Initiatives Relating to Auditing

Audit method of the Audit & Supervisory Board

The Audit & Supervisory Board Members are entrusted by shareholders to audit Directors' execution of duties from an independent standpoint, aiming to achieve the sound and sustainable growth of Kao Group and establish governance that meets the trust of stakeholders. We provide in a detailed explanation of the activities of the Audit & Supervisory Board in FY2022 under review to enhance the transparency of audits and the effectiveness of dialogue with stakeholders as below

Audit Policies

In FY2022, we conducted auditing activities with a shared sense of urgency and the necessity of reforms recognized by management with regard to the status of implementation of corporate strategy and the status of response to management environmental risks. We adopted a policy which recognizes that stakeholders are demanding a higher level of effective governance and an active disclosure of information.

Particularly important points in Audit & Supervisory Board Members' activities

Lively exchange of opinions

The Audit & Supervisory Board Members attend important meetings and put emphasis on decision-making process for reaching resolutions, and express their opinions as appropriate.

Dialogue with people at the actual sites (Genba)

In addition, the Audit & Supervisory Board Members conduct on-site audits and interviews of each division and subsidiary and affiliates. By placing importance on dialogue with people at the Genba, they confirm the degree of how well corporate strategy is being shared and whether proactive efforts are being made. They also identify any issues that occur at Genba. At least one Outside Audit & Supervisory Board Member has participated in approximately 70% of the interviews.

On-site audits and interviews at Wakayama Plant

Composition and execution of duties of the Audit & Supervisory Board

The Audit & Supervisory Board consists of two Full-time Audit & Supervisory Board Members with internal execution experience and diverse knowledge and three Outside Audit & Supervisory Board Members with respective expertise and abundant experience.
In January 2022, the Office of the Audit & Supervisory Board (with five members) was newly established, to assist the Audit & Supervisory Board Members with their duties and to allow the members to serve concurrently as Auditors of subsidiaries.

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

Deliberations by the Audit & Supervisory Board

Number of meetings held: 9 / Attendance rate: 100%
Duration: Average of 2 hours and 14 minutes

17 resolutions: Audit policy, division of duties, critical auditing items, annual plan, audit report, internal control matters, Accounting Auditor matters (including agreement on compensation, deliberation on reappointment, and non-assurance services), appointment and compensation of Audit & Supervisory Board Members, evaluation of effectiveness, etc.
38 matters considered: Audit findings on critical auditing items, group governance (the Group's structure of Auditors and the direction of future governance), closely monitoring issues concerning internal control, non-assurance services by the Accounting Auditor, exchange of opinions with Representative Directors and Outside Directors, etc.

Evaluation of the effectiveness of the Audit & Supervisory Board: The evaluation is made once a year. Discussions at the Audit & Supervisory Board based on the results of the questionnaire led to the conclusion that the system at the Board as a whole was functioning effectively during FY2022.

Major contents of the evaluation

  • The Audit & Supervisory Board conducts frank exchanges of opinions.
  • The agenda items are proactively selected matters to be considered.
  • Information sharing and support by the newly established Office of the Audit & Supervisory Board have been also strengthened.

Going forward, we hope to deepen discussions on the skill matrix of the Audit & Supervisory Board, which aims for greater diversity

