Internal Control System

(As of May 29, 2020)

1.Systems to ensure compliance of the execution of duties by Directors, Executive Officers, and employees with laws, regulations, and the Articles of Incorporation of the Company

1) The Board of Directors’ meetings of the Company shall be held once every month, in principle, and, at the meetings, the representative director, etc., are required to report on the progress of their duties being executed. Auditors oversee the execution of duties by directors. To enhance the auditing function, the Company shall take the necessary measures to ensure the effectiveness of the audits conducted by the corporate auditors, whereas the corporate auditors shall examine whether the independence of the accounting auditors is being strictly maintained.


2) The Company shall establish a department specializing in compliance awareness activities and promote thorough compliance by appointing responsible staff at each department.


3) The Company shall formulate the Compliance Rules. Directors, executive officers, and employees shall be required to comply with such rules.


4) The Company shall establish the Audit Office, which is directly controlled by the president and representative director. The Audit Office shall conduct regular audits to evaluate the Company’s compliance.


5) An internal reporting system shall be adopted and a point of contact for the provision of information shall be established internally and externally to promote the systems to rectify violations of compliance and prevent infringements. Furthermore, the Rules regarding Internal Reporting System shall prohibit any disadvantageous treatment against any person who engages in internal reporting on account of such report, and directors, executive officers, and employees shall be required to comply with such rules.


6) To eliminate and discontinue relations with antisocial forces, the Company shall establish a policy for blocking antisocial forces and take necessary measures to this end. Furthermore, the Company shall endeavor to properly deal with such antisocial forces as a unified organization by strengthening collaboration with external bodies, such as the police and lawyers, as well as with industrial organizations and local communities.

2.Rules and other systems regarding loss risk management

1) The Company shall also establish a dedicated department to promote and thoroughly conduct risk management activities. Furthermore, the Company shall promote thorough risk management by appointing responsible staff at each department.


2) The Company shall formulate the Risk Management Rules, and regularly analyze and evaluate the risks that they might encounter. These risk factors shall be determined selectively, and rules regarding the system and methods for minimizing the effects of the risks concerned shall be developed in an effort to manage the risks appropriately.


3) The Company shall implement a business continuity plan (BCP), and disaster manegement business plan , to take emergency responsive measures to fulfill our mission to customers even in the event of large-scale disasters and other emergencies.

3.Systems to ensure the appropriateness of financial reporting

1) The Company shall implement the Unified Group Accounting Rules, the Accounting Rules, the Internal Control Rules regarding Financial Reporting, and other necessary rules; appoint a CFO; and develop necessary systems to ensure compliance with accounting standards and other related laws and regulations and the appropriateness and reliability of the financial reporting on a consolidated basis.


2) The Company shall regularly evaluate and improve the implementation and operation of the systems for ensuring the appropriateness and reliability of financial reporting. The Audit Office shall regularly conduct audits on the Company’s systems to ensure the appropriateness of its financial reporting.

4.Systems to ensure efficient execution of the duties of Directors

1) The Company shall maintain the Management Meeting as an advisory body for decision- making on the execution of important business affairs through rapid and careful deliberations. This body is presided over by the president and representative director.


2) The Company shall adopt an executive officer system, with which the execution of business affairs can be made more efficient by delegating such execution to executive officers to the extent possible.


3) To ensure the proper and efficient execuion of duties,, the Board of Directors shall determine the scope of job responsibility for each director and establish the Rules on Operational Approvals, Functional Authority and Responsibility to clarify the functional authority and responsibility, etc., of the respective directors for more appropriate execution of business affairs.

5.Systems to keep and manage information pertaining to the execution of duties by Directors

1)The Company shall establish and maintain its document-handling rules compliant with relevant laws and regulations with regard to the preparation, preservation, and management, etc., of information stated or recorded in important documents for approval (including electronic media), such as minutes of important meetings, including those of the Board of Directors and the Management Meeting; Ringisho; and authorized documents. Moreover, the Company shall put in place a system to allow directors, corporate auditors, and other concerned parties to inspect the above documents.


2) The Company shall establish a department in charge of timely disclosure of important company information, IR and other disclosure. In addition, directors promptly and comprehensively collect the information to be disclosed, and will disclose it in a timely and appropriate manner in accordance with laws and regulations.

6.Systems to ensure the appropriateness of business operations conducted by the corporate group consisting of the Company, its parent company, and Group companies

1) The Company shall provide Group companies with business administration and management guidance in accordance with the Management Rules regarding Associated Companies. In addition, the Company shall strive to ensure the appropriateness of business operations based on the Basic Policy.


