The Future of Internal Audit: Addressing 2025 Challenges and Creating Superior Value

In an era where the business landscape is rapidly evolving and becoming increasingly complex, the role of Internal Audit (IA) has transcended mere compliance checks. It has become a vital mechanism for building assurance, driving value, and supporting strategic decision-making for organizations. However, internal audit teams themselves are facing significant challenges and obstacles that need to be addressed.

This article delves into the key challenges IA must confront in 2025 and explores how IA can provide even greater support to organizations, drawing on recent research from industry experts.

Key Challenges for Internal Audit in 2025

The 2025 North American Pulse of Internal Audit report from the Internal Audit Foundation and “Shaping the Future: Key Thematic Areas for Internal Audit in 2025” from KPMG highlight critical issues facing internal audit functions worldwide:

• Skill Gaps and Expertise in Emerging Technologies: As the world fully embraces the digital age, the risks organizations face have become more complex, especially in technology. A survey shows that Chief Audit Executives (CAEs) view Data Analytics as the most crucial technology skill for the future, yet only a small fraction use Data Analytics at a high or advanced level. Furthermore, while some CAEs have started using Generative AI (GenAI) in internal audit activities, assurance and advisory services related to GenAI remain low. This reflects a significant gap in applying new technologies to IA’s core roles. KPMG also emphasizes the importance of Cybersecurity, Data privacy and governance, and Digital disruption & emerging technology as key issues IA must address. IA urgently needs to develop these deep technical skills; otherwise, the organization’s ability to identify, assess, and mitigate new technological risks will diminish, leaving it vulnerable to data security risks, operational disruptions, or missed opportunities to leverage technology for business growth.
• Talent Management and Retention Challenges: Recruiting and retaining skilled personnel is a significant challenge. Reports indicate that most CAEs had to recruit new staff or fill vacant positions in the past 12 months. Moreover, employee burnout remains a growing concern, impacting performance and increasing turnover rates among experienced IA personnel. This leads organizations into a continuous recruitment cycle, causing discontinuity in institutional knowledge. KPMG identifies Talent Management and Retention as a key operational challenge, suggesting IA should evaluate the organization’s workforce planning strategies, future skill requirements, and the impact of employee turnover on the internal control environment. A shortage of skilled personnel and high turnover directly undermine the effectiveness of the internal audit function.
• Insufficient Budget and Impact on Efficiency: For internal audit to operate effectively and respond to new challenges, adequate budget support is essential. Reports indicate that approximately half of CAEs state their received budget is “somewhat sufficient” or “insufficient,” particularly in the public sector. Insufficient budgets can hinder IA’s ability to operate effectively and limit opportunities to invest in necessary technology or skill development. However, reports also show a clear correlation: IA functions that align themselves more closely with organizational strategy receive higher budget support. This means that for IA to secure sufficient resources, it must clearly demonstrate the strategic value it can deliver to the organization.

How Can IA Create More Value for the Organization?

To address the challenges outlined above, internal audit must adapt its role and operating methods to increase its value and impact on the organization:

• Shifting Towards a Strategic Advisory Role: Most CAEs aim to increase the proportion of Advisory Services in their audit plans. This means IA must move beyond being solely an assurance provider to become a trusted advisor that assists management in strategic decision-making and managing emerging risks, such as Environmental, Social, and Governance (ESG) risks and geopolitical risks. This proactive approach enables executives to make smarter, more prudent strategic decisions, reducing the likelihood of costly errors and enhancing the organization’s ability to navigate new uncertainties, including ESG or geopolitical risks, right from the planning stages.
• Leveraging Technology and AI for Enhanced Efficiency and Insights: Technology is crucial for driving IA’s future. CAEs should invest in new tools and technologies to improve the efficiency and effectiveness of audits. This investment not only speeds up work but also leads to more accurate and profound insights, enabling IA to quickly and precisely identify hidden risks and crucial improvement opportunities. This includes using Data Analytics to analyze large volumes of data, identify trends, and detect anomalies rapidly, as well as implementing Generative AI (GenAI) to assist in audit activities like risk analysis, report generation, or control testing development. Furthermore, IA should review the organization’s own AI governance and controls to ensure it is used responsibly and ethically.
• Continuous Talent Development and Management: Given the scarcity of technology skills, IA must have a clear strategy for internal talent development (Enhancing Competencies), including training in Data Analytics, Cybersecurity, and IT. Fostering a culture of continuous learning and adaptation, as well as recruiting and retaining highly capable personnel, is crucial. This ensures that the IA team is well-equipped to tackle evolving risks and deliver sustainable value.

Conclusion: Strategic Decisions for a Strong Future

The challenges facing Internal Audit in 2025 — including skill gaps, talent management, and budget limitations — are critical issues that executives and board members must prioritize. Investing in a strong IA team doesn’t just help the organization confront these challenges; it’s also a vital mechanism for building confidence for management and the board in navigating uncertainties and achieving organizational goals securely.

Understanding these challenges and considering options for developing the internal IA team, especially by leveraging partnerships with external consultants, will enable organizations to:

• Effectively manage complex and evolving risks.
• Elevate the capabilities of internal IA personnel.
• Manage resources and costs efficiently.
• Drive IA’s role as a key mechanism for creating strategic value for the organization.

The decision to choose an internal audit model — whether In-house, Outsourced, or Co-sourcing — is not merely about budget allocation. It’s a crucial strategic investment to ensure internal audit can create maximum value and drive the organization towards robust and sustainable growth, securing a competitive advantage in this digital age.