Internal Audit : Risks To Consider In 2022
Internal audit is defined as "an independent management function that involves a continuous and critical appraisal of an organization's functioning with the goal of suggesting improvements and adding value to and strengthening the entity's overall governance mechanism, including the strategic risk management and internal control system."
Internal Audit Risks to Consider in 2022:
Cyber-security:
According to the IIA's on Risk 2022 poll, cybersecurity is far and by the most important "risks projected to affect enterprises in 2022." Almost 96 percent of chief audit executives gave cybersecurity a 6 or 7 on a scale of 1 to 7, with 7 being the most important. A lack of control over cybersecurity risks could have devastating financial consequences. If left uncontrolled, it has the potential to ruin a company's brand and reputation.
Management and governance committees will continue to drive Internal audit resources into more strategic initiatives, in addition to the basic technology audits, in 2022, enhancing corporate leaders' expectations of the internal audit function.
Third-party risk management (TPRM) and outsourcing:
Organizations are increasingly relying on third parties to perform critical business operations in order to increase productivity and efficiency. Organizations are also exposed to new risks and potential compliance breaches that could result in fines, lawsuits, or reputational damage as a result of third-party partnerships.
Some baseline data is required to ensure third-party risk management throughout the enterprise. The internal auditor will require a list of all third-party relationships from management. To advise management and the audit committee on appropriate technologies for monitoring third-party risks, such as real-time alerts and trend analysis tools, an internal audit plan should be established.
Compliance and rules are changing:
The regulatory and compliance landscape is always changing. Companies require a structured method to identify, assess, examine, execute, and monitor significant compliance and regulatory risks as compliance and regulatory risks become more complex.
Internal auditors can help companies manage regulatory and compliance risk by giving objective and independent assurance on the effectiveness of their compliance and regulatory frameworks, as well as the internal control systems that surround them.
Management and retention of talent:
With the fast conversion to hybrid and remote working, employee engagement, well-being, and retention remain the top risks. The long-term implications of Covid-19, as well as succeeding waves, are projected to induce a hybrid working environment, posing hazards to performance, employee engagement, talent, and retention.
Many Chief Audit Executives have expressed difficulty in locating appropriate applicants for internal audit positions, and searches are taking longer than in the past. The rising need for and acceptability of remote operations, such as work from home, as well as the continued volatility of labor markets, are altering how work is done.
Sustainability and ESG Reporting:
Corporate governance, human rights, labor practices, the environment, operating practices, consumer issues, community involvement, and development are all covered under ESG. Environmental, social, and governance reporting will likely become much more important in 2022. ESG brings possibilities and threats to management teams across enterprises. The first hurdle for Internal Audit functions that are just beginning their ESG journey will be identifying accountable parties within the firm.
ESG has an impact on an organization's strategic goals as well as its operations. Across the whole value chain, companies should assess their ESG impact, risks, and opportunities. Large corporations' internal audit departments may find it very simple to incorporate environmental, social, and governance issues into their audit programs. ESG standards and frameworks, on the other hand, might be overwhelming for small and mid-sized businesses.
Managing the supply chain:
The epidemic has disrupted demand and product supply, creating a supply and demand bullwhip effect. Internal audit plays a critical role in supply chain management by giving independent and objective assurance on the entity's overall supply chain strategy and internal control system.
Automation:
Digitization is becoming increasingly important for a company's performance, and organizations are continuing and, in many cases, speeding up their digital transformations. Increased investments in robots, machine learning, artificial intelligence (AI), and advanced analytics are ushering in a new era of business change.
Internal audit is more important in today's digital workplace. Automation programs, when properly integrated as part of an internal audit methodology, can assist firms in meeting their governance, risk, control, and compliance requirements.
The company's culture:
Risks originating from a poisonous corporate culture or environment are often overlooked by many firms. However, this is critical in guiding the firm toward its objectives without jeopardizing its brand value and image. Internal auditing plays an important role.
While drafting the Internal Audit strategy for the year 2022, the following points should be considered as a check for the aforementioned risks:
Examine the design, structure, and efficacy of learning and development programs.
Ascertain that the Internal Audit team is well-versed in current and new tax legislation and compliance needs.
ESG-related certifications will improve the efficiency of your internal audit team.
Ascertain that compliance functions are in place and that a disciplined approach with a clear compliance framework is followed.
Examine the techniques for monitoring, measuring, and reporting on the program to see if any changes can be made.
Performing a risk assessment of the organization's cyber security procedures in terms of industry best practices and making recommendations for process improvement
To find areas for improvement, analyze and document the processes, procedures, and IT infrastructure.
Assess the leadership's crisis readiness by asking key questions to establish the extent of emergency preparedness.
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