chief internal auditor conference 2017 building trust ...€¦ · russia india united kingdom...

Chief Internal Auditor Conference 2017Building Trust. Making an Impact.

6 January 2017

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Welcome

Peter AstleyEMEA Internal Audit LeadRisk Advisory

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Deloitte’s Global Chief Audit Executive Survey

Evolution or irrelevance?

Responses from more than 1,200 Chief Audit Executives (CAEs) spanning over 29 countries and a wide range of industries.

Key findings from the survey:

Internal Audit needs

more impact and

influence.

Advisory services willexpand.

Gaps in skills must

be addressed.

Innovation is importanttoo.

Reviews of strategic

planning and risk

management will increase.

Use of alternative

resourcing models will

expand.

Analytics presents

major opportunities.

Stable Internal Audit

budgets may present

challenges.

CAEs recognize the need

for change.

Dynamic reporting is

poised to increase.

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Internal Audit needs more impact and influenceA minority of CAEs believe they have the ability to exert influence over the board of directors, executive team, and other key personnel and make a significant impact within their organisations. Some even believe they have little to no influence or impact. Yet CAEs also believe, correctly, that it will be important to have both in the years ahead.

Current impact & influence of Internal Audit

Importance of having impact & influence over the

next 3 to 5 years

Strong

Very important

Some

Somewhat important

Little tonone

Notimportant

Notsure

Notsure

64% 31% 3% 2%

28% 55% 16% 1%

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Gaps in skills must be addressedInternal Audit needs to strengthen its skillset if it is to increase its impact and influence within the organisation. CAEs are clearly aware of this: Relatively few are fully satisfied that their groups have the skills and expertise to deliver on stakeholders’ expectations.

Current satisfaction with Internal Audit’s capabilities

? ?

Satisfied Somewhat satisfied Not satisfied Not sure

41% 32% 25% 2%

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Innovation is important tooTo make changes in its approaches and activities, Internal Audit should embrace an innovative mind-set, as well as actual innovations. However, the function is not known for active innovation.

No innovation expected Transformation digital Increasing size of the talent

pool Shared IA service Strengthening the bench and succession planning

Ability to audit news domains (eg. Quality of Services) Cognitive

technologies Collaborative assurance provision in partnership with

management Data analyticsCulture more specialism Strategic auditing and business impact Predictive

analytics Risk anticipation Review of Agile Programs New talent

models (describe) Digitization Improving the position of Internal

Audit so that it is recognized as a developer of risk management talents for the entire organization

Predictiveanalytics Synergy and integration

Expanding assurance activities to

HSEC space Strategic co-sourcing Deep subject matter

specialists Visualisation

Key innovative developments expected to impact Internal Audit:

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Deloitte’s Global Chief Audit Executive Survey

Evolution or irrelevance?

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Global Economic Outlook 2017

Ian StewartChief Economist

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2017: Key questions

• Will global growth accelerate/decelerate?

• How great are the risks to the global economy?

• Are inflation and interest rates heading up?

• Is public-sector austerity over in advanced economies?

• Where next for globalisation?

Economics & Markets, Deloitte LLP, London

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Global growth outlook

Real GDP growth (% YoY)*

Pre-Crisis Post-Crisis 2016 2017 2018

World 4.2 3.3 3.1 3.4 3.6

Advanced 2.8 1.0 1.6 1.8 1.8

Emerging 5.9 5.2 4.2 4.6 4.8

*Pre-crisis = 1998-2007, Post-crisis = 2008-15, Forecasts for 2016-18

Source: IMF World Economic Outlook, October 2016

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Accelerating vs. decelerating economies

Change in forecast GDP growth rates between 2016-17*

Accelerating Little/No change Decelerating

Brazil Japan Germany

Nigeria France China

Russia India United Kingdom

Ethiopia Belgium Spain

United States Netherlands Ireland

*Selected economies


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Corporates awash in cash

Economics & Markets Team

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The future doesn’t always turn out as exactly we expect

Three big risks in 2016

Risks Near term impact vs. expectations

Brexit vote • More muted

Trump election • Positive response from markets

Renzi’s referendum • More muted


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Leading indicators look positive 1


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Leading indicators look positive 2


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Trump effect: equities rally, bonds sell off

Economics & Markets Team

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-4

-3

-2

-1

0

1

2

3

4

5

6

Trump has set ambitious goals for growth

US real GDP growth (% YoY)

Trump 4.0% target

L-term average 2.6%

Forecasts


1995-99 the previous 4.0% growth period

Mr Trump 15th September 2016: “I believe it’s time to establish a national goal of reaching 4.0% national

growth…and my great economists don’t want me to say this, but I think we can do better than that.”

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Potentially pro-growth policies:

• Fiscal easing

• Deregulation

• Tax cuts

Risks to the market view:

• Protectionism

• Congress stalling policy

• Geopolitics

− Chinese retaliation

− Russian aggression in E. Europe

− Iran, North Korea

• Negative effect on EMs

• Higher rates

The good news

Political risks

Market view: Trump upsides > Trump risks

Markets focussed on Trump upside: S&P 500 up 6.5%, Treasuries down 4.9% and US dollar up 5.2%

* Market data as of 5th January 2017

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US fiscal policy: more borrowing, more spending?

Economics & Markets Team, Deloitte LLP, London, 2016

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Is this the end of austerity?

