Global English

Kao Worldwide

Open

Corporate Governance

Initiatives Relating to Auditing

It is the responsibility of Audit & Supervisory Board Members to audit Directors' execution of duties from an independent position with the aim of establishing governance that ensures the Kao Group's sound and sustainable growth and trust. Audit & Supervisory Board Members frankly exchange opinions with each other and discuss, determine, and resolve audit policies, plans, and issues at meetings of Audit & Supervisory Board.

In order to improve the effectiveness of audits, Audit & Supervisory Board Members attend meetings of the Board of Directors and other important meetings, conduct on-site visits and interviews on business divisions and group companies, verify the establishment and operation status of its internal control systems, and work closely with the Department of Internal Audit, which is an internal audit department, and auditors of group companies and the Accounting Auditor.

Status of Audit & Supervisory Board Members' audits of FY2021

Structure and Personnel

Kao's Audit & Supervisory Board consists of 5 members: 3 Outside Audit & Supervisory Board Members and 2 Full-time Audit & Supervisory Board Members. Audit & Supervisory Board Members frankly exchange their opinions from their diverse perspectives to improve the effectiveness of audits. Each Member's details are shown below. In order to assist Audit & Supervisory Board Members in the performance of their duties, 2 staff, who have a considerable knowledge of finance, accounting, legal affairs, and audit, have been assigned. The Office of the Audit & Supervisory Board was established directly under the Audit & Supervisory Board as of January 1, 2022 and the number of staff has increased to 5.

Frequency of and attendance at meetings

Audit & Supervisory Board held 10 meetings in the FY2021. In addition, Audit & Supervisory Board Members had opportunities to exchange opinions by email and at online meetings, as and when necessary.

Attendance of each Audit & Supervisory Board Member at meetings of the Audit & Supervisory Board and the Board of Directors is as follows:

Title Name Meetings of Audit &
Supervisory Board		 Meetings of Board of
Directors
Audit & Supervisory
Board Chairperson
Full-time Audit &
Supervisory Board Member		 Hideko Aoki 100% (10 / 10 meetings) 100% (15 / 15 meetings)
Full-time Audit &
Supervisory Board
Member		 Sadanao Kawashima*1 100% (8 / 8 meetings) 100% (13 / 13 meetings)
Full-time Audit &
Supervisory Board
Member		 Katsuya Fujii*1 100% (2 / 2 meetings) 100% (2 / 2 meetings)
Outside Audit &
Supervisory Board
Member		 Hideki Amano 100% (10 / 10 meetings) 100% (15 / 15 meetings)
Outside Audit &
Supervisory Board
Member		 Nobuhiro Oka 100% (10 / 10 meetings) 100% (15 / 15 meetings)
Outside Audit &
Supervisory Board
Member		 Takahiro Nakazawa 100% (10 / 10 meetings) 100% (15 / 15 meetings)
  • * 1 Katsuya Fujii resigned following the expiration of his term of office and Sadanao Kawashima took office at an annual general meeting held on March 26, 2021.

Major resolutions and other matters reported and considered by Audit & Supervisory Board in this FY2021 are as follows:

- Resolutions (16 items)
Resolutions regarding Audit & Supervisory Board and its Members: Appointment of Chairperson and Full-time Audit & Supervisory Board Members; revision of the Rules of the Audit & Supervisory Board etc.
Resolutions regarding audits: Audit policies and plans and assignment of roles; identifying key audit items; Audit Report of the Audit & Supervisory Board at the end of the fiscal year
Resolutions regarding Accounting Auditor: Reappointment of Accounting Auditor; consent of Accounting Auditor's compensation etc.

- Other reports and considerations (36 items)
Group governance; internal control; dealing with whistleblowing; issues identified at on-site visits and interviews; evaluation of the effectiveness of the Audit & Supervisory Board

Audit policies and key audit items

Audit & Supervisory Board conduct its duties in accordance with its audit policies which reflects management policies and strategies based on the Kao Group Mid-term Plan 2025 ("K25"), changes in the social environment and stakeholders' requirements, summarize its activities through effectiveness evaluations, and review and identify issues which should be dealt with in the following fiscal year as key audit items.

