As the country went into lockdown earlier this year, the Chartered IIA wanted to understand how the coronavirus pandemic was affecting the internal audit profession. We therefore conducted a survey in May-June that received over 220 responses from chief audit executives (CAEs) in the UK and Ireland, plus 26 one-to-one interviews with CAEs in larger internal audit functions in a range of sectors. The findings of the survey and interviews were presented in our Internal Audit in Lockdown report, published in September.

We found that internal audit responded to the crisis in a number of positive ways. Internal audit teams reformatted the services they offered and were resilient at coping with the challenges. For example, 33 per cent of respondents increased the working hours of their teams to meet the demand for independent objective assurance and most CAEs reviewed their audit plans, deferring non-priority audits to give assurance on areas of increased risk, such as cyber security.

Encouragingly, 63 per cent of respondents said that coronavirus had not affected their regulatory requirements. Most completed their mandatory audits within deadlines despite the crisis. Where meeting deadlines was a challenge because auditors could not access evidence, most CAEs explained that the regulators were being flexible and realistic about the impacts of the pandemic and had allowed them to extend deadlines.

More alarmingly, however, almost half (46 per cent) of UK internal audit teams were affected by redeployment during lockdown, meaning that a significant number of auditors were unable to carry out critical internal audit work during the lockdown. This is worrying given that business risks, such as cash flow and liquidity, cyber security and fraud, were exacerbated by the crisis.

In addition to those redeployed to other parts of the business, 15 per cent of teams were affected by furloughing and two per cent by redundancies. It was also concerning that over a third (35 per cent) of respondents said that their audit committee chair had not been consulted on the decision to furlough, redeploy or make redundant the internal audit function. Given that the audit committee chair should be the CAE’s primary reporting line, this raises governance concerns at a critical time for businesses across the UK and Ireland.

Sir Jon Thompson, chief executive of the Financial Reporting Council, commented: “The Chartered IIA’s review is a timely reminder of the need for robust risk management processes and high-quality corporate governance during times of crisis. This report highlights a number of important issues faced by internal auditors from the Covid-19 pandemic to the wider audit reform agenda.”

The institute is urging boards and audit committees to ensure they have a robust risk management, governance and internal control framework in place. 

This article was first published in November 2020.