You have recently accepted the new position of Vice President Internal Audit at NOVA Chemicals Inc. (NOVA),

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Question:

You have recently accepted the new position of Vice President Internal Audit at NOVA Chemicals Inc. (NOVA), a top chemicals manufacturing and distributing corporation in Canada. It produces and distributes a complete range of industrial and agricultural chemical products - industrial cleaning, weed controls, fertilizers. NOVA is relatively new to the industry having been established in 2012 after a merger with Ajax Chemicals. NOVA is a public company with shares trading on the Toronto Stock Exchange. Previously, the company had relied on internal audit services provided by their external auditor who was hired as needed to conduct special reviews. NOVA is based in Toronto, Ontario and has four other plants in Halifax, Winnipeg, Calgary and Vancouver. NOVA has recently expanded its client base into the USA with plans to build a plant in the Chicago area in 2023. The strategic plan for NOVA includes expansion into Mexico in 2024 under the USMCA Trade Agreement and future expansion into South America. A fleet of 2000 tanker trucks, including 800 specially designed for hazardous products, service the plants and their customers all over Canada and the United States.

Having many years of both internal auditing and external auditing experience with large international firms, you were most recently the CAE for a number of years at Stone Corporation, one of the largest construction companies in Canada building office towers and hospitals, with branches in Toronto, Winnipeg and Vancouver. You had a staff of twelve auditors based at head office in Toronto. During the years at Stone, you gained significant experience undertaking assurance and consulting reviews designed to improve the effectiveness of the risk management, control and governance processes. You were also very active in advising senior management and the Risk Management Committee on the development of a risk management strategy for the company. These skills were of much interest to a head hunter human resource consulting firm who approached you for the position at NOVA.

The principal risks of the company are: Global economic conditions, Financial commitments and credit markets, Raw materials availability, Supply/demand balance, Litigation, Environmental compliance, Chemical safety, Operational events (e.g. transportation of products, severe weather conditions), Cyber vulnerability (e.g. cyber attacks, security breaches resulting in loss of intellectual property and trade secrets), Company strategy, Goodwill impairment and Pension and other postretirement benefits.

In 2020, its 8th consecutive year of increasing profits, NOVA recorded a record profit of $998 million on sales of $3,651 million. During your period of orientation, the CEO, who is also a member of the Board of Directors, discussed your role in the company and the need to prepare an internal audit charter and hire audit staff. Your experience with risk management strategies will be very beneficial as NOVA has just hired a new Chief Risk Officer to be responsible for risk management. There are some new Board members who have expressed concerns over whether the company is properly managing their risks considering the aggressive plans for expansion. There is also a new Chair of the Audit Committee who has held this position for only fifteen months. She has extensive experience in the international mining and oil and gas industries.

At your first meeting with the Audit Committee, the Chair assigned the following tasks to you as follows:

“I am very aware that we are in a risky business and that careful long term and contingency planning is essential to our success. I justified your appointment at the Vice President level and the generous budget for your department to my colleagues and the board largely in terms of risk management. During your period of orientation in our various plants, give some thoughts to a presentation I want you to make to the Audit Committee in six months and at a later date to the Board of Directors.”

Your two part presentation to the Audit Committee should demonstrate, in clear, practical terms the following:

The steps in preparing a long term audit plan at NOVA. Essentially, tell us how you will decide the first six areas to audit and in what order.
The steps in preparing an engagement plan for the first audit you will undertake.

Required

Prepare the presentation (Word or PowerPoint) for the Audit Committee.

(25 marks for long term audit plan, 20 marks for engagement plan and 5 marks for format, clarity and persuasiveness of the presentation)

Audit Universe for NOVA (in no particular order - choose 6 of 12 for LT Audit Plan):