Internal Control Systems

Basic Concept regarding the Internal Control System and the System’s Maintenance Status

The Company establishes the fundamental policy concerning “Matters Necessary for the Execution of Duties of the Audit Committee” stipulated in Article 416, paragraph 1, item RO of Companies Act and “System Maintaining Appropriateness of Business Duties” stipulated in item HO of the said paragraph as follows;
[Matters necessary for the duty execution of the Audit Committee]
  • (1) Issues on the Directors and employees who assist the operation of the Company’s Audit Committee(Article No.112-1-1 of Enforcement Regulations of Companies Act)
    When the investigation of the other committee's duty execution by the Audit Committee is necessary, the Director who is the chairman of the relevant committee will be liable for the positive cooperation on the investigation.
    Internal Audit Office with one or more employees assists the operation of the Audit Committee.
  • (2) Issues on the independence of the Directors and employees stipulated in (1) from Company’s Executive Officer(No.112-1-2)
    President & Chief Executive Officer determines the Internal Audit Office member’s appointment, internal transfer and employment conditions including remuneration and others with the approval of the Audit Committee.
  • (3) Issues on ensuring the effectiveness of instructions from the Company’s Audit Committee over the Directors and employees stipulated in 1 (No.112-1-3)
    At the time when there is a necessity for the Audit Committee to conduct an investigation on the other committee’s execution of duties and the Audit Committee determines that cooperation of the chairman of the relevant committee is not sufficient, the Audit Committee immediately reports to the Board of Directors and positively ask for the cooperation under the understanding of all members of the Board of Directors.
    The President & Chief Executive Officer thoroughly informs the Executive Officers and employees that the Company’s employees who assist the duties of the Audit Committee follow the instruction from the Audit Committee and have the right to collect the information for the audit as necessary.
  • (4) Issues on the report which Executive Officer and the employee report to the Audit Committee (No.112-1-4)
    a. The system through which the Company’s directors (excluding the Audit Committee members), Executive Officers and employees report to the Audit Committee (No.112-1-4 I)

    (a) The President & Chief Executive Officer reports to the Audit Committee on the issues reported to and discussed at the Department General Managers Meeting consisting of Executive Officers and Department General Managers. The President & Chief Executive Officer exchanges opinions with the Audit Committee members when necessary.

    (b) The President & Chief Executive Officer ensures the system to report the results of internal audit conducted by the Internal Audit Office to the Audit Committee.

    (c) The President & Chief Executive Officer establishes the whistle-blowing system to ensure the reporting to the Audit Committee when the situations where corruption and the noncompliance with laws or the Articles of Incorporation or the situations which may give serious damages to the Company by Executive Officers, Directors and employees in the course of duty may arise.

    b. The measures which the Subsidiary’s directors, auditors, executive officers, employees, and other employee equivalent to the above or those who are reported by the above are be reported to the Company’s Audit Committee (No.112-1-4 RO)

    (a) The Subsidiary’s directors and employees who are asked by the Company’s Audit Committee about the matters with regard to the execution of duties report immediately and appropriately.

    (b) The President & Chief Executive Officer makes the major subsidiaries establish the whistle-blowing system, ensure that the report through the whistle-blowing system is submitted not only to the relevant department of the said subsidiaries but also to the Company’s Audit Committee and the compliance department, and thereby facilitate the detection of the facts regarding any frauds in relation to the execution of duties of the said subsidiaries’ directors and employees, the facts regarding any other violation of laws or the Articles of Incorporation, or facts which may cause serious damages to the Company or the said subsidiaries. The President & Chief Executive Officer establishes the system to ensure that the statuses of those above mentioned are reported to the Company’s Audit Committee.

    (c) The President & Chief Executive Officer ensures that the results of the internal audit conducted by the Company’s Internal Audit Office are reported to the Company’s Audit Committee.
  • (5) Issues on the system to ensure those who report items described in (4) not to have an unfair treatment(No.112-1-5)
    The President & Chief Executive Officer prohibits unfair treatment of the persons who report to the Company’s Audit Committee and thoroughly inform the Company’s Executive Officers and employees, and the subsidiaries’ directors and employees.
  • (6) Issues on the policy in relation to the treatment of prepayment and repayment of expenses arising from the execution of duties by the Company’s Audit Committee member (limited to the execution of duties with regard to the Audit Committee) (No.112-1-6)
    When the Audit Committee members request the advanced payments of expenses which are needed for the execution of duties, the relevant department processes the expenses or debts immediately unless the prepayments or debts are not needed for the job execution.

