THE Institute of Internal Auditors’ latest Risk in Focus report highlights a sharp rise in regulatory and supply chain risks across Asia Pacific, driven by US tariff and trade measures in 2025.
These risks underscore the growing geopolitical uncertainties in the region, where long-standing supply chains are disrupted.
Businesses struggle to adapt to policies largely beyond their control.
Governments, particularly in South-East Asia, are equally powerless to influence or manage the situation, as noted by internal audit leaders in the report.
The impact of these measures is increasingly evident, with businesses feeling the strain on their bottom lines.
For instance, VS Industry Bhd, a domestic electronics manufacturing services provider and a key exporter to the United States, reported a net loss of RM33mil in the fourth quarter ended July 31, 2025 (4Q25), a sharp decline from the RM126.6mil net profit in 4Q24.
For the full year, net profit plummeted 85% to RM36.7mil compared to the previous year.
Revenue declined for both the quarter and the year.
Meanwhile, furniture manufacturer Poh Huat Resources Bhd saw its net profit drop by 91.2% to just over RM260,000 in 3Q25.
For the cumulative period, net profit nearly halved to RM10.3mil.
These challenges coincide with impending US sectoral tariffs, which pose significant risks to Asia Pacific’s semiconductor, electrical and electronics industries – sectors that collectively account for approximately 40% of Malaysia’s annual exports.
Revenue also declined for both the quarter and the nine-month period, as highlighted in the company’s 3Q25 financial results announcement last week.
The company noted that the unpredictability of impending US sectoral tariffs on the industry made planning nearly impossible.
On Monday, the United States imposed a 25% tariff on furniture. These policy changes have prompted internal auditors, responsible for assessing risks and ensuring compliance with internal and external policies and laws, to focus on regulatory change and supply chain risks.
According to the report, among Asia Pacific respondents surveyed, regulatory change risks rose by 6% to 58%, while supply chain risks increased by 4% to 32%.
Interestingly, despite Malaysia’s active trade role, it contributed only 21 out of 159 survey respondents from South-East Asia.
These respondents included participants from the Philippines, Singapore, Indonesia, Vietnam, Myanmar and Cambodia.
This raises the question: Does this reflect how Malaysian businesses perceive the value of internal audits?
Malaysia ranks mid-table in terms of respondents, surpassing Vietnam, Myanmar and Cambodia – countries with single-digit contributions – but falls significantly behind the Philippines, which leads with 64 respondents.
If this comparison seems inadequate, another benchmark could be the fees paid to external firms for internal audits.
According to anecdotal evidence from industry experts, these fees remain low.
This issue has been consistently highlighted in recent years by the Minority Shareholders Watch Group, particularly in the context of public-listed companies, which have been required to maintain internal audit functions since 2008.
While there is a growing emphasis on regulatory change and supply chain risks, a gap persists between the risks identified as high-priority and their actual ranking.
In Asia Pacific, cybersecurity is the top-ranked risk and audit priority, followed by business resilience, which ranks second for risk and third for priority.
Despite increasing attention, regulatory change and supply chain risks do not make the top five risks, placing them just below this threshold.
Similarly, supply chain and geopolitical/macroeconomic uncertainty are not among the top five priorities.
For South-East Asia’s export-driven economies, however, supply chain risks are a top-five priority, reflecting the region’s reliance on interconnected supply chains that link producers to consumers and facilitate cross-border trade with East Asia.
The United States understands this and has implemented a 40% transshipment tariff on Vietnam, paired with a reciprocal tariff of 20%.
Similarly, Indonesia has a transshipment clause with a 19% reciprocal tariff.
Geopolitical and macroeconomic uncertainty ranks among the top five risks but falls near the bottom of priorities.
How can such high risks, like geopolitical uncertainty, be managed when they are beyond the control of governments and businesses?
The report highlights that internal audit leaders address these gaps by focusing on areas where high risk can be mitigated indirectly through other audit activities.
For instance, geopolitical uncertainty can be tackled through reviews of fraud, business resilience, supply chain and regulatory changes.
Audit leaders also anticipate that such uncertainties may drive an increase in advisory work for audit functions.