Chartered IIA study raises concerns for corporate governance during coronavirus crisis, and reveals the extent of disruption to internal audit teams, as 46% of internal audit teams have been affected by redeployment during coronavirus lockdown
The data highlights that a significant number of audit professionals have not been able to carry out critical internal audit work during the coronavirus lockdown, sparking particular concerns given the business risks exacerbated as a result of the crisis, such as cashflow and liquidity, cybersecurity, and fraud.
In addition to those redeployed to other parts of the business, around 15% of internal audit teams are said to have been affected by furloughing. More than a third (35%) of respondents indicated that their Audit Committee Chair had not been consulted on the decision to redeploy or furlough, raising additional concerns from a governance perspective.
Despite concerns over the impact on UK corporate governance, the research also reveals a number of ways that internal audit has responded to the crisis, through providing real time assurance with regard to new processes at a critical time. Over a third of Chief Audit Executives said that the working hours of their team had been increased to meet the demand for independent objective assurance.
John Wood, chief executive of the Chartered IIA, said: ‘While I applaud the ways in which the internal audit profession has adapted and shown resilience in the face of these challenges, there are some alarming findings which suggest critical work has not been undertaken during lockdown.
‘Given the bleak economic outlook for the year ahead and beyond, I would urge boards and audit committees up and down the UK to take stock of these findings, and ensure that they have a robust risk management, governance, and internal control framework in place.’
The publication of the report follows the Chartered IIA’s recent submission to the Business, Energy and Industrial Strategy (BEIS) Select Committee inquiry on delivering audit reform, calling on the Government to accelerate the pace of audit reform.
The Chartered IIA is calling for a number of measures to be introduced to strengthen corporate governance, particularly given the impact of coronavirus, such as a strong audit regulator to oversee good corporate governance across the UK.
John Wood added: ‘These findings underscore the urgent need for the government to accelerate the pace of audit reform in the UK to help strengthen corporate governance as a whole.
‘Time for reform is well overdue and given the myriad challenges facing businesses, it’s imperative that a comprehensive package of measures are introduced to help boards and audit committees ensure that new risks are promptly identified, mitigated and managed.’
Sir Jon Thompson, CEO of the Financial Reporting Council (FRC), said: ‘The Chartered IIA’s review is a timely reminder of the need for robust risk management processes and high quality corporate governance during times of crisis.
‘Internal audit is a key part of the UK’s corporate governance framework and this report highlights a number of important issues faced by internal auditors from the Covid-19 pandemic to the wider audit reform agenda.
‘The FRC encourages boards and their internal auditors to carefully consider the report’s findings and recommendations.’
A copy of the Internal Audit in Lockdown report can be found here.