(i) Audit policies

  • Verify the management decision-making process at meetings of Board of Directors and other important meetings and the execution of business and further interview business divisions and group companies to verify the degree to which the management policies have been instilled in them and audit the management policies to check that the sound management of Kao Group is ensured.
  • Audit the effectiveness of group governance with a focus on the prevention of material losses from being incurred when auditing the establishment and operation status of the internal control of Kao and its group companies. Verify the future direction of the Kao Group's internal control set by the divisions which promote the internal control in response to management strategies that create new business domains and new business models.
  • Strengthen the co-working with auditors of group companies and Accounting Auditor and endeavor to improve the effectiveness and efficiency of audits in light of changes in the social environment that affect governance. Further, verify that information is disclosed in a more appropriate and proactive manner.

(ii) Key Audit Items

  • Implementation of the Kao Group K25 in its first year;
  • Establishment and operation status of the internal control of Kao and its group companies;
  • Improvement of the effectiveness of group governance; and
  • Disclosure of information in a more appropriate and proactive manner.

Overview of audit activities

The method and description of Audit & Supervisory Board Members' audits and the assignment of audit roles for FY2021 are as follows:

Main audit
item		 Method and description of Audit &
Supervisory Board Members' audit		 Audit role
Full-
time		 Outside
Directors'
execution of
duties
  • Attended meetings of the Board of Directors (15 meetings),
    checked Directors' discussions and resolutions, and expressed
    opinions, as necessary.
  • Held meetings to exchange opinions with the representative
    Directors of Kao and its important subsidiaries (6 meetings) as
    well as with the Outside Directors (3 meetings) and shared
    findings obtained from audit activities and made advices.
 ✓ ✓
  • Attended important meetings such as meetings of
    Management Board, Committee, and Internal Control
    Committee (139 meetings), verified the decision-making
    process, and requested explanations, as necessary, and made
    advices from time to time.
 ✓ N/A
  • Verified the degree to which the Kao Group K25 had been
    instilled in Kao's business sites, business divisions, and
    domestic and overseas group companies by conducting dialog-
    oriented on-site visits and interviews.
 ✓ At any
time
  • Attended meetings of Committee for the Examination of
    Nominees for Directors and Audit & Supervisory Board
    Members, Compensation Advisory Committee, and
    Compensation Advisory Committee for Audit & Supervisory
    Board Members for review and discussion.
 N/A ✓
Internal control
  • Verified the execution of business and the establishment and
    operation status of the internal control systems of the Kao's
    business sites, business divisions, and domestic and overseas
    group companies.
  • Verified how monitoring was performed by the Legal and
    Compliance Division and the Risk and Crisis Management
    Division, both of which form the second line of defense.
  • Conducted the above on-site visits and interviews in almost
    the usual manner, using remote audit methods such as online
    meetings from time to time (115 on-site visits and interviews*2
    conducted). At least one Outside Audit & Supervisory Board
    Member attended about 70 percent of such on-site visits and
    interviews.
 ✓ At any
time
  • Conducted interviews with a focus on specific themes and
    exchanging opinions in order to improve the efficiency and
    effectiveness of audits. At the beginning of the interviews,
    recapitulated the issues identified in the previous interviews.
    At the closing of the interviews, classified the comments that were
    made by Audit & Supervisory Board Members during the
    interviews into the Direction, Request, Advice, and Excellent
    Activities categories and shared them.
 ✓ N/A
Group governance
  • Exchanged opinions with the Department of Internal Audit,
    which is an internal audit division, on a regular basis and as-
    needed basis to improve the effectiveness of audits.
 ✓ At any
time
  • Worked closely with auditors of group companies to improve
    the effectiveness of audits by holding regular meetings to
    exchange opinions with them and requesting such group
    company's auditor to attend at Audit and Supervisory Board's
    interviews on their group companies.
 ✓ At any
time
  • Received an annual audit plan, accounting audit findings
    (quarterly reviews and annual audit findings), and key audit
    matters (KAM) from and exchange opinions with Accounting
    Auditor while monitoring the independence and
    appropriateness of audits (on 23 meetings).
 ✓ ✓
  • * 2 When conducting on-site visits and interviews to the business sites, business divisions, and domestic and overseas group companies, the degree to which the Kao Group K25 had been instilled in them and the establishment and operation status of internal control were verified at the same time.

