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1 Click to edit Master title style Restricted

2 Click to edit Master title style Risk Based Internal Auditing: Definition, Basics & Challenges Areef Shah Senior Internal Auditor Restricted

3 Click to edit Master title style Agenda About EQUATE Definition of Internal Auditing RBIA vs IA Risk Management & ERM ERM & Corporate Governance COSO Role of Internal Auditing in ERM RBIA: Challenges and Opportunities Restricted

4 Our Credentials Restricted

5 WELCOME to one of the best Petrochemical plants in the World

6 About EQUATE Established in 1995 as Kuwait s first international joint-venture in this industry, (EQUATE) embodies its Partners in Success slogan through the partnership among Petrochemical Industries Company (PIC), The Dow Chemical Company (Dow), Boubyan Petrochemical Company (BPC) and Qurain Petrochemical Industries Company (QPIC). Alongside with being a leading industrial organization, EQUATE dedicates its utmost commitment and care to overall sustainability wherever it operates through partnerships with various stakeholders, including its employees, the society, and customers as well as public and private bodies in all relevant fields; such as human development, environment, education, health and public awareness.

7 EQUATE at a glance PROFIT PRODUCTS EMPLOYEES OFFICES AWARDS US$ 739 Million (2015) PE / EG / SM PX / BZ / HA / PP Employees 4 Offices Globally National & International Awards Providing valued products to the world

8 EQUATE JV Global Expansion Having commenced production in 1997, EQUATE is currently the owner and singleoperator of several fully integrated world-class units in Kuwait, North America and Europe that annually produce over 6 million tons of the highest quality petrochemicals. Company Shareholders Product Capacity Market Outlet EQUATE MEGlobal EQUATE as owner or single operator PIC 42.5% Dow 42.5% BPC 9% QPIC 6% PE EG 825, ,000 EMC MEGlobal EQUATE 100% EG 1.2 million MEGlobal As part of its global presence and growth opportunities, EQUATE fully acquired MEGlobal as a wholly owned subsidiary in MEGlobal is a world leader in the manufacture and marketing of petrochemicals with operations in North America and Europe. EQUATE s operations through MEGlobal and Greater EQUATE, the Kuwait-based integrated petrochemical complex, include producing Ethylene, Polyethylene (PE), Ethylene Glycol (EG), Polypropylene (PP), Styrene Monomer (SM), Paraxylene (PX), Heavy Aromatics (HA) and Benzene (BZ). The products are marketed throughout the Middle East, Asia, Africa, Europe and the Americas. TKOC TKSC KPPC PIC PP Plant (Operated by EQUATE) KARO (Not Operated by EQUATE) PIC 42.5% Dow 42.5% BPC 9% QPIC 6% KARO 57.5% Dow 42.5% KARO 100% EG 600,000 MEGlobal SM 450,000 EMC PX HA BZ 829,000 80, ,000 PIC PIC Not for commercial sales. Used only for SM production. PIC 100% PP 140,000 PIC PIC 40% KNPC 40% QPIC 20% All production of KARO is done by KPPC & TKSC. Ethylene Glycol Capacity: 600,000MT Styrene Monomer Capacity: 450,000MT Paraxylene Capacity: 829,000MT All capacities are metric tons annually. Ethylene is only used as feedstock, not for sale. KARO: Kuwait Aromatics Company. Polypropelene Capacity: 140,000MT

9 Providing value through Partnership Private Sectors to Promote downstream industries Polyethylene Process Leading Glycol Technology Global Marketing Expertise Utility Infrastructure Dedicated Port Facilities Overall Infrastructure Supply of Ethane Plant Infrastructure Skilled Personnel

10 OUR MISSION Maximizing stakeholders value by providing quality products and services to our customers.

11 OUR VISION A global leader & world class producer of petrochemicals

12 OUR VALUES Trust Reliability Innovation Sustainability

13 OUR HISTORY 15 June 1995 EQUATE Groundbreaking 12 November 1997 Started Plant Operations

14 OUR HISTORY 1 March 2005 EQUATE II Groundbreaking 23 February 2010 EQUATE II Inauguration

15 OUR AWARDS & ACCREDITATION

16 EQUATE s success is recognized & accredited globally His Highness the Amir Award for the Best Plant in Kuwait American Association for Safety Engineers (ASSE) Gold Award in Health, Safety, and Environment (HSE) Gulf Private Sector Companies Award Gulf Cooperation Council (GCC) Award for Best Gulf Company in Recruiting Nationals GCC Best Environmental Company in Kuwait Award Arabian Business Best CSR Company Award Oil & Gas (O&G) Middle East CSR Award O&G Best Implemented Environmental Program of the Year Middle East Chemical Week (MECW) Plant of the Year Award Kuwait Petroleum Corporation (KPC) CEO Health, Safety & Environment Award Kuwait s CSR Award for the Industrial Sector Middle East CSR Awards Summit Highly Commended Best Community Program Award

17 Internal Auditing: Definition Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Source: IIA

18 Internal Auditing: RBIA vs. IA Meaning of RBIA? How it is different from traditional IA? 1. No fundamental difference between the two. 2. However, traditional IA tends to focus on controls over financial and fraud risks, whereas RBIA focuses on controls over risks threatening the objectives of an organization. 3. RBIA is driven by the organization s objectives and risks, not internal audit s.