Key audit items, achievements and evaluation of effectiveness

Key audit items Audit method Activity results and evaluation of effectiveness Audit role
Full-time Outside
Status of
execution of
duties by
Attend meetings of the Board of Directors
to confirm the status of deliberations
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 and request explanations
as necessary
Attendance rate was 100%, reviewed decision-making
process and commented on matters to be considered.
Exchange opinions with Management Representative Directors of Kao (5 times); Outside
Directors (2 times); Executive Officers with titles (6 times),
Representative Directors of important subsidiaries (3
times); Recognition of management issues and future
governance were shared through frank exchanges of
Conduct On-site audits and interviews of
worksites, divisions, domestic and
overseas subsidiaries and affiliates
(including confirmation of priority audit
items such as internal control.)
114 cases
  • Emphasis on dialogue (1,136 comments from Audit &
    Supervisory Board members)
  • Confirmation of improvement status at a later date for
    completion of audit findings. Share with executive
    officers along with excellent on-site initiatives
Attend the Committee for the Examination
of the Nominees for Directors and Audit &
Supervisory Board Members and
Compensation Advisory Committee for
Directors and Executive Officers
11 times N/A
Effectiveness of
the Group
  • Systematize and improve the
    effectiveness of the Kao Group's
    structure of Audit & Supervisory Board
    Members. (Kao, subsidiaries, affiliates)
  • Improve the effectiveness of audit
    activities under the group management
  • Commenced a system in which members of the Office
    of the Audit & Supervisory Board concurrently serve as
    Auditors of subsidiaries
  • All Auditors of subsidiaries and affiliates regularly
    exchanged opinions to identify and review risks (6
  • Introduced effectiveness evaluation of the Audit &
    Supervisory Board to important subsidiaries, and
    provided training to improve their skills
At any time
  • Exchange opinions between the
    Accounting Auditor and Audit &
    Supervisory Board Members and report
    accounting audit results to Meetings of
    Board of Directors
Exchanged opinions (21 times); Reported to Meetings of
Board of Directors (2 times)
  • Audit plan, accounting audit results, key audit matters,
    non-assurance services management, audit quality, etc.
  • Held global meetings to exchange opinions with
    domestic and overseas auditors
Development and
operation of
internal control
On-site audits and interviews of worksites,
divisions, domestic and overseas
subsidiaries and affiliates
Confirmed results of self-inspections and external audit,
and also the status of
development and operation of internal control systems
At any time
  • Conduct Interviews with the departments in charge of the second line of internal control
  • Attend or check minutes of Internal
    Control Committee and each affiliate
  • Check the response status of the
    Compliance hotline
Conducted quarterly or semi-annually
  • Self-inspections and monitoring are taking hold, and
    responses to issues to deal with have been handled
    appropriately in principle.
  • Timely reports are also made to Audit & Supervisory
    Board Members.
At any time
Exchange information with the Department
of Internal Audit which is the division
responsible for internal auditing
4 times At any time
Evaluate the construction and operation
status of the internal control system using a
Generally valid N/A
Evaluated the Company's disclosure status
by investigating external requests and
disclosure status.
  • Recommended the points that can be evaluated and
    points for improvement when exchanging opinions with
    Management and to related departments. Confirmed
    the development of the promotion system and the
    information disclosure status
  • Proactively disclosed activities of the Audit &
    Supervisory Board Members

Internal Audit Status

The Department of Internal Audit reports directly to the President and Chief Executive Officer. It conducts internal audits on management activities of Kao and Kao Group companies in general from the perspective of complying with laws and regulations, the appropriateness of financial reporting and administrative effectiveness and efficiency. Besides providing reasonable assurance as to the effectiveness of the company's internal controls, the department also aims to further enhance the internal controls system by proposing improvements. The results of internal audit activities are reported to the Management Board and the Board of Directors at regular intervals.
Regarding management of subsidiaries, the Group Company Policy Manual stipulates which items subsidiaries are required to obtain approval for from Kao in advance, and which items they are required to report to Kao. In accordance with the policy manual, the findings of internal audits conducted by the Department of Internal Audit, as well as initiatives implemented in response and the outcomes of such initiatives, are shared with the board of subsidiaries.
The Department of Internal Audit exchanges information and opinions regarding the current state of internal audit activities with Audit & Supervisory Board Members on a regular basis and as needed. In addition, with regard to the development or evaluation of internal controls relating to financial reporting and the current state of related internal audit activities, the Department of Internal Audit shares information as appropriate with the Accounting Auditor, and strives for effective mutual coordination with the Accounting Auditor.

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