Quality management system

1. Risk Assessment Process and Responsibilities for Quality Management

Our audit firm recognises that appropriate policies and procedures regarding quality management must be established with due consideration to fraud risks, and that the requirement to maintain audit quality in all audit engagements takes priority in our operational policies. We have appointed a quality management director, under whose management the establishment and operation of the quality management system shall be promoted, with ultimate responsibility resting with the Chief Executive Officer.

2. Governance and Leadership

Our audit firm has established quality objectives relating to governance and leadership in order to establish the foundation of the quality management system. Such quality objectives include objectives relating to: (1) fostering a sound organisational culture; (2) clarifying responsibilities, including accountability for quality by the chief executive and others; (3) the leading role to be fulfilled by the chief executive and others; (4) appropriate organisational structure and segregation of duties; and (5) appropriate utilisation of resources for business operations.

3. Professional Ethics and Independence

(1) Professional Ethics

Our audit firm has established policies and procedures to reasonably ensure that all members of the firm comply with the provisions regarding professional ethics relating to audit engagements. Furthermore, engagement partners ensure compliance with the firm’s policies and procedures regarding professional ethics and confirm that all members comply with these requirements.

(2) Independence

Our audit firm has established policies and procedures for maintaining independence to reasonably ensure that all members of the firm comply with the independence provisions set out in the Code of Ethics and other relevant regulations.

In accordance with these policies and procedures, engagement partners and all members report necessary information to the firm, and the firm communicates information regarding the maintenance of independence to relevant members and takes appropriate measures.

Additionally, the firm confirms that members have fulfilled the mandatory units on professional ethics and audit quality as stipulated in the Japan Institute of Certified Public Accountants’ “Rules on Continuing Professional Development.”

(3) Policies and Procedures Regarding Long-term Involvement of Key Personnel

For audit engagements of large companies and similar entities, we mandate rotation of key audit engagement personnel for specified periods as set out in the Code of Ethics and other relevant regulations.

4. Acceptance and Continuance of Client Relationships

We have established policies and procedures, taking fraud risks into consideration, for making decisions regarding the acceptance and continuance of client relationships. These include careful assessment of client integrity and consideration of the firm’s suitability, competence, and human resources for performing the audit. Regarding client integrity, we consider information such as the background and business reputation of shareholders, management, and others who have significant influence on the client; the nature of the client’s operations; the attitude of key shareholders, management, and others towards matters such as the interpretation of accounting standards; and the control environment.

Regarding suitability, competence, and human resources for performing audits, we consider whether members possess knowledge of the industry to which the client belongs and experience with regulations relevant to the audit engagement.

5. Engagement Performance

(1) Performance of Audit Engagements

Our audit firm has established policies and procedures regarding the performance of audit engagements. These include methods for conducting audits, directing, supervising, and reviewing audit teams, and methods for documentation and retention as audit working papers.

(2) Consultation on Technical Matters

Our audit firm has established policies and procedures regarding consultation on technical matters. Where there are matters of high technical complexity, matters involving difficult judgements, matters on which views have not been established, matters suggesting material misstatement due to fraud, or matters where material misstatement due to fraud is suspected, we ensure that appropriate consultation on technical matters is implemented by securing sufficient personnel and other resources both within and outside the firm, and address the views obtained.

(3) Differences of Opinion on Audit Matters

Our audit firm has established policies and procedures regarding differences of opinion on audit matters. Where differences of opinion arise within the audit team, between the audit team and consultants providing technical advice, or between the engagement partner and the review committee, the engagement partner takes appropriate measures to resolve such differences. Where differences with the review committee cannot be resolved, the quality management director requests the review committee to conduct a further review and resolves the difference of opinion.

(4) Engagement Quality Review

We have established policies and procedures regarding engagement quality reviews. These include the content, timing and extent of reviews, qualifications of review committee members, and documentation of reviews.

In accordance with the above policies and procedures, when expressing an audit opinion, we conduct, as a matter of principle, a review by a review committee, which is a collegial review body.

6. Resources for Audit Firm Operations

Our audit firm has established quality objectives relating to resources for audit firm operations in order to enable the establishment and operation of the quality management system. Such quality objectives include objectives relating to the acquisition or development, maintenance, and allocation of sufficient and appropriate resources for audit firm operations, including human resources, technological resources, and intellectual resources. Quality objectives relating to human resources take into account appropriate recruitment, education, training, and evaluation of professional staff, whilst quality objectives relating to technological resources take into account matters concerning IT governance, including IT controls at the audit firm.

7. Information and Communication

Our audit firm has established quality objectives relating to information and communication in order to enable the establishment and operation of the quality management system. Such quality objectives include objectives relating to: (1) timely collection of information from within and outside the audit firm; and (2) timely communication by the audit firm and audit teams with parties within and outside the audit firm. Furthermore, our audit firm has established policies or procedures for appropriately collecting and utilising information from within and outside the firm regarding professional staff’s violations of relevant laws and regulations, inappropriate conduct, judgements and expressions of opinion, and non-compliance with the firm’s quality management system, and confirms that these are being complied with.

8. Monitoring and Remediation Process of the Quality Management System

Our audit firm has established a process for monitoring the quality management system in order to appropriately and sufficiently establish and operate policies and procedures within the quality management system. This process includes ongoing monitoring and periodic evaluation of the quality management system. This evaluation includes periodic inspection of audit engagements performed by engagement partners over a certain period.

Where deficiencies are identified through ongoing monitoring and periodic inspection, we evaluate the impact of identified deficiencies and determine whether they fall into either of the following categories:

(i) Instances that do not necessarily indicate that the quality management system is insufficient to reasonably ensure that audit engagements are performed in compliance with professional standards and applicable laws and regulations, and that audit reports issued are appropriate;

(ii) Systemic, repetitive, or other significant deficiencies requiring prompt corrective action.

Where category (ii) applies, the quality management director considers matters requiring improvement and takes appropriate measures.

9. Response to Networks to Which the Audit Firm Belongs

Our audit firm does not belong to any domestic or international networks.

10. Evaluation of the Quality Management System

Our audit firm has established a process for monitoring the quality management system. This includes ongoing monitoring and evaluation of the quality management system, and the evaluation includes policies and procedures for periodic inspection of at least one completed audit engagement for each engagement partner within at least a certain period.

11. Audit Firm Transitions

Our audit firm has established policies and procedures regarding the handover of audit engagements when auditors change, both when becoming the predecessor audit firm and when becoming the successor audit firm, in accordance with Japan Institute of Certified Public Accountants Auditing Standards Board Statement 900 “Changes in Auditors,” to reasonably ensure that the handover of audit engagements is conducted appropriately.

Furthermore, regarding audit engagements to which the Fraud Risk Response Standard applies, the status of handovers conducted by audit teams must be reported to the quality management director.

12. Joint Audits

Our audit firm has a policy of not conducting joint audits as a matter of principle.