Audit System

In accordance with the resolution at the 83rd Ordinary General Meeting of Shareholders held on June 27, 2024, the Company transitioned from a Company with Audit & Supervisory Board into a Company with Audit & Supervisory Committee.

As of the submission date of the Financial Statements-, the Company's Audit & Supervisory Committee consists of a total of three members: one full-time Audit & Supervisory Committee Member (internal) and two part-time Audit & Supervisory Committee Members (outside). The chairperson of the Audit & Supervisory Committee is an Outside Director who serves as an Audit & Supervisory Committee Member. Audit & Supervisory Committee Members are appointed based on their appropriate experience, capabilities, and sufficient knowledge in finance, accounting, and legal matters, ensuring diversity among Audit & Supervisory Committee Members and the effectiveness of audits.
An Audit & Supervisory Committee Secretariat has been established to support the Audit & Supervisory Committee Members in the performance of their duties, and dedicated staff with appropriate skills and knowledge have been assigned. Matters related to personnel transfers, performance evaluations, compensation, and disciplinary actions for said staff are subject to consultation between the Audit & Supervisory Committee and the Human Resources Department. The Audit & Supervisory Committee Secretariat is granted the authority to carry out audit-related tasks and secretariat duties under the direction of the Audit & Supervisory Committee, ensuring independence and efficiency.

The Audit & Supervisory Committee (the Audit & Supervisory Board until the conclusion of the 83rd Ordinary General Meeting of Shareholders) holds monthly meetings in conjunction with the meetings of the Board of Directors, reviews reports from the Accounting Auditor, and convenes extraordinary meetings as necessary. During the fiscal year ended March 31, 2025, Audit & Supervisory Board meetings were held six times and Audit & Supervisory Committee meetings 14 times, totaling 20 meetings, with an average duration of 1 hour and 23 minutes per meeting. The Audit & Supervisory Committee and the Audit & Supervisory Board considered 18 matters to be resolved, 49 matters to be reported, and 13 matters for discussion, with the main matters as follows.

The Audit & Supervisory Committee has determined the audit policy for the fiscal year ended March 31, 2025.

Based on audit policies, we have established an audit plan (including audit items, determination of roles and responsibilities for Audit & Supervisory Committee Members, determination of the budget for audits, and coordination between the Accounting Auditor and internal audits). Additionally, we have discussed the review of the audit plan at the mid-term of the fiscal year under review in light of changes in the business environment and confirmed that no changes are necessary.
Audit items are composed of the following four categories: (1) governance-related audits, (2) audits related to the establishment and operation of internal control systems, (3) accounting audits, and (4) thematic audits related to compliance and risk. Among these, regarding (4), the Audit & Supervisory Committee has conducted an analysis of external and internal risk factors using the PESTLE (Political, Economic, Social, Technological, Legal and Environmental) framework and has incorporated important risk items as key audit items to the audit plan. For the fiscal year under review, we conducted audits focusing on the following four key items.

Among these, with regard to implementation of the succession plan and enhancement of human capital, Audit & Supervisory Committee Members attended relevant important meetings (TM meetings, Nomination Committee meetings) as assigned, and received explanations from the Operating Officers in charge regarding the overall status of initiatives at the Audit & Supervisory Committee, and also exchanged opinions.
Regarding quality improvement and development/commercialization strategies, the Audit & Supervisory Committee Members responsible for these areas attended meetings where technical issues were discussed and meetings where business conditions were examined, and confirmed details of the discussions.
Regarding information/ IT strategies and cyber risk response, and initiatives to promote sustainability, the Audit & Supervisory Committee Members responsible for these areas reviewed the relevant subcommittee materials, and all Audit & Supervisory Committee Members attended Sustainability Committee meetings to confirm the overall status of initiatives and the status of preparations for disclosure.

Among important meetings, three Audit & Supervisory Committee Members attend the TM meetings, and meetings of the Nomination Committee and the Remuneration Committee as assigned. In addition, all three Audit & Supervisory Committee Members attend meetings to exchange opinions with Directors who are not Audit & Supervisory Committee Members, as well as meetings with the Accounting Auditor and internal audit departments.
Starting from the fiscal year under review, we have established a coordination meeting as an internal control liaison meeting, which include full-time Audit & Supervisory Committee Members, Audit & Supervisory Committee Secretariat, internal audit departments and Internal Control Committee Secretariat to enhance the visibility of the activities of internal control departments (the so-called second line) and to raise the level of organizational audits. In addition, we have established a liaison meeting between the Audit & Supervisory Committee, internal audit departments, and Audit & Supervisory Board Members of subsidiaries to disseminate the Audit & Supervisory Committee's audit plan and share information on audits of subsidiaries.

The Audit & Supervisory Committee conducted a self-assessment of the effectiveness of Audit & Supervisory Committee audits for the fiscal year ended March 31, 2025. There were 25 evaluation items, broken down as follows: seven items related to the establishment and operation of the Audit & Supervisory Committee system, six items related to the establishment of the Audit & Supervisory Committee audit system, ten items related to the operation of Audit & Supervisory Committee audits, and two other items. As a result of discussions, it was determined that the effectiveness of Audit & Supervisory Committee audits is sufficiently ensured.

