Status of internal controls system

　As a basic policy for the establishment and operation of a system for the proper execution of duties, the Company decided on the following basic policy regarding the internal controls system at the meeting of its Board of Directors held on July 18, 2023.

System for the purpose of ensuring that the execution of duties by the Company's Directors and employees is in compliance with laws, regulations, and the Articles of Incorporation: ・The Company has set forth Compliance and Risk Management Regulations in order to ensure that the execution of duties by Directors and employees of the Group conforms to laws, regulations, and the Articles of Incorporation, and strives to effectively operate and thoroughly implement these regulations. ・The Company discloses the details of the duties and decision-making authority of Directors and employees based on our regulations on the division of duties, regulations on administrative authority, and the organization regulations in a manner in which they can be viewed by standing Directors and employees at any time, and ensures a system in which the execution of duties is conducted in conformity with the Articles of Incorporation. ・The Company is working to improve and effectively operate its overall internal controls system by holding a meeting of the Internal Control Promotion Committee chaired by the President and Representative Director once every two months and by working to give form to the measures to be taken. ・The Company regularly has audits conducted by Corporate Auditors and internal audits of each department by the Internal Audit Office which are reported directly to the President and Representative Director, in order to ensure that the execution of duties is being conducted in compliance with laws, regulations, and the Articles of Incorporation, and in a sound manner. ・The Company has established and operates an Internal Reporting System for the purpose of seeking the early detection and correction of misconduct and other nonconforming behavior by ensuring that employees have a means to directly report information on legally questionable activities and other such acts. ・The Company has established a Sustainability Committee which is chaired by the President and Representative Director, and which identifies the materiality of the Group, ensures that the Board of Directors appropriately oversees sustainability initiatives, and promotes the resolution of materiality within the Group through the Company's business activities. ・The Company has established a voluntary Nomination and Remuneration Committee, of which the majority of members are independent Outside Directors, for the nomination and remuneration of Directors, Corporate Auditors, and Executive Officers, and the Board of Directors makes decisions based on this Committee's reports. However, the nomination and remuneration of the Corporate Auditors are decided upon by the Board of Corporate Auditors. ・In order to ensure that the Board of Directors fulfills its roles and responsibilities in a practical manner, the Company conducts an annual evaluation of the effectiveness of the Board of Directors, assesses whether or not the Board of Directors as a whole is functioning properly, and takes appropriate measures to improve issues and other problems.
System for the purpose of storing and managing information related to the execution of duties by Directors: ・The Company retains records related to important decisions, such as minutes of the General Meeting of Shareholders, minutes of the Board of Directors meetings and approval documents, for a specified period of time in accordance with laws, regulations and our Document Management Regulations.
Regulations and other systems for managing the risk of losses: ・The Company, with a focus on the Internal Control Promotion Committee which is chaired by the President and Representative Director, upon identifying possible risks, evaluates them and examines countermeasures, formulates annual plans for compliance and risk management countermeasures, and provides instructions to each department on how to deal with them. The committee also reports regularly to the Board of Directors and the Executive Committee, and in addition examines the necessary measures to address anticipated necessary risks. ・The Company has appointed a Person Responsible for Compliance Risk Management and a Person in Charge of Compliance Risk Management within each division to ensure appropriate risk management. ・In the event that unforeseen circumstances should happen to arise, we will take the necessary actions in accordance with the Compliance and Risk Management Regulations and the Crisis Response Manual.
System for the purpose of ensuring the efficiency of the execution of duties by Directors: ・The Company uses a executive officer system to integrate the supervisory function and business execution function of Directors, thereby speeding up decision making and clarifying their roles. ・The Company holds a regular meeting of the Board of Directors once every month as a system to ensure the efficiency of the execution of duties by the Directors, and extraordinary meetings of the Board of Directors are held as is necessary to make decisions on important matters as well as to supervise the execution of duties. ・The Company holds a management meeting consisting of full-time directors once a week in principle to discuss individual management issues from a practical viewpoint and supplement the system for the efficient execution of duties by directors. ・The Company resolves and executes important matters through the Board of Directors after deliberation by the Management Committee, based on the Rules on Administrative Authority and in accordance with the internal drafting and decision making procedures.