19 Risk: Risk Management & ERM RM is a process to identify, assess, manage, and control potential events or situations to provide reasonable assurance regarding the achievement of the organization s objectives. Source: IIA ERM is a structured, consistent and continuous process across the whole organization for identifying, assessing, deciding on responses to and reporting on opportunities and threats that affect the achievement of its objectives. Source: IIA The culture, capabilities, and practices, integrated with strategy-setting and its execution, that organizations rely on to manage risk in creating, preserving, and realizing value. (more on this later ) Source: COSO

20 Risk: Risk Management & ERM The difference between ERM and traditional risk management is in how the entity manages the risks. ERM demands for high-level oversight of the entity s entire risk portfolio, instead of different individual managers overseeing specific risks in silo. ERM encompasses: Aligning risk appetite and strategy Enhancing risk response decisions Reducing operational surprises and losses Identifying and managing multiple and cross-enterprise risks Seizing opportunities Improving deployment of capital Source: COSO

21 ERM: ERM & Corporate Governance Governance: The combination of processes and structures implemented by the board in order to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives. Source: IIA CG involves a set of relationships between a company s management, its board, its shareholders and other stakeholders. It provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Source: OECD The board has overall responsibility for ensuring that risks are managed. However, in practice, the board delegates the executive team to manage the risk.

22 ERM: ERM & Corporate Governance One of the key findings by OECD during in its report Corporate Governance and the Financial Crises, was that of widespread failure of risk management. In many cases risk was not managed on an enterprise basis and not adjusted to corporate strategy. Most important of all, boards were in a number of cases ignorant of the risk facing the company. Risk management failures at major corporations could be not only as the result of shortcomings in financial risk-taking: Environmental catastrophes, Accounting fraud and Foreign bribery. Often these failures were (at least) facilitated by corporate governance failures, where boards did not fully appreciate the risks that the companies were taking (if they were not engaging in reckless risk-taking themselves), and/or deficient risk management systems. Source: OECD

23 ERM: COSO COSO s ERM-Integrated Framework in Need for it? 2016 Update: ERM Aligning Risk with Strategy & Performance. The Framework has five components and 23 principles that support these five components. ERM addresses more than internal control. It also addresses other topics such as setting strategy, governance, communicating with stakeholders, and measuring performance. Its principles apply at all levels of the organization and across all functions. Source: OECD

24 ERM: COSO Model

25 ERM: Role of Internal Auditing in ERM Everyone in the organization plays a role in ensuring successful enterprise-wide risk management but the primary responsibility for identifying risks and managing them lies with management. Auditor s core role with regard to ERM is to provide objective assurance to the board on the effectiveness of risk management. ERM Diagram: ERM activities vis-à-vis internal audit activity should and should not undertake. The key questions: Assurance Role: whether independence and objectivity are threatened? Consultancy Role: whether internal auditor is assuming any management responsibility?

26 ERM: Role of Internal Auditing in ERM Source: IIA

27 RBIA: Challenges & Opportunities What if there is no ERM in your organization? Ways of identifying risk interviews, surveys, risk workshops, the accounts Aligning Audit Universe with the organization s strategy and keeping pace with business change by being adaptive to the risk landscape. Assurance work is most valuable when it is aligned with the strategic risk of the organization CBOK Stakeholder Survey Ability to ask: What should we do? Not What can we do?

28 RBIA: Challenges & Opportunities According to PWC s 2015 State of the Internal Audit Professional Study, 60% of the 1300 CAEs surveyed believed that they will need to be providing valueadded services and proactive advise for the business within the next 5 years. But how??? Focusing on the right risks Developing the talent Strengthening alignment with ERM and other lines of defense Harnessing the power of data Source: PWC

29 RBIA: Challenges & Opportunities IIA Global Chairman Angela Witzany in Audit Never Sleeps : Communicate Well Adopt an Integrated Mindset Do the Right Thing Be Strategic Focus on the Future Rise to the Challenge 43% of the internal audit plans are not well-aligned with organizational strategy CBOK Practitioner Study

30 EQUATE Petrochemical Company Thank You