The Audit & Supervisory Board Activities

The Audit & Supervisory Board seeks to enhance the transparency of audits and the effectiveness of dialogue with stakeholders by clearly presenting the audit policy of Kao and the Kao Group, as well as specific audit activities.

Audit policy

The Kao Group aims to become a Global Sharp Top company by further advancing reforms to enhance earnings power toward achieving its Mid-term Plan “K27,” through Yoki-Monozukuri and maximizing employee vitality. After sharing management’s sense of urgency and the need to accelerate global growth, the Audit & Supervisory Board established a policy of conducting audit activities with due awareness of stakeholder requests and societal expectations, by confirming the status of execution of “K27” and responses to risks in the management environment.

Particularly important points in Audit & Supervisory Board Members’ activities

Proactive expression of opinions

Audit & Supervisory Board Members proactively express their opinions regarding decision-making processes and resolutions at important meetings such as Board of Directors meetings and Management Board meetings. They also engage in active exchanges of views with Directors and Executive Officers on key auditing items.

Dialogue with people on-site (Genba)

Through on-site audits and interviews at various divisions and group companies, Audit & Supervisory Board Members place importance on understanding the extent to which management strategies have been implemented, proactive initiatives, issues faced on-site, and requests directed toward management. Following on-site audits and interviews, Audit & Supervisory Board Members share their comments, categorized into guidance items, requests, advice, and best practices, so that they can reflect them in their respective initiatives. At least one Outside Audit & Supervisory Board Member participated in approximately 70% of such on-site audits and interviews.

On-site audits and interviews at Molton Brown Factory in the UK

Composition and execution of duties of the Audit & Supervisory Board

The Audit & Supervisory Board consists of five Audit & Supervisory Board Members (two Full-time Audit & Supervisory Board Members and three Outside Audit & Supervisory Board Members). Full-time Audit & Supervisory Board Members with extensive internal execution experience and diverse knowledge, together with Outside Audit & Supervisory Board Members possessing leadership experience and a high level of expertise and insight, share audit-related information as appropriate and deliberate from diverse perspectives. In addition, an Audit & Supervisory Board Office has been established directly under the Audit & Supervisory Board to assist Audit & Supervisory Board Members in the execution of their duties, and staff members concurrently serve as auditors of subsidiaries.

Please find the link below for Audit & Supervisory Board Members.

Leadership: Audit & Supervisory Board Members

Deliberations by the Audit & Supervisory Board

Number of meetings held: 10
Attendance rate: all members marked 100%
Duration: Average of two hours and fifteen minutes
Main agenda of the Audit & Supervisory Board meetings
- 18 resolutions:
  Audit policy, division of duties, key auditing items, annual plan, audit report, Audit & Supervisory Board regulations, internal control matters, Accounting Auditor matters (including agreement on remuneration, and deliberation on reappointment), appointment of Audit & Supervisory Board Members, etc.
- 16 matters considered:
  Audit findings, revision of the policy on selection of candidate Audit & Supervisory Board Members, revision of Audit & Supervisory Board regulations, key themes for exchange of opinions with Representative Directors and Outside Directors, semiannual reports on audit activities, enhancement of the effectiveness of overseas on-site audits and interviews, confirmation of the effectiveness evaluation process, etc.

In addition to meeting agenda of the Audit & Supervisory Board, Audit & Supervisory Board Members exchange opinions freely on topics such as the skills of Audit & Supervisory Board Members, group governance, and the progress of management strategies.