The three parties of the Accounting Auditor, internal audits, and the Audit & Supervisory Committee hold regular meetings, such as information exchange meetings, to share information and utilize it for their respective audits.
In collaboration with internal audit, we exchange opinions on risk assessment, mutually report and exchange opinions on audit plans and results, and conduct joint audits, among others.
In collaboration with Accounting Auditor, we exchange opinions on risk and Key Audit Matters (KAM), conduct hearing of the audit plan by Accounting Auditor, conduct hearing of audit results, evaluate Accounting Auditor, and provide feedback on the evaluation results to Accounting Auditor.

The Company has established an internal audit department (Internal Audit Office) that reports directly to the President and Chief Executive Officer. The Internal Audit Office is staffed ten members with diverse work experience, including those who have been seconded to overseas Group companies, and includes personnel who hold professional qualifications such as CIA (Certified Internal Auditor), CISA (Certified Information Systems Auditor), and CFE (Certified Fraud Examiner).
The Company's internal audits are conducted in accordance with Internal Audit Regulations and the Annual Audit Plan for head office functional departments and Group companies. When conducting internal audits, we formulate individual audit implementation plans and audit objectives based on risk, objectively evaluate the implementation status of management activities, and prepare reports containing advice and proposals for improvement. The results of internal audits and the status of follow-up on issues raised in previous audits are reported to the Board of Directors twice a year.
In addition to the above internal audits, the Internal Audit Office conducts evaluations of the establishment and operational status of systems and processes related to financial reporting in accordance with the "Standards and Practice Standards for Management Assessment and Audit concerning Internal Control over Financial Reporting." The results of the evaluation of internal controls over financial reporting are reported by the head of internal audit departments to the President and Chief Executive Officer, the CFO, and the Audit & Supervisory Committee. Furthermore, these results are reported by the CFO to the Board of Directors, thereby establishing a mechanism for the Board of Directors to oversee and supervise the establishment and operation of internal controls over financial reporting by management.

The head of internal audit departments, Audit & Supervisory Committee Members, and the Accounting Auditor regularly exchange information and opinions to strengthen coordination among the three types of audits, striving to improve the efficiency and effectiveness of audits.
The head of internal audit departments obtains audit implementation reports of Audit & Supervisory Committee from the Audit & Supervisory Committee Secretariat and works to ensure that both parties conduct audits efficiently.
In addition to regularly exchanging information and opinions with the Accounting Auditor, the head of internal audit departments also holds meetings and exchanges opinions as necessary.
The Company promotes company-wide risk management and internal control activities based on the "three lines model" in order to not only preserve corporate value but also realize the creation of continuous economic and social value. The Internal Audit Office collaborates with administrative departments as necessary by sharing information and other means to strive for the preservation and enhancement of corporate value.

The Internal Audit Office is an organization that reports directly to the President and is independent from other business execution departments in order to provide objective assurance. It also maintains reporting channels to the President and Chief Executive Officer, the Board of Directors, and the Audit & Supervisory Committee.
Furthermore, starting from the fiscal year under review, Internal Audit Office attends coordination meetings as an internal control liaison meeting, which include full-time Audit & Supervisory Committee Members, Audit & Supervisory Committee Secretariat, Internal Audit Office and Internal Control Committee Secretariat. These meetings aim to grasp the status of the establishment and operation of internal control systems as well as risk assessments, etc. Additionally, the Internal Audit Office attends liaison meetings with Audit & Supervisory Board Members of subsidiaries to grasp audit plans and their implementation status, thereby promoting audit coordination and ensuring the effectiveness of the audit process.

Those assisting the Company with auditing work consist of seven certified public accountants, five persons who have passed the certified public accountant examination, and 18 others.

The selection of the Accounting Auditor is based on selection criteria formulated by the Audit & Supervisory Committee, taking into consideration factors such as the Accounting Auditor's profile, audit implementation structure, and audit fees, etc. Since the Group has extensive overseas operations, decisions are made based on a global audit system as well as taking into consideration the evaluation results of the Accounting Auditor by the Audit & Supervisory Committee.
In addition, if the Audit & Supervisory Committee finds that the Accounting Auditor falls under any of the items listed in Article 340, paragraph (1) of the Companies Act, it shall dismiss the Accounting Auditor with the consent of all Audit & Supervisory Committee Members. Also, if it is deemed that the Accounting Auditor is having difficulty performing its duties appropriately, it shall decide the details of a proposal to be submitted to the General Meeting of Shareholders to dismiss or not reappoint the Accounting Auditor.

The Audit & Supervisory Committee establishes evaluation criteria for accounting auditors and conducts annual evaluations of their quality control systems, audit implementation systems, audit fees, communication with Audit & Supervisory Board Members, etc., and confirms that they do not fall under the policy for dismissal or non-reappointment of accounting auditors established by the Company.