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Initiatives Relating to Auditing

Initiatives Relating to Auditing

Audit & Supervisory Board Members attend the Board of Directors meetings, audit the state of compliance with relevant laws and with Kao's Articles of Incorporation, the management decision-making process and the status of development and operation of the internal control environment, etc., and provide opinions as necessary.
In FY2020, based on the initiatives adopted by Kao to prevent the spread of COVID-19, audit quality was maintained by incorporating remote auditing activities.
Full-time Audit & Supervisory Board Members attend important meetings such as those of the Management Board, Internal Control Committee and other relevant committees. In addition, they conduct on-site visit to factories and research laboratories, interview business units and functional divisions, and conduct surveys of affiliated companies both within and outside Japan. Outside Audit & Supervisory Board Members also participate in such activities where appropriate. Based on the findings and opinions obtained through these audit activities, the Audit & Supervisory Board holds meetings to exchange opinions with Representative Directors of the company, as well as holding meetings with Outside Directors, and makes suggestions as necessary.

Key Audit Items in FY2020

The Audit & Supervisory Board has established the following key audit items which are of fundamental importance, and implements auditing with respect to these items.

  • Audits relating to Directors' execution of their duties
  • Audits of the status of development and operation of the internal controls system
  • Audits of crisis management, risk management and compliance risk
  • Audits relating to financial reporting and disclosure
  • Audits of the data retention management system

Evaluation of the effectiveness of the Audit & Supervisory Board

The Audit & Supervisory Board conducts an annual evaluation of the effectiveness of the activities of the Audit & Supervisory Board members and the Audit & Supervisory Board. At an Audit & Supervisory Board Meeting held in February 2021, each Audit & Supervisory Board member expressed their opinions on the activities in FY2020, referring to the checklist of focus points for "Self-Evaluation of the Effectiveness of Audit & Supervisory Board Members and Audit & Supervisory Board," and based on these opinions, all members discussed and evaluated the activities. The results were reported to the Board of Directors and will be incorporated into the audit plan for FY2021 to further enhance activities. The main results of the evaluation are as follows.

Current status

  • Audit & Supervisory Board Members attend the meetings of the Board of Directors, audit the management decision-making process and the status of development and operation of the internal control environment from the perspective of legality and appropriateness, and provide opinions as necessary.
  • Full-time Audit & Supervisory Board Members attend important meetings such as meetings of the Management Board, Internal Control Committee and subordinate committees to confirm whether the execution status and the development and operation of internal control are properly implemented. They also perform auditing of factories and research laboratories, business divisions, function divisions and subsidiaries located both within and outside Japan, with Outside Audit & Supervisory Board Members participating too as appropriate. In FY2020, based on measures to prevent the spread of the infection of COVID-19, remote audits were used in combination to maintain audit quality.
  • Audit & Supervisory Board Members hold meetings to exchange opinions with the Representative Directors of the company and its important subsidiaries, as well as with the Outside Directors, based on the findings and opinions obtained through these auditing activities, and make recommendations as necessary.
  • Audit & Supervisory Board Members exchange opinions frankly with each other based on their experience and expertise, while incorporating objective viewpoints, and generally function effectively.
  • The Audit & Supervisory Board has the opportunity to report regularly on the activities of the Audit & Supervisory Board at the Board of Directors meeting.
  • At meetings held to exchange opinions with Auditors of domestic group companies, opportunities are provided for Outside Audit & Supervisory Board Members to give addresses, and an exchange of views is held regarding Auditors' activities and internal controls at individual group companies.

Activities

  • Attendance at important meetings: 69 times
  • Meetings to exchange opinions with Directors: 6 times
  • Auditing of factories and research laboratories, business divisions, function divisions and subsidiaries located both within and outside Japan: 105 times (First Defense Line: 90 times; Second Defense Line: 15 times)
  • Three-way audit related activities: 44 times

Issues

At the start of the Kao Group Mid-term Plan 2025 (K25), the following proposals and discussions will be made in order to respond appropriately and flexibly to changes in the business environment and business expansion.

  • Make recommendations to improve the effectiveness and efficiency of both the development and operation of internal controls on a global basis
  • Strengthen the system to enable the auditors of subsidiaries to function more effectively
  • Continuously review the way in which audits are implemented

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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