Financial Reporting Risk Management Policy

Section 1 General Provisions

Article 1 Purpose

1. To protect the rights and interests of all stakeholders, as well as to meet our social responsibilities, the Group understands the necessity and importance of compliance with laws and regulations and information disclosure to ensure management transparency and the reliability of the Group’s financial reporting.
2. This policy is based on the provisions of the Financial Instruments and Exchange Act and the Standards for Assessment and Audits Concerning Internal Control Over Financial Reporting to establish internal controls related to company-wide financial reporting functions and business processes and to ensure the reliability of financial reporting.

Article 2 Basic policies

The Group engages in internal controls for financial reporting based on unified consolidated Group policies. This policy applies to all the Group companies.

Section 2 Evaluation System

Article 3 Roles and responsibilities of personnel involved in evaluation of internal controls

Roles and responsibilities of personnel involved in internal control evaluation are as provided below.

1. (1)The President, Representative Director and CEO of the Company is responsible for the effective maintenance and operation of internal controls based upon policies as determined by the Board of Directors. This individual bears final responsibility for the evaluation of these controls, including evaluation planning, implementation, and evaluation results.
2. (2)The Company Board of Directors determines basic policies for internal controls over financial reporting. The board also has supervisory responsibility for the maintenance and operation of the internal control system operated by Company management.
3. (3)The Audit & Supervisory Committee is responsible to audit, monitor, and verify the maintenance and operational status of the internal control system from an independent standpoint.
4. (4)The Company’s Internal Audit Department is responsible for reviewing and evaluating the maintenance and operational status of the internal control system, as well as to promote improvements for greater effectiveness of the internal control system. Results of audits are regularly reported to Company and Group representative directors, Group company presidents, Group company boards of directors, Audit & Supervisory Committee and Audit & Supervisory Boards.
5. (5)The Company CSR Promotion Department is responsible for maintaining and improving compliance and corporate ethics within the Group. Information on departures from or deficiencies in internal controls reported by whistleblowers or from outside the company are regularly reported to the Group company and representative directors, Group company presidents, Group company boards of directors, Audit & Supervisory Committee and Audit & Supervisory Boards.
6. (6)The ERM Committee implements annual risk assessments and fulfills important decision-making roles and responsibilities related to the establishment and operation of internal control systems.
7. (7)The Company’s Corporate Planning Department oversees projects related to documentation and making improvements. The department is also responsible for promoting the creation and operation of internal control systems based on policies determined by the Board of Directors and the separately defined project outlines.
8. (8)After receiving a report from internal audits, process owners are responsible for ensuring the maintenance and operation of effective internal control systems related to the individual business processes under their control.
9. (9)Consolidated Group representative directors and company presidents are responsible for ensuring the maintenance and operation of effective internal control systems in business locations under their supervision.

Section 3 Evaluation Scope for Internal Controls

Article 4 Evaluation scope for company-wide internal controls

The scope for evaluations of internal controls covers all companies included in the Company’s consolidated financial statements. However, business locations representing less than five percent of total income before tax for the current period (before the deduction of management service fees) and judged to be of low significance are excluded from this scope.

Article 5 Evaluation scope for process-level controls

1. Business locations that have achieved a specified ratio (approximately two-thirds) of consolidated sales are considered to be within the scope of process-level evaluation (however, this only applies to companies in which company-wide controls are recognized as being effective).
2. Important business processes include sales, accounts receivable, personnel expense (cost of sales), inventories, and the following processes determined individually, all of which have a major impact on the business purpose of the company.
   (1)High-risk transactions
   (2)Accounts associated with forecasts (allowances, fixed asset impairment, etc.)
   (3)Risk of falsified records such as unusual or irregular transactions

Article 6 Timing for determining evaluation scope

1. The timing to determine the scope of evaluation for company-wide internal controls and process-level evaluations for a current fiscal year is at the end of the previous fiscal year , following discussions with our financial statement auditor in light of the most recent financial figures and status of acquisitions, sales, and structural reorganizations.
2. The treatment of companies that have carried out acquisitions, sales, or structural reorganizations during the fiscal year is determined as required after consultations with our financial statement auditor.

Section 4 Operating Procedures for Internal Controls

Article 7 Operating procedures and corrective action

Company management conducts annual internal control tasks in accordance with the following procedures. Specific tasks and corrective actions for control are defined in the project outline.

1. (1)Determine basic policy and plan
2. (2)Evaluate maintenance and operational status of internal controls
3. (3)Respond to and correct any deficiencies identified
4. (4)Report on internal controls

Article 8 Establishment and revision of project outlines

1. Decisions on the project outline are made after approval by the Company’s Board of Directors.
2. When making any additions, corrections, or amendments necessary to the project outline, such changes are to be confirmed by the Company’s President, Representative Director and CEO, subject to subsequent approval by the Company’s Board of Directors.
3. When revisions are made to related laws or changes occur in organizations that affect the summary document (including changes in the Company or other Group companies), or if minor additions, deletions, or corrections such as typographical errors, such changes are to be confirmed by the Managing Director and CFO, subject to subsequent approval by the Company’s Board of Directors.

Section 5 Director and Employee Education, Training, and Communications

Article 9 Education and training

The understanding of executives and employees of Group companies regarding the significance and details of internal controls in the performance of their tasks is a prerequisite for an effective internal control structure. The Company has established the departments, timing, targets, and details of education and training in a separately defined project outline.

Article 10 Communications

This policy and project outlines shall be fully communicated to all Group executives and employees.

Supplementary Provisions

Article 1 Revisions

Revisions to these rules shall subject to resolution by the Board of Directors.

Revision history
Published: February 1, 2014
Revised: July 1, 2019