How risk managers can tackle risks to businesses driven by ongoing economic uncertainty

How the risk landscape is shifting

Businesses are continuing to grapple with an uncertain economic outlook - fuelled by interest rate hikes, high inflation, the cost-of-living crisis, and turbulence in the banking sector.

Against this backdrop, six in ten Chief Internal Auditors report rising financial, liquidity and insolvency fears for businesses and their risk managers.

Economic outlook signposts

In fact, new research from the Chartered Institute of Internal Auditors (CIIA) ranks this as the number one risk.

By comparison, last year these threats ranked well outside the top five risks to businesses, in 9th place, trumped by other key risks like cybersecurity, changes in laws and regulations, and digital disruption.

The new poll of 799 Chief Internal Auditors commissioned demonstrates that businesses continue to face the perfect storm of interconnected risks.

Other top economic-driven risks include market changes, competition and changing consumer behaviour, macroeconomic and geopolitical uncertainty, talent management and retention and supply chains.

The top five risks, which have been exacerbated by economic uncertainty are:

  1. Financial, liquidity and insolvency (62%)
  2. Market changes, competition and changing consumer behaviour (60%)
  3. Macroeconomic and geopolitical uncertainty (50%)
  4. Human capital, diversity, talent management and retention (48%)
  5. Supply chain, outsourcing and third-party risks (43%)

What does it mean for risk managers?

The results of this poll highlight the need for risk managers and business leaders to work with their internal audit functions to ensure they are prepared for the unexpected.

This should include reviewing business continuity and crisis management plans to ensure they are fit for the economic unknowns that could arise in the months ahead.

“Internal audit has an important role to play in supporting the board in this.”

Risk leaders should also ensure they are undertaking regular economic simulation exercises, along with financial stress testing based on a range of different economic scenarios.

Anne Kiem OBE, chief executive of the Chartered Institute of Internal Auditors said“This research underlines the need for boards to collaborate with their internal audit functions to ensure they have identified, managed, and mitigated the myriad of business-critical risks they now face.

“Internal audit has an important role to play in supporting the board in this.”

What next?

The Chartered IIA is also using the results of this research to call on the Government to ensure there are no further delays to plans to reform the audit and corporate governance framework.

It is urging ministers to get on and publish the statutory instruments for Audit and Assurance Policies and Resilience Statements, as well as to ensure there is a commitment in the first King’s Speech to an Audit Reform Bill.

”These reforms are vital to enhancing the resilience of our economy.”

The organisation argues that these reforms are vital in protecting businesses from future economic shocks.

Kiem added: ”The more risky, uncertain, and volatile environment businesses are now operating in, means that planned reform to the audit and corporate governance framework is more urgent than ever.

”We urge the Government to publish the statutory instruments for Resilience Statements and Audit and Assurance Policies without further delay, as well as ensure there is a commitment to an Audit Reform Bill in the King’s Speech.

”These reforms are vital to enhancing the resilience of our economy.”