The global spread of Covid-19 has turned the world upside-down. For most of us, the exceptional situation has had profound impacts on our personal and on our work lives; schools were closed, home office was common practice, and masks are currently mandatory in public transportation in Switzerland. Not only that, but the medium and long-term effects of the pandemic on the economy and on our private lives are complex and not easy to anticipate.
Despite the potentially far-reaching negative consequences of Covid-19, it is astonishing how at the same time it has been an accelerator for innovative ideas or even for the emergence of new businesses and business models. True to the motto ‘necessity is the mother of invention’, companies have investigated new ways of organising themselves and of doing business in different ways than before.
In the meantime, digitalisation has hugely increased in importance in the wake of travel restrictions and home office measures. Organisations have needed to implement ways of conducting their daily work virtually, and Internal Audit was no exception to this. Therefore, the following blog provides insights into how the Internal Audit profession is being challenged by the Covid-19 situation based on a survey with Chief Audit Executives in Switzerland. In addition to that, the article names hands-on examples of how PwC’s Internal Audit practice has reinvented its own processes to face the challenges and anticipates how the Internal Audit practice may look like in the future.
A survey shows how Internal Audit plans have been adjusted in the wake of Covid-19
During the pandemic, companies have been confronted with acute, and in some case serious challenges, such as liquidity shortages, personnel or supply chain interruption risks. Bearing that in mind, 17% of respondents in our survey added new audits to their 2020 Internal Audit plans to take changes in the risk focus into consideration. At the same time, 29% of respondents indicated that planned audits were still conducted as intended, but in a different form.
Approximately one-third of respondents (34%) had to postpone audits to a later point in time (for example to focus on higher priority topics during the crisis). Besides that, there were also cancellations of planned audits: 20% of the participants had to cancel audits without replacing them with other audits. Nevertheless, cancellations have not been a general trend for the profession. This highlights the importance of Internal Audit as a key partner during this global health crisis, where companies are faced with many challenges to overcome.
Figure 1: Changes in Internal Audit Plan due to Covid-19 (multiple responses possible)
Covid-19 leads to changes in Internal Audit approaches
The Chief Audit Executives we surveyed reported changes in the way Internal Audits are conducted in the wake of Covid-19. Reviews have more often been performed remotely (65% of respondents), and the use of data analytics has increased (35% of respondents; Figure 2).
A clear advantage of remote reviews is clearly that audits could still be performed despite travel restrictions. In addition, travel costs and travel time could be eliminated, with a positive impact on companies’ carbon footprint. Most importantly, remote reviews keep people safe while they’re doing their job.
The changes cited in the audit approach (for example more remote reviews and the increased use of data analytics) are in line with our own experiences at PwC. During the crisis , Internal Audits were conducted remotely using video conferencing tools as well as PwC’s Virtual Internal Audit (VIA) solution. The VIA web-based technology is a proven concept. It allows Internal Audit to streamline review processes with the help of smart questionnaires and automated workflows to facilitate remote audits in a cost-optimised manner. Additionally, the solution allows Internal Audit to tailor the audit approach and scope it to specific needs: from a global assessment of the control environment to the execution of targeted audit procedures to address specific audit areas on the audit plan or specific risks.
Figure 2: Adapted Audit Approach due to Covid-19 (multiple responses possible)
Going forward, some of the measures taken during Covid-19 are likely to be maintained in the ‘new normal’. In our study, 86% of Chief Audit Executives agreed that current changes in Internal Audit (for example remote reviews and the growing use of data analytics) will have a lasting impact and continue to play a key role in Internal Audit going forward (Figure 3).
Figure 3: Lasting impact of changes in Internal Audit due to Covid-19 (post-Covid)
An even more important role for Internal audit
With Covid-19 globally destabilising the business environment in many industries, audit committees are looking even more to Internal Audit to provide relevant and timely insights on how risks are being managed in organisations and the reliability of controls – even with travel restrictions in place. Internal Audit has to evolve with the ‘new normal’ and find ways to continue to deliver its remit. Here we see a clear call for Internal Audit to introduce more digital solutions, leverage remote models of working and get more out of system and transactional data with the help of analytics.
While the Covid-19 pandemic has catapulted us to quickly rethink the way we work, it is also leading to a significant change in the risk landscape confronting our organisations: supply chain interruption, health and safety issues, liquidity shortfalls, third-party risks and cyber-attacks are increasingly shifting to the centre of attention. Business leaders are juggling ways of managing the crisis successfully restarting and running operations in the ‘new normal.
Building on what is has learned from Covid-19, Internal Audit can play a key role in helping management to better understand the critical risks in the new normal and provide insights to maintain effective governance and internal control over key business processes.