Systems for the purpose of ensuring the appropriateness of operations in the Company's corporate group: ・The Company has established Regulations for the Management of Affiliated Companies in order to ensure appropriate business operations, and the Director in charge shall conduct the oversight and management of the establishment of a compliance system and risk management system in accordance with measures that are based on the management plan and the efficient execution of duties. ・The Company, while respecting the autonomy of each group company, has established a system under which the Directors in charge of each group company report regularly to the Company's Board of Directors and Management Committee, which consists of full-time Executives, on matters related to business execution. ・The Company makes important decisions that affect the management of each group company in accordance with the Affiliate Company Management Regulations, and ensures the appropriateness of operations and the efficiency of the execution of duties at each Group company in ways such as submitting proposals or reports to the Board of Directors of the Company. ・Regarding the audits of the operations and accounting of each group company, the Corporate Auditor, in accordance with the Corporate Auditor Audit Regulations, and the Internal Audit Office in accordance with the Internal Audit Regulations, may express their opinions and request the formulation of corrective measures if they find any problems with the management system. ・The Company may hold meetings of affiliated companies as necessary in order to promote closer cooperation between the Company and each group company and to improve the profits of each company. ・The Company, regarding the guidance and training involving each Group company, will respect the autonomy of each Group company, and in addition will promote the implementation of such guidance and training in cases where it is deemed necessary by the Director in charge.
Matters concerning employees positioned to assist an Auditor in the event that the Auditor requests the appointment of such employees to assist in the performance of the Auditor's duties: ・The Company, in a case in which an Auditor is necessary, will assign an employee who is positioned in the Internal Audit Office, which reports directly to the President and Representative Director, to provide assistance to the Auditors. Also, the appointment and dismissal of such persons shall be decided after prior consultation with the Board of Statutory Auditors.
Matters concerning the independence from Directors of the employees described in item ⅵ: ・The Company, in order to ensure that the employees who assist the Corporate Auditors in the preceding item are independent from the Directors, shall ensure that they are able to perform their duties under the direction and orders of the Corporate Auditor, and the personnel evaluation of such employees shall also be determined in consultation with the Board of Corporate Auditors.
System for the purpose of reporting by Directors and employees to Auditors and Other Systems Related to Reporting to Auditors: ・In cases of discovering facts of any serious misconduct related to laws and regulations or the Articles of Incorporation, or any fact that may cause significant damage to the Company in connection with the execution of the duties of a Director or employee, the Company shall report such facts to the Auditor, along with the status and results of the execution of business operations. ・The Company shall make reports on a basis of good faith to the Auditors, and in addition to regular reports, the Company shall make reports as necessary and appropriate, and full-time Auditors shall participate not only in regular meetings of the Board of Directors, but also in management meetings and divisional strategy meetings, thereby establishing a system related to conducting the reporting of important management matters as appropriate. ・The Company shall provide the Directors and Employees of each Group company who have made reports to the Auditors with the following information, and shall prohibit any disadvantageous treatment of any person for making such a report as well as clearly inform Directors and employees of each Group company to that effect.
Other systems for the purpose of ensuring that audits by Auditors are conducted effectively: ・The Auditors shall hold regular meetings with the President and Representative Director to ensure mutual communication. ・The Auditors shall attend important meetings of the Board of Directors and the Management Committee. ・The Auditors shall examine the status of the execution of duties and property management at the Company's head office, stores, factories, and other work sites, as well as at each Group company. ・The Auditors shall ensure the effectiveness of the Company's audits by exchanging information and collaborating with the Accounting Auditors and the Internal Audit Office. ・The Company shall maintain an environment that allows for collaboration with lawyers, certified public accountants, and other outside specialists in cases for which it is deemed necessary by the Corporate Auditors in the performance of their professional duties. ・If a Corporate Auditor requests advance payment or reimbursement of expenses incurred in the performance of their duties, the Company shall pay the amount of such advance payment or reimbursement to the corporate auditor, the Company will promptly process of such expenses or liabilities, excluding cases in which they are deemed unnecessary for the performance of the duties of such Corporate Auditor.
System for the purposes of ensuring the reliability of financial reporting: ・The Company ensures that the internal control report stipulated in Article 24-4-4 of the Financial Instruments and Exchange Act is properly recorded in accordance with the Practice Standards for Management Assessment and Audit of Internal Control over Financial Reporting, and the Internal Audit Office will investigate, review, and evaluate the status of maintenance and operation, and maintain and improve the system to correct any issues.