Adapting to economic uncertainty: internal audit's journey
About the report
The aim of this report is to provide internal audit professionals with ideas, approaches, and practical tips to help support their organisations in navigating economic uncertainty. In today's dynamic economic landscape, characterised by ongoing volatility, the role of internal audit becomes increasingly vital.
This timely report explores three key themes: hindsight, insight and foresight of internal audit’s journey through the economic cycle. Firstly, the report examines the lessons learned from previous economic shocks and how this can influence internal audit’s response. Secondly, the report provides insight into internal audit’s present response to current economic uncertainty. Finally, the report investigates how internal audit can support their organisations on the journey as the economy recovers.
We conducted a quantitative survey of over one hundred internal audit professionals across all sectors of the UK and Ireland. In addition to the survey, we conducted qualitative research that involved five sectoral roundtables and six one-to-one interviews with internal audit professionals covering a range of sectors that make up GDP. This included the services sector (with separate roundtables for financial services and non-financial services), the construction sector, the manufacturing sector, and the public/third sector.
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- 56% of internal audit professionals perceive the current risk level posed by economic uncertainty to their organisations as ranging from high to very high and over a third of organisations face medium risk.
- 26% of respondents highlighted “financial capital, cash flow, and liquidity risk” as the single biggest risk area impacted by economic volatility, this once again highlights the importance of monitoring financial stability & liquidity during uncertain times. Changes in consumer demand and behaviours emerged as a significant risk, impacting 22% of organisations.
- 73% of internal auditors surveyed, either support or include a risk management framework assessment in their internal audit plan for 2023-34. Only 11% of internal audit functions support economic scenario planning in their organisation. This is alongside the 23% of internal auditors that engage in financial stress testing exercises carried out by their organisation.
- 42% of internal auditors have experienced an unchanged or real decrease (adjusted for inflation) in their budget/resources due to inflationary rises in the past 12 months. Over one-fifth of internal audit functions have seen an increase in the budget/resources, but this was not fully adjusted for inflation.
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