The RMC Advisors

Internal Audit – Emerging Risks: Business Climate Change and Sustainability

 
New opportunities, as well as new risks accompany change.  Companies face external and internal pressures to address sustainable development in the current business climate; companies are no longer insulated from the eyes of public and private shareholders.  If you are not refocusing your risk assessment, you may not successfully weather the storm.

The article highlights the importance of addressing the business climate change and sustainability including five key risk areas for internal audit departments to consider based on an article by Ernst & Young (2010), Climate Change and Sustainability: Five Highly Charged Risk Areas for Internal Audit.

The five key areas to address include:

Strategic  - As the climate changes, so do markets and consumer preferences.  It is imperative that executive management discusses strategy with internal audit in order to build a complete and effective audit plan.

Compliance – Governments are becoming increasingly more involved in regulating business to address the growing social and environmental risks that accompany climate change and sustainability.  It is imperative that internal audit demonstrates that related risks are being incorporated into the audit plan to executive management.

Financial – Responsiveness comes at a cost.  As companies face increased sustainability costs and look to reduce costs (i.e. cutbacks) in existing areas, they are exposed to new risks.  It is imperative that internal audit reassess financial controls as operations change.

Reputational – Companies are beholden to a variety of stakeholders with increasing demands.  Technological advancement creates greater exposure in the form of information sharing.  It is imperative that internal audit takes measures to assure the integrity of information distributed to all stakeholders.

Operational – New risks put pressure on a company’s infrastructure and operations.  Sustainability impacts the supply chain directly and indirectly.  It is imperative that internal audit incorporate supply chain and operational initiatives into the audit plan to address climate change and sustainability. 

The challenge is to stay ahead of the storm when managing risk.  The article provides these takeaways for all internal audit departments.

• Make climate change and sustainability a standard part of your risk assessment.
• Identify the five categorical risks within your organization.
• Identify and assess all key risks related to climate change and sustainability.
• Evaluate risk and integrity of information across all reporting channels.
• Educate management and the board.
• Incorporate climate change and sustainability into current risk policies and procedures.
• Revisit your assessment regularly and revise as necessary.
• Ensure management is monitoring compliance.
• Maintain an open line of communication with the board.

Become an expert in all areas of risk within your company to best maximize your role as in internal auditor.  Challenge yourself to look internally in order to position yourself to successfully face climate and sustainability risks.

Please direct questions and comments to Elaine Nissley, MBA, CISA, PMP, CCSA, Principal, McKonly & Asbury, ENissley@macpas.com.

 

 

 

IPPF Changes

 

The Institute of Internal Auditors (IIA) recently announced the 2011 changes to the International Professional Practices Framework (IPPF). In keeping with their tradition of staying current with internal auditing trends, they have made changes to the standards and updated the glossary.