Chartered IIA warns War in Ukraine means businesses facing perfect storm of risks, with call to accelerate audit reform

New business poll reveals that the conflict in Ukraine has exacerbated the severity and range of risks businesses are now grappling with.

Eight in ten chief audit executives report that Russia’s war on Ukraine has adversely impacted macroeconomic and geopolitical risk, making it the number one risk exacerbated by the conflict. Prior to the war in Ukraine, macroeconomic and geopolitical risk ranked outside the top five risks businesses were grappling with, but it is now front and centre of the risk agenda. Forcing many businesses to now consider macroeconomic and geopolitical uncertainty a business-critical risk that must be addressed for the first time.

The steep ascent of macroeconomic and geopolitical uncertainty up the list of risks to business has been found by a new poll of over 800 chief audit executives commissioned to monitor which risks have been most impacted by the war in Ukraine.

Other risks exacerbated by the war in Ukraine include cybersecurity, business continuity and crisis management, supply chains, and financial, liquidity and insolvency risk. Underlining the fact that businesses are now facing the head winds of a perfect storm of geopolitical and geo-economic driven risks that if not managed effectively threaten their long-term sustainability.

Chief Audit Executives reported that the top five risks to businesses most impacted by the War in Ukraine were:

1. Macroeconomic and geopolitical uncertainty (79%)
2. Cybersecurity and data security (77%)
3. Business continuity, crisis management and disasters response (58%)
4. Supply chain, outsourcing and 'nth' party risks (57%)
5. Financial, liquidity and insolvency risks (52%)

The results of the poll highlight the urgent need for businesses to ensure that they are sufficiently prepared and have scenario planned for major geopolitical events and future crises, which may be unforeseen, but have the potential to severely disrupt business operations. The Chartered IIA is therefore urging businesses and their internal audit functions to ensure that they have robust plans in place for geopolitical disruption and dedicate more time and effort to mitigating this risk.

The Chartered IIA is also using this new research to renew its calls on the Government to now accelerate reform of the audit and corporate governance framework and bring forward an Audit Reform Bill sooner rather than later. Arguing that high quality and effective audit is essential to support boards to navigate the myriad of business-critical risks they are now facing, and vital to enhance the economy’s resilience in a time of crisis.

John Wood, Chief Executive Officer of the Chartered Institute of Internal Auditors said: “Our poll shows that the war in Ukraine means businesses are now facing the perfect storm of geopolitical and macroeconomic related risks, elevating geopolitical uncertainty to the top of the risk agenda.

The research also demonstrates that geopolitical and macroeconomic risk does not sit in a silo, but instead interlinks and exacerbates a whole range of other business critical risks, including cybersecurity, business continuity and crisis management, supply chains, and financial, liquidity and insolvency risk.

With businesses now facing an adverse business risk environment that we have not seen for decades, this also underlines the urgent need for the Government to stop kicking the can down the road and crack on with audit and corporate governance reform. High quality and effective audit is essential in supporting boards and investors to navigate the financial challenges ahead and vital for our economic resilience. We therefore urge Ministers to accelerate plans for an Audit Reform Bill.”

John Devine, Risk Committee Chair, abrdn said: “There can be no doubt that the War in Ukraine has created significant business disruption, exacerbating a myriad of business-critical risks.

At abrdn, it tested and affirmed the strength of our protocols and showed we were well positioned to deal with what was a volatile and complex market event. This included having to quickly get to grips with the impacts of economic sanctions, ensuring we comply with new legal requirements, and keeping our eye on the ball in terms of the macroeconomic environment we are now operating in with rising inflation and interest rate rises.

With the economic outlook looking volatile for the foreseeable future, it is more important than ever for businesses to make sure they are identifying, mitigating, and managing their geopolitical related risks effectively. In this rapidly changing environment internal audit functions must be flexible and willing to react swiftly in delivering high quality audit reports on new risks as they emerge in real time.”

For more information or further comment, contact Gavin Hayes, Head of Policy And External Affairs on Gavin.Hayes@iia.org.uk or 07900 195591

Notes to editors

Risk in Focus 2023 – Business Risks Impacted by the War in Ukraine

About the data/survey

The research was commissioned as part of Risk in Focus 2023. The part of the research that focussed on understanding the business risks most impacted by the War in Ukraine was based on a quantitative survey of 834 Chief Audit Executives from 15 European countries including Austria, Belgium, Bulgaria, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Slovenia, Spain, Sweden, Switzerland, and the UK. The full Risk in Focus 2023 report and findings will be published in September 2022.

The top 10 risks for Risk in Focus 2023 – The War in Ukraine Question, were:

1. Macroeconomic and geopolitical uncertainty (79.02%)
2. Cybersecurity and data security (76.74%)
3. Business continuity, crisis management and disasters response (57.55%)
4. Supply chain, outsourcing and 'nth' party risks (56.83%)
5. Financial, liquidity and insolvency risks (52.28%)
6. Change in laws and regulations (33.09%)
7. Communications, reputation and stakeholder relationships (24.94%)
8. Health, safety and security (24.7%)
9. Fraud, bribery and the criminal exploitation of disruption (21.58%)
10. Climate change and environmental sustainability (15.35%)

About the Chartered IIA

The Chartered IIA represents around 10,000 internal audit professionals in organisations spanning all sectors of the economy, across the UK and Ireland. It champions the contribution internal audit makes to good corporate governance, strong risk management and a rigorous control environment leading to the long-term success of organisations, including those in the public sector.