2023 Focus on the Future, AuditBoard’s latest survey of leading internal audit executives, finds internal auditors appear to be coasting in increasingly turbulent times. Despite repeated signs of a looming economic slowdown that could further impact businesses in the year ahead, internal auditors are generally optimistic about their budgets and available talent.
However, this relative sense of calm may be masking challenges in addressing existing and emerging risks. The survey also revealed a lack of alignment between top risks facing businesses and the level of effort internal audit is putting toward those vulnerabilities. Download the full 2023 Focus on the Future report, and read on below for the key takeaways.
2023-2026 Top Risks: Cyber and Talent Lead Amid Turbulence
Cyber/data security and talent remain the top risks facing organizations, with over 80% of respondents seeing cyber/data security as a “very high” or “higher than average” vulnerability, and nearly three of four responding the same for talent. In addition to cyber/data privacy and talent, macroeconomic conditions, supply chain/outsourcing/third parties, and regulatory changes present persistent challenges for businesses.
One risk that elicits a divided response for 2023 is environmental, social, and governance (ESG), despite multiple warnings of greater urgency and impacts by the highly regarded World Economic Forum and other organizations. Overall, ESG is one of the fastest-growing risks this year, with over two-thirds of respondents ranking an aspect of ESG — environmental sustainability, governance, or social — as a top risk for 2023. Yet, despite the significant uptick in awareness among auditors, all three components of ESG remain in the bottom half of 2023 risk areas surveyed.
This finding represents a red flag because internal auditors cannot safely place ESG on the back burner. Respondents with a low-stakes attitude toward ESG risks reflect the profession’s slow reaction to increasing demand for better ESG risk management and reporting from consumers, shareholders, and other stakeholders.
Audit Effort vs. Risk Level: A Troubling Lack of Alignment
Our 2023 Focus on the Future survey reveals the level of audit effort is frequently not well aligned with key risks. The three key areas where the gap between anticipated risk level and planned audit effort is the most substantial are: the ability to attract and retain top talent, with 77% rating it a “very high” or “higher than average” risk while 16% are planning to dedicate substantial resources to address the risk area; macroeconomic factors and geopolitical uncertainty (69% rate it a critical risk area, while 13% plan to dedicate substantial resources); and business model disruptions due to an evolving digital risk landscape (50% rate it a critical risk area, while 20% plan to dedicate substantial resources).
Missed Opportunities in Risk Monitoring
Nearly nine of 10 respondents look more to other risk-related functions to monitor risks than to their own independent efforts to gather data and assess risks objectively. This finding reveals that internal auditors are not taking full advantage of all the risk monitoring methods available to them.
Resources and Talent: A Questionably Sunny Forecast
In our 2023 survey, nearly half of respondents expect their budgets to increase in 2023, while nearly 40% expect staffing to also improve. In contrast, over half of respondents acknowledge having less resources than they believe are needed to address risks in their organizations.
When determining where to make improvements to audit resources, consider starting by focusing on the risks affecting the organization and the ability of internal audit to effectively — and efficiently — perform its job. According to the 2023 Focus on the Future survey, the two greatest challenges toward meeting those objectives are difficulty attracting and retaining high-quality audit talent and an inability to leverage audit technology. What’s more, respondents cite a lack of technological expertise.
This should be a wake-up call for internal audit leaders: Investing in talent and technology is critical to bolstering internal audit efficacy and efficiency. It would serve auditors well to channel the resource optimism identified in this survey into tangible efforts to fill any talent gaps through training, new hires, or third parties, and leveraging technology solutions to automate and streamline audit efforts. Download the full report, 2023 Focus on the Future.