CIIA urges boards to work with internal audit amid rising interest rates

The Chartered Institute of Internal Auditors is urging boards to work alongside their internal audit functions to build resilience against a possible recession amid high inflation and an interest rate rise shock.

Based on a survey of over one hundred internal audit executives from a range of sectors across the UK and Ireland 56% of respondents perceive the risk level posed by economic uncertainty to their organisations as high to very high.

This is according to its new report ‘Adapting to Economic Uncertainty: Internal Audit’s Journey’, which provides guidance to internal audit and board.

The top risks most impacted by economic volatility in the report 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.

The report advises that 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 include auditing pricing strategies, budgeting and forecasting reviews, contingency planning evaluation, financial stress testing and economic scenario planning.

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, added: “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.”