2) The Company shall clarify guidelines for business administration, etc., in the Management Rules regarding Associated Companies; on important managerial matters at Group companies in principle, each Group company requires prior approval from the Company in consideration of the business scope of each Group company and whether it is listed or unlisted.; identify matters that need to be reported to the Company; oblige Group companies to report such matters to the Company; and receive reports therefrom, as required.


3) The Company shall support Group companies in implementing and operating their internal control systems with regard to major internal control items while respecting their independence and control such operations when necessary. The Company shall also make Group companies formulate various rules depending on actual business conditions thereof for the purpose of establishing systems in accordance with such rules and provide education and training thereto so that internal control systems can be put in place across the entire Group.


4) Audit departments of Group companies and the Company’s Audit Office shall collaborate with each other and the corporate auditors of Group companies, and the Company’s Board of Corporate Auditors shall hold regular liaison meetings to exchange information and coordinate measures to furnish Groupwide internal control systems.


5) The Audit Office of the Company shall conduct audits of departments of the Company. The Audit Office shall also monitor and give advice regarding the establishment of appropriate internal controls at the Company and Group companies by conducting or controlling audits of Group companies. Furthermore, the Audit Office shall regularly report the established status of Groupwide internal controls to both the Board of Directors and the Board of Corporate Auditors.


6) The Company shall maintain a relationship with its parent company that allows for coordination with full respect paid to the independence and autonomy of both parties. Frameworks for discussing with and reporting to the parent company with regard to important matters shall be put in place. Transactions with the parent company and its group companies shall be conducted in accordance with the relevant laws and regulations.

7.Matters regarding employees in cases in which a Corporate Auditor requests the Company to dispatch employees to support his or her duties

The Company shall establish the Corporate Auditors’ Secretariat and appoint several dedicated employees thereto to assist in the execution of the corporate auditor’s duties. A corporate auditor may give directions or orders to such employees in respect of matters required for audit duties.

8.Independence from Directors for employees who are to assist the Corporate Auditors in the execution of their duties and assurance of effectiveness of their instructions

Employees who assist the corporate auditors in the execution of their duties shall obey only the directions or orders given by the corporate auditor concerned in carrying out their duties and shall not take directions or orders from any directors, executive officers, and/or other employees. With regard to the exercise of authority over personnel affairs, including personnel ratings, personnel changes, and disciplinary measures, the Company shall discuss with the corporate auditors in advance and shall exercise such authority only after the Company has obtained the consent of the corporate auditors.

9.Systems to help Directors and employees, etc., of the Company and Group companies report to the Corporate Auditors and other systems relating to reporting to the Corporate Auditors

1) The corporate auditors of the Company shall attend the Board of Directors’ meetings; attend other important meetings, such as those of the Management Meeting; receive explanations from directors, executive officers, and employees; and examine associated materials.


2) Directors, executive officers, and employees of the Company shall periodically report to the corporate auditors the results of internal audits, the status of the execution of the internal reporting system, information about transactions involving competitors, or self-dealing transactions, etc.


3) Directors, executive officers, and employees of the Company as well as directors, corporate auditors, and employees of Group companies, shall, either directly or through the department in charge, swiftly report to the corporate auditors of the Company if they discover facts that could cause significant damage to or have a material impact on the Company or any Group companies. Furthermore, the corporate auditors may request, when necessary, that a relevant director or others at the Company or Group companies make a report to such corporate auditors.


4) In accordance with rules such as the Internal Reporting Policy Provisions, an individual who makes a report to the corporate auditors shall not receive any disadvantageous treatment due to the fact that he or she reported the issue. Directors, executive officers, and employees involved must abide by this rule.

10.Policies on prepayment or procedures for repayment of expenses incurred in executing duties as a Corporate Auditor and processing of expenses and liabilities incurred in executing duties as a Corporate Auditor

In the event that a corporate auditor requests for the prepayment of expenses or makes other such requests to the Company in connection with the execution of his or her duties, the Company shall promptly process the invoices for such expenses through the internal system unless the Company has proved that such expenses are not necessary for the execution of the duties of said corporate auditor.

11.Other systems to ensure effective audits by the Corporate Auditors

1) The corporate auditors of the Company shall periodically meet with representative directors to receive reports on managerial issues, the various risks surrounding the Company, and other subjects and to exchange opinions. Meanwhile, corporate auditors shall receive reports about the method and results of the accounting audit from the accounting auditors and reports about the internal audit from the Audit Office.


2) Any corporate auditor may commission research or seek advice from independent outside experts if it is deemed necessary in connection with an audit.

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