Our company's internal control system is based on the supervision by the Board of Directors, audits by Outside Directors and Independent Outside Audit & Supervisory Board Members, and accounting audits, as well as the effective functioning of the 3 defense lines under the direction of execution (under President and Representative Director). (1) Each department controls risks by incorporating self-management into daily operations, and ensures the legality of operations. (2) The management division supports the division in each specialized field and monitors the status of self-management. (3) We have established an "Internal Audit Department" under the direct control of the President and Representative Director, and its staff implement "Internal Audits" and "Assessment of Internal Control over Financial Reporting (J-SOX)" from an independent and objective standpoint. The Internal Audit Department conducts internal audits of domestic and overseas offices and affiliated companies. In this way, the effectiveness of internal controls in each division is evaluated, and the results are reported to the President and Representative Director, Audit & Supervisory Board Members, division heads, and relevant executives. The departments that receive advice and proposals for improvement systematically make improvements, and the Internal Audit Department conducts follow-up audits as necessary.
J-SOX Evaluation Workshop, which is held annually for J-SOX personnel and managers of Idemitsu Group, was held online by Teams on June 9 and 17, 2020, participated by a total of 111 employees. J-SOX is an internal control reporting system for financial reporting stipulated by the Financial Instruments and Exchange Act. The management of listed companies is obliged to prepare a report that evaluates the effectiveness of internal control related to financial reporting every year and submit it to the Prime Minister. For this reason, Idemitsu Group stakeholders, including the head office, 34 subsidiaries, production, distribution, and sales bases, are working to ensure the effectiveness of internal control over financial reporting.
We provided the participants with FY 2019 performance summary, continued by J-Sox overview and basic knowledge of J-SOX practice. We also introduced the recent fraudulent cases to deepen their understanding and emphasized the importance of observing business flow, which is the basic operation to implement internal control. The workshop was recorded and posted on our internal portal site together with the training materials so that all parties can check the contents at any time.
On February 6, 2020, Internal Audit Department held ‘The Second Departmental Training on Internal Audit’ at our head office in Marunouchi, Tokyo, and audit managers from 10 affiliated companies participated in the training. Every department is required to strengthen internal control for compliance and risk management. Internal Audit Department at the head office designed such training and audit quality improvement support so that the auditors at each (affiliated) company can acquire specialized skills as early as possible and contribute to strengthening our corporate governance.
On July 12, 2019, Idemitsu Kosan held a training meeting for the internal audit departments of nine affiliated companies. After sharing information regarding each company’s internal audit system and current challenges, the participants actively exchanged opinions on Idemitsu Kosan & Showa Shell post-merger internal audit system and audit areas to be focused on. Through the training, the nine affiliated companies established closer cooperation with each other.
Audit & Supervisory Board Members (four members) attend meetings of the Board of Directors and audit business reports, financial statements, and consolidated financial statements that are submitted to the annual general meeting of shareholders. They also audit the execution of business operations by Directors on a daily basis. Full-time Audit & Supervisory Board Members attend important internal meetings, such as those of the Management Committee, and meet with general managers, overseas managers, and the presidents of subsidiaries. Part-time Audit & Supervisory Board Members strive to enhance auditing by visiting key departments. As a general rule, these individuals hold quarterly meetings
with the representative director to discuss issues.