Key auditing items, achievements and evaluation of effectiveness

Key auditing items	Audit method and efforts	Activity results and evaluation of effectiveness
Status of execution of duties by Directors and Executive Officers	Attend meetings of the Board of Directors to confirm the status of deliberations and resolutions, and express opinions if necessary	All Audit & Supervisory Board Members attended all meetings All of them actively expressed their opinions
	Attend important meetings such as the Management Board to confirm decision-making process, request explanations as necessary, and expressed opinions in a timely manner	Full-time Audit & Supervisory Board Members attended all Management Board meetings, ESG Committee meetings, and Internal Control Committee meetings, confirmed the decision-making process, and expressed opinions on matters requiring deliberation
	Active exchange of views with Directors of Kao and major Kao Group companies regarding key auditing items	Kao: Representative Directors (three times), Outside Directors (two times), Executive Officers with titles (four times) Important subsidiaries: Representative Directors (two times) With Representative Directors, exchanged opinions mainly on the status of execution of “K27” and awareness of issues related to area strategies With Outside Directors, had in-depth discussions on on-site issues and group governance issues identified through audits and interviews, and reported the results of such discussions to the Representative Directors
	On-site audits and interviews at worksites, divisions, domestic and overseas subsidiaries and affiliates (Also confirm key auditing items such as internal control.)	101 times Confirmed numerous examples of effective use of ROIC and workplace improvement actions based on the employee engagement survey Confirmed that Audit & Supervisory Board Members’ comments contributed to improve the PDCA cycle
	Attend the Committee for the Examination of the Nominees for Directors and Audit & Supervisory Board Members, and the Compensation Advisory Committee for Directors and Executive Officers	The responsible Outside Audit & Supervisory Board Members attended meetings (six times)
Effectiveness of Group governance	Systematize the Kao Group’s structure of Audit & Supervisory Board Improve the effectiveness of auditing activities tailored to each company’s characteristics, under the unified management of the Group	Maintained a structure in which members of the Office of the Audit & Supervisory Board concurrently serve as auditors of subsidiaries At Group auditor opinion exchange meetings (three times), shared findings and issue awareness arising from audit activities and conducted training to enhance audit skills
	Exchange opinions between the Accounting Auditor, Audit & Supervisory Board Members and related departments Report accounting audit results of the Accounting Auditor to the Board of Directors meetings	Exchanged opinions (nine times) and reported to the Board of Directors meetings (three times) Confirmed audit plan, accounting audit results, key auditing items, non-assurance services management, audit quality, etc. Held meetings to exchange opinions on main audit issues with auditors for overseas subsidiaries
	Strengthen collaboration in three types of Audits (between the Audit & Supervisory Board Members, the Accounting Auditor, and the Department of Internal Audit)	Held three types of Audits meetings (three times) to share audit plans and key issues among each audit organization, thereby strengthening coordination and improving the effectiveness of audit activities
Development and operation of internal control	Hold interviews with the departments in charge of the second line of internal control Risk management and effectiveness of evaluations by the Internal Control Committee and major subordinate committees	Confirmed that the first defense line conducts self-assessments and that the second defense line monitors such assessments (quarterly or semi-annually) Confirmed that a global quality governance framework and related quality assurance regulations have been developed and implemented based on the Three Defense Lines Model
	Collaboration with the Department of Internal Audit	In addition to regular meetings (four times), requested the Head of the Department of Internal Audit to attend meetings of the Audit & Supervisory Board and shared findings and risk awareness
	Analysis of causes and evaluation of countermeasures for compliance incidents	While responses to significant compliance incidents were generally appropriate, advice was provided to further strengthen root-cause analysis and countermeasures by the second line
Proactive disclosure	Attendance at major meetings and confirmation of disclosure status during audits and interviews of related departments	Confirmed that IR, SR, and PR activities are coordinated, and that information is disclosed strategically

Evaluation of the Effectiveness of the Audit & Supervisory Board

Each year, evaluation items are established with a focus on key auditing items, and effectiveness is evaluated from multiple and objective perspectives. In addition to self-evaluations by each Audit & Supervisory Board Member, the opinions of Directors and other relevant parties are taken into consideration, and as a result of extensive discussions by the Audit & Supervisory Board, the overall evaluation for FY2025 concluded that the Audit & Supervisory Board is functioning effectively.
With respect to the status of execution of “K27,” particular attention was paid to the Cosmetics Business, which is positioned as a growth driver area. Through on-site audits and interviews, and important meetings, the Audit & Supervisory Board verified the extent to which growth strategies had been implemented on-site and the effectiveness of structural reforms. ROIC has become established not only in business divisions but also in functional divisions, and numerous examples of its application were confirmed. In addition, audit results based on the three types of Audits conducted over the past 15 years for audit target subsidiaries (90 companies) were carefully reviewed, and priority areas, businesses, and corresponding audit areas were shared with the Department of Internal Audit. Governance of overseas subsidiaries will continue to be closely monitored as an important theme in connection with global business expansion. Issues identified through this evaluation will be reflected in FY2026 key auditing items in order to further enhance effectiveness.

For the Audit & Supervisory Board's effectiveness evaluation, please see below: