Internal Audit Functions Evolve With AI and Agile Methods
Internal audit functions are increasingly being reshaped by artificial intelligence, evolving auditors into strategic advisors who balance risk and innovation. Industry analysis highlights a shift from static assessments to real-time "risk sensing," the adoption of agile audit methodologies, and a growing use of co-sourcing for specialized expertise in areas like ESG and supply chain compliance.
- A recent Supreme Court ruling invalidated approximately $100 billion in tariffs imposed under the International Emergency Economic Powers Act, halving the effective U.S. tariff rate to around 5%. However, tariffs under Section 301 and Section 232 remain, affecting industrial machinery and materials, which continues to complicate inventory management for manufacturers. - The SEC is increasing its focus on AI-related disclosures, with "AI washing" becoming a key concern for enforcement. For 2025 annual reports, companies must submit cybersecurity disclosures in a machine-readable format (Inline XBRL) to improve analysis of their risk management and governance. - Manufacturers face significant supply chain risks from the sourcing of critical raw materials, with China dominating the production of most categories and showing a willingness to use export controls as a geopolitical tool. This has led to price increases in materials like tin and molybdenum, impacting the electronics and automotive sectors. - According to a 2026 manufacturing outlook study, 79% of U.S. manufacturing executives identify the skilled labor shortage as their primary obstacle to growth. This pressure is most acute on the factory floor, with 90% of those surveyed stating that manufacturing departments are the most affected by these labor shortages. - OSHA is undertaking a significant deregulatory effort, with proposed changes to standards for chemical exposure, respirators, and construction site safety. Simultaneously, the EPA is proposing to roll back certain requirements of the Risk Management Program, such as rescinding the mandate for third-party audits after a single incident and limiting the scope of safer technology and alternatives analysis. - While a recent survey showed 82% of internal auditors believe agile methods could add more value than traditional approaches, 45% cited a lack of knowledge or resources as the main barrier to adoption. Despite the interest, other studies indicate that only about 14% of internal audit departments are considered "advanced" in their overall technology adoption. - The co-sourcing model for internal audit is gaining traction as a way to access specialized expertise in areas like ESG and cybersecurity without the costs of full outsourcing. This approach allows in-house teams to maintain strategic control over the audit plan while benefiting from the knowledge transfer of external specialists' methodologies and technologies. - A 2025 survey of manufacturing CEOs revealed that 63% find that supply chain challenges hinder their ability to innovate, and 68% have made AI a top investment priority to address these issues. However, only 18% of these CEOs listed reconfiguring their supply chain as a top priority, indicating the difficulty of making long-term changes amid fluctuating tariff policies.
