The global economy has consistently been subject to a variety of financial risks and the COVID-19 pandemic has brought new challenges that require careful consideration. In a recent article, The Wall Street Journal highlighted twelve areas of financial risk in the current economic landscape.
The charts presented in the article show the increasing levels of debt in both the public and private sectors, and how the pandemic has exacerbated many of these risks, particularly in areas such as household debt and income inequality. The article emphasizes the need for caution and careful risk management in the current economic environment.
One of the areas of financial risk highlighted in the article is inflation. The charts show how the pandemic has disrupted supply chains and caused shortages of goods, leading to higher prices. Rising inflation could lead to a decrease in purchasing power and a slowdown in economic growth.
Another area of concern is emerging markets debt, which has grown significantly in recent years. The article points out that many of these countries have limited fiscal space and could struggle to repay their debts in the event of an economic downturn.
Overall, the article serves as a timely reminder that financial risks are an ever-present reality in the global economy. The twelve financial risks highlighted in the article – federal debt and deficits, corporate debt, consumer debt, household debt-service burdens, stock market valuations, cryptocurrencies, interest rates, inflation, emerging markets debt, international trade tensions, income inequality, and climate change – are all areas that internal auditors should consider in their risk assessments.
For example, when considering the risks associated with cryptocurrencies, the organization’s exposure to cryptocurrencies and the associated risks, including regulatory, operational, and reputational risks should be analysed.
Similarly, when assessing the risks associated with climate change, internal auditors should evaluate the organization’s exposure to related risks, such as extreme weather events, climate impact risks, along with the impact of changing regulations and consumer preferences.