The unexpected collapse of Silicon Valley Bank (SVB) in early 2023 (though some would argue it should not have been as big a shock as it was) threw some shade on the effectiveness of internal audit, highlighting the critical importance of robust internal audit functions and comprehensive risk assessments within financial institutions.
Internal audit plays a critical role in helping organizations navigate the complexities of risk and ensuring that an organization’s risk management, governance, and internal control processes operate effectively. At the heart of internal audit is the risk assessment process, the foundation for planning and executing audits that provide meaningful insights and value to the organization.
Risk assessments are integral to the internal audit process, as they help to identify and prioritize the risks that could adversely affect an organization’s ability to achieve its objectives. In the context of SVB, the rapid rise in interest rates and the corresponding impact on bond portfolios were risks that materialized swiftly. A proactive risk assessment should have flagged the sensitivity of the bank’s balance sheet to such changes in the rate environment…
