Report: Audit committees in 2024 face rising tax, AI, regulatory challenges

Audit committees face a more challenging range of risks in 2024 than last year, including rising geopolitical turmoil, increasing cyberattacks, tax changes, a tight labor market, extreme weather, tougher regulation, a “cost-of-living crisis,” and disruptive, two-edged technologies such as artificial intelligence (AI), according to a report from EY. 

Risks from extreme weather, AI deep fakes, social/political polarization, cyberattacks and other challenges will likely increase during the coming decade, survey respondents told the World Economic Forum during its Global Risk Perception Survey. 

More than half of respondents (54%) “anticipate some instability and a moderate risk of global catastrophes, while another 27% expect greater turbulence and 3% expect global catastrophic risks to materialize in the short term,” the WEF said. “Only 16% expect a stable or calm outlook in the next two years.” 

The long-term trend is grimmer, the WEF said, describing results from its September survey of 1,490 experts in business, academia, government, the international community and civil society. 

“The outlook is markedly more negative over the 10-year timeframe, with 63% of respondents expecting a stormy or turbulent outlook and less than 10% expecting a calm or stable situation,” the WEF said. 

The barrage of possible threats may prove overwhelming, “challenging organizations’ ability to navigate simultaneous or intersecting crises or the occurrence of multiple risk events,” EY said. 

Audit committees, CFOs and their C-suite colleagues face opportunities as well as challenges, EY said. They anticipate higher revenue growth and profitability this year compared with 2023 while coping with a far higher cost of capital than in early 2022. 

“While geopolitical uncertainty could dampen profit expectations, we’re hearing that the top two barriers to maximizing revenue growth and profitability in 2024 are increasing investment costs and slowing economic growth in key markets,” EY said. 

“Audit committees may want to consider whether finance teams have adeptly adjusted to this environment by integrating economic considerations, customer demand projections and dynamic pricing strategies to alleviate these challenges,” according to EY. 

Cyberattacks, human capital problems and business continuity pose the three biggest risks to organizations, EY said, citing a survey by the Internal Audit Foundation. 

“Although risk levels may vary from region to region, the areas of highest effort for internal audit are generally similar,” EY said. “The top areas of audit effort, worldwide, were as follows: 1) cybersecurity, 2) governance/corporate reporting, 3) business continuity, 4) regulatory change, 5) financial liquidity and 6) fraud.” 

“For North America, governance/corporate reporting is low risk for organizations but high effort for internal audit,” EY said.