Many external pressures are testing the purpose and effectiveness of internal control according to a report from the Association of Chartered Certified Accountants (ACCA), the Internal audit Foundation, and Institute of Management Accountants (IMA).
The report, Internal control and the transformation of entities, brings together results from some 2,000 of the three professional bodies’ global members to better understand the future of internal control. Internal control is a core part of business operational management; it achieves objectives, improves performance, and builds reputation. This is especially important as entities continue to transform, driven by data and technology.
Findings show that the continued effects of the pandemic, the unstable economic climate, regulation, and data and technology are presenting organisations with unique challenges for their internal control activities.
A challenge of lack of appropriately skilled staff was identified by 50% of respondents and 41% said technological advances are compromising existing internal controls. A lack of executive emphasis on internal controls was also identified by 32% of respondents as impacting management of internal control.
The purpose of internal control in an entity was also asked of respondents, with 88% saying it minimises risk, 84% that it prevents fraud, and 77% identifying that it protects assets.
Most respondents, 80%, agree or strongly agree that they need to apply their internal control framework to non-financial and ESG reporting.
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ACCA chief executive Helen Brand said: “Internal control forms a core part of the activities of accountancy, finance and internal audit professionals, assisting them to ensure that entities operate effectively and efficiently. Yet the business model is changing for many because of various and interconnected external pressures. Given this ongoing turbulence, it’s therefore essential that organisations recruit and retain the skilled people who can ensure that internal controls are agile and future-ready to support business transformation and growth.”
IMA President and CEO Jeff Thomson added: “As we say in the foreword to our report, internal control goes beyond statutory compliance requirements. It helps entities build trust, confidence, and a positive reputation in achieving strategic business outcomes. All this is increasingly vital now and in the future as we do not see turbulence or volatility decreasing.’
International Audit Foundation Board of Trustees CEO and IIA President Anthony J. Pugliese adds: “Internal control demands appropriate prioritization by management and a combination of people, processes, technology, and data – all underpinned by an unwavering commitment to trust and ethics. The route to this is through professional qualifications and continuing professional development, which our three organisations commit to delivering now and in the future.”
The report also makes various recommendations and actions to improve internal control. This is sorted under various categories of main drivers of change such as strategic, transformation, people, processes, technology and data.