Governments in advanced economies pull back on budget cuts, invest more

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Possible policy actions and flashpoints

US economic and foreign policy under Trump

Policy area Possible policy action/flashpoints

Domestic economy • Trump fiscal stimulus to boost growth

• Tax cuts for corporates

−Rebound after lousy 2016?

Trade/Protectionism/China • Deem China currency manipulator

• Start diplomatic relations with Taiwan

• Impose tariffs on imports from China

Foreign policy towards Russia• A more accommodative stance?

• Allow Russia to gain some influence over geopolitics in the middle east and central Asia


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Globalisation losing steam

Economics & Markets Team, Deloitte LLP, London, 2016

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Euro area: recovering, at different rates


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Rise of insurgent parties in Europe

Deloitte Economics & Markets Team

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The 2017 elections to watch for political risk

Date Election Current Odds* Risk

15th March Dutch General Election Geert Wilders 2/1 (33%)

Wilders has called for a Dutch referendum on leaving the EU, closing the country’s borders and “de-Islamizing” the West.

April - MayFrench PresidentialElection

Marine Le Pen 5/2 (29%)Front National supports Le Pen’s calls to close borders, deport non-French citizens and exit the EU.

May 7th & 14thGerman Regional Elections

n/a

An important indicator of momentum ahead of Parliamentary elections; between Merkel’s CDU, the rival Social Democrats and the far-right AfD.

SeptemberGerman Parliamentary Elections

Next Chancellor to be Angela Merkel 8/11 (58%)

CDU and Social Democrats may need support of minor parties, such as the AfD to form a “grand coalition”.

*Odds from Ladbrokes, 5th January 2017

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Where is the EU heading

• Ever closer union achieved: Federal Europe

• Crisis drives deeper political and economic integration

European Union

“European Federation”

“Alliance Land”

“Nation-State Land”

• No longer proceeding as one: multi/Bi-lateral relationships between like-minded member states

• EU breakup

• Back a pre-EU Europe of nation states


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• Transitioning to from export, invest-led growth to consumption-led growth

• Ageing population: 15% fewer workers by 2040

• Credit: total outstanding debt at 236% of GDP

• Asset prices: house prices doubled since 2010

• Costs: Chinese wages up 215% since 2008

• Xi Jinping: a more central control

27Economics & Markets Research, Deloitte LLP, London

China

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Other selected emerging markets

Forecast GDP growth (%YoY) for 2017 and key economic drivers

-2.5

0.5

0.6

0.8

1.1

2.3

3.0

3.3

5.5

6.0

6.1

6.2

6.2

6.7

6.9

7.4

7.5

7.6

-4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0

Zimbabwe

Brazil

Nigeria

South Africa

Russia

Mexico

Turkey

Thailand

Uganda

Rwanda

Kenya

China

Vietnam

Philippines

Bangladesh

Ghana

Ethiopia

India

2017 forecast GDP growth (%YoY) Key growth drivers 2017

• Consumption, trade

• Population, Gvt. Reforms

• Trade, investment

• Investment, trade, Gvt.

• Investment, Gvt.

• Trade, China, investment

• Gvt., consumption, trade

• Investment, trade, tourism

• Investment, trade

• Gvt., investment

• Investment, trade, tourism

• Gvt., tourism

• Trade, tourism

• Oil, consumption

• Consumption, investment

• Oil, Gvt.

• Commodities, trade

• Gvt.

Source: IMF WEO, October 2016 & EIU Country Profiles 2017

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Brexit effects

Positives Negatives

• Weak pound boost to manufacturing

• Easier fiscal policy

• Loose monetary policy

• Pro-business measures by the government

• Weak pound raises inflation lowering consumer disposable incomes

• High levels of economic and policy uncertainty

• Corporates respond with cost control and squeeze on capex

Factors that will influence UK growth


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UK: business optimism up, risk appetite restrained


2016 2017

1.1% -0.3%

Business investment growth: Actual & forecast

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Weaker £ = rising inflation = income squeeze


Forecast for 2017

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Another way of thinking about the long-term impact of BrexitConsensus forecasts for real GDP growth (%YoY), 2020-26 and 2016-30 for post-Brexit UK

2020-26

US 2.2

UK post-Brexit 2.2 to 1.8

Canada 1.9

France 1.3

Germany 1.2

Italy 1.2

Japan 0.8

Source: Consensus Economics, various independent forecasts

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0.5

1.0

1.5

2.0

2.5

3.0

3.5

1996 2001 2007 2014 2016

Long-term growth – why the pessimism?

Consensus GDP growth forecasts, rate 6-10 years ahead (% YoY)

Japan; 0.8%

Germany; 1.2%

UK; 2.1%

US; 2.2%

Pre-dot-com bubble

euphoria

Long boom Post-financial-crisis normal

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Creative destruction drives prosperity


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GDP per head

Hours worked per year

Working long hours doesn’t make you productive or rich


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For a fresh view on economics subscribe to the Deloitte Monday Briefing…just Google us

or visit: blogs.deloitte.co.uk/mondaybriefing/

36Economics & Markets, Deloitte LLP, London

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Deloitte LLP is the United Kingdom member firm of DTTL.

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© 2017 Deloitte LLP. All rights reserved.

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chief internal auditor conference 2017 building trust ...€¦ · russia india united kingdom...

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