Evaluation of the effectiveness of the activities of the Audit & Supervisory Board of FY2021

How an effectiveness evaluation is performed

Audit & Supervisory Board conducts an annual effectiveness evaluation to improve the effectiveness of audit activities every year. It determines evaluation items mainly focused on main audit items, each Audit & Supervisory Board Member makes evaluation by him/herself and they discuss the result of the evaluation and identify issues at the Audit & Supervisory Board. The Audit & Supervisory Board reflects the results in its next plan and strive to continuously improve effectiveness.

Description of an effectiveness evaluation

The Audit & Supervisory Board deliberated on the results of the evaluation of the effectiveness of audit activities for FY2021 and concluded that it was functioning effectively. The main evaluation items and the key assessments and issues are as follows:

Main evaluation
items		 Key assessments and issues
Effectiveness of
the composition
and operation of
the Audit & Supervisory
Board
  • The experience and expertise of Outside and Full-time Audit & Supervisory
    Board Members are balanced.
  • The issues were shared, and the focus of the deliberations was clarified in
    advance for more active discussions.
  • The Office of the Audit & Supervisory Board, newly established in January
    2022, will serve as the secretariat to promote more effective and efficient
    operation.
Effectiveness of
the system for
supervising
Directors
  • Attended meetings of the Board of Directors and important meetings,
    spoke without restrictions, and confirmed the status of deliberations.
  • In the first year of the Kao Group K25, Audit & Supervisory Board
    Members frankly shared awareness of issues at meetings with Representative
    Directors, confirmed the degree of penetration of Kao Group
    K25 through interviews focusing on dialogue with each division and
    group company, and worked to improve the effectiveness of supervision.
  • Although facing new challenges, the conventional approach will continue,
    and in the next fiscal year Audit & Supervisory Board will focus on
    the effects of structural reforms and the speeding up of implementation.
Verification of the
status of
development and
operation of
internal control
system
  • The "system to supervise Directors" was generally appropriate, as it simultaneously
    checked the status of the development and operation of the
    internal control system. FY2021 was focused on the speed of self-inspection
    and improvement in the first line of internal control, and the monitoring
    status in the second line, confirming the improvement against the issues
    in the previous fiscal year.
  • On-site visits and interviews were conducted almost as usual, using remote
    auditing methods such as timely online meetings, of which about
    70% of them were attended by one or more Outside Audit & Supervisory
    Board Members. The effectiveness of the interview method has been improved
    by reconfirming the previously identified issues at the beginning,
    classified the Audit & Supervisory Board Members' comments into Directions,
    Requests, Advice and Excellent Activities, and shared them at
    the closing.
  • Going forward, Audit & Supervisory Board will focus on steady operation
    and consideration of diversity such as monitoring methods for overseas
    group companies and cooperation with business partners.
Group governance
  • The Audit & Supervisory Board is promoting co-working such as exchanging
    opinions with the Department of Internal Audit, confirming the
    status of responses to issues identified by them, exchanging opinions with
    all auditors of group companies, and requesting to attend Audit & Supervisory
    Board Members' interview as necessary.
  • On the other hand, there are many auditors at group companies who have
    concurrent positions. As issues are being identified through fact-finding
    surveys, the system is being reviewed, and some members of the newly
    established Office of the Audit & Supervisory Board in January 2022 will
    be appointed as auditors of some group companies, which will promote
    cooperation and result in improved effectiveness of the audit function in
    the future.
  • The Audit & Supervisory Board works closely with the Accounting Auditor
    while monitoring the independence and appropriateness of audits.

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.

Corporate Governance

Copyright © Kao Corporation. All rights reserved.

Page Top