[The system to ensure the appropriateness of operations]
  • (1) Issues on the preservation and control of information used in the course of duty of Executive Officer (No.112-2-1)
    President & Chief Executive Officer preserves and control the information according to the company rule for the prevention of the leaks of information to the outside of the Company.
  • (2) Issues on the provisions on controlling the risks of loss (No.112-2-2)
    a. The President & Chief Executive Officer establishes the Risk Control Manual, appoints the person in charge of taking care of the risks of each category, makes the risk control procedure based upon the Risk Control Manual for each category so as to establish and execute the management system.

    b. The Internal Audit Office confirms the operational status of risk control system at least once a year and reports to the President & Chief Executive Officer and Audit Committee.

    c. When the Company encounters the new risk, the President & Chief Executive Officer immediately responds to the risk as the responsible officer.
  • (3) Issues on the system to assure the compliance of Executive Officer's duty performance with the laws and the Articles of Incorporation and efficiency of the operation(No.112-2-3 and 4).
    a. President & Chief Executive Officer establishes the Compliance Manual and operates the Manual accordingly for the Company’s Executive Officers and employees to comply with the related laws and with the Article of Incorporation strictly and to act in accordance with the social common sense based upon a high sense of professional ethics and morality in the ordinary course of business. The President & Chief Executive Officer promotes the compliance by establishing the Compliance Committee.

    b. President & Chief Executive Officer establishes the employees' internal compliance report system.

    c. President & Chief Executive Officer periodically reports to the Audit Committee on the business important issues which were discussed in the Executive Committee.

    d. President & Chief Executive Officer establishes the Regulations of Administrative Authority to ensure the efficient execution of the operations.

    e. Internal Audit Office conducts internal audit and periodically reports the result of audit to President & Chief Executive Officer and the Audit Committee.
  • (4) Issues on the measures to ensure the appropriateness of operations in the Company and the group of the Company which consists of the Company’s parent company and subsidiaries (hereinafter “the Company’s Group”)(No.112-2-5)
    a. The System report to the Company regarding the execution of duties of the Subsidiary’s directors, Executive Officers, employees, and other staff equivalent to the above (herein (c) and (d) “the Directors, etc.”) (No.112-2-5 I)
    (a) The President & Chief Executive Officer requests the submittal of the related documents by the subsidiary to the Company in order for the President & Chief Executive Officer to observe the subsidiaries’ business performance appropriately in accordance with the rule of management of subsidiaries.
    (b) The President & Chief Executive Officer requests the subsidiaries’ CEO, directors, or employees to attend the Company’s Board of Directors Meeting regularly in order for the subsidiaries to report the business performances, financial situations, and other important information to the Company.

    b. The rule for the management of loss risk of the Company’s subsidiaries and other systems related (No.112-2-5 RO).
    (a) The President & Chief Executive Officer establishes the Rule of Risk Management in which the risk management for entire the Company’s Group is stipulated and the management of risks the subsidiaries are required is described. The President & Chief Executive Officer manages the entire risk of the Company’s Group comprehensively in accordance with the Rule.
    (b) The Internal Audit Office regularly investigates the risk management of the subsidiaries and report to the President & Chief Executive Officer and to the Audit Committee.

    c. The system to ensure that the Directors execute duties effectively (No.112-2-5 HA)
    (a) The President & Chief Executive Officer establishes the Rule of Management of Subsidiaries for the effective management of the Company’s Group in respect for the autonomy and independence of the subsidiaries’ management.
    (b) The subsidiaries establish the regulations of administrative authority and execute duties effectively.

    d. The system to ensure that the execution of duties by the Directors and employees complies with the laws and the Articles of Incorporation (No.112-2-5 NI)
    (a) The President & Chief Executive Officer makes the subsidiaries establish the system to deploy the appropriate number of auditor and persons in charge of compliance based upon subsidiaries’ businesses and sizes.
    (b) The President & Chief Executive Officer makes the subsidiaries establish the audit system in which the subsidiaries’ auditors conduct audits the execution duties of the directors and employees including the development and operation of the internal control at the subsidiaries.
    (c) The subsidiaries have the board of directors and the Company’s Executives or employees assume the position of the subsidiaries’ director so as to monitor the appropriateness of the subsidiary’s operation.
    (d) The Company’s President & Chief Executive Officer establishes the whistle-blowing system in the subsidiaries.

[Overview of the operation status of system to ensure the appropriate duties]
The Internal Audit Office conducts business audit for each department in order for the Office from an independent standpoint to verify whether the Internal Control System is functioning properly, whether there has been no misconduct, and whether there are any items to be improved. Issues that have become apparent through audits should be advised to the audited department immediately after the audits, and the issues are reported to the Audit Committee and the Chief Executive Officer for the issues to be improved in a timely manner. In addition, the Administration Department and the Internal Audit Office play a central role in conducting regular and periodical training and audits thereby raising the awareness of the importance of internal control systems and of compliance for the departments concerned and the subsidiaries.

Basic Policy Concerning Eliminating Anti-social Forces and Status of Development

The Company has established the Compliance Training Manual and Business Conduct Guideline to eliminate any relationship with anti-social forces. As the basic attitude, the Company, with firm manners, has no involvement with such forces and organizations and firmly eliminate those forces and organizations without allowing unfair intervention from such forces and organizations.
The department and person in charge of this matter have been designated, as the internal system, efforts have been made to cooperate with external specialized agencies such as the police department in charge and advisory lawyers, and efforts have been made to collect information through attendance of the trainings. The Compliance Training Manual includes measures against violent behavior and unreasonable demands from anti-social forces and organizations, and the measures are thoroughly notified and shared in the training part of the compliance seminars conducted at least once a year for all employees, so that the Company as a whole can take appropriate measures against anti-social forces.