Auditing Status

Audit & Supervisory Board Audits

Each Audit & Supervisory Board member is responsible for providing an independent perspective on the job performance of directors and the accounting auditor, as well as for sharing information, including the results of audits performed by the full-time Audit & Supervisory Board members, with the other Audit & Supervisory Board members in order to help ensure auditing is both efficient and highly effective.
In FY2021, the Audit & Supervisory Board met 14 times for around 1.5 hours each time. The following four items were addressed as auditing priorities in FY2021.

• Confirmation of the risk management response system and preparedness for future change
• The status of ESG-related initiative penetration
• The progress of new business, business restructuring, etc.
• Business-specific risk awareness and reasonableness of the management decision-making process.

Audit & Supervisory Board members attend Board of Directors meetings, audit the meeting procedures and the content of resolutions, and express their opinions where necessary. At hearings convened by Audit & Supervisory Board members and outside directors, Audit & Supervisory Board members hear from and discuss with group executives of each business group and corporate officers in charge of each department concerning the budget details, business conditions, the status of risk management, the legal compliance system and other matters. When necessary, Audit & Supervisory Board members also conduct onsite audits and use other means to hear from and discuss with directors and other officers and employees, as well as directors and others at subsidiaries regarding business conditions, the status of risk management, and legal compliance.
In addition to the above, the full-time Audit & Supervisory Board members attended important meetings and committee meetings such as the Executive Committee, Compliance Committee, and Internal Control Committee, to confirm the business execution decision-making process, status of management, and other factors. They also met with the chair of the Nomination and Compensation Advisory Committee to hear about, verify, and confirm the appropriateness of the process and procedures for determining the policy on making decisions on the details of individual director compensation for the current fiscal year. They also held meetings with the representative directors every six months to share audit results and exchange opinions. In addition to this, the full-time Audit & Supervisory Board members have selected overseas subsidiaries for corporate group audits based on the importance and the approach on risks, and used online conferencing systems to audit them remotely. Meetings with the Audit & Supervisory Board members of major companies among domestic subsidiaries were conducted twice, including online. Two meetings, including online, were also held during the year for the Audit & Supervisory Board members, auditors, and others responsible for audits at other domestic subsidiaries and subsidiaries in China and South Korea.
The full-time Audit & Supervisory Board members inspected important approval documents and other relevant documents, confirmed the results of internal audits by the Auditing Department, obtained information from divisions in charge of separate audits in the areas of safety, environment, and quality, and heard the audit findings from the accounting auditor concerning the internal controls audit of financial reports. They accompanied the accounting auditor to physical inventory checks to investigate the status of property. The full-time auditors also shared the details of these auditing activities with outside Audit & Supervisory Board members as necessary, through Audit & Supervisory Board meetings and other means.

Internal Audits

The Auditing Department (14 members) was established as department which is responsible for the internal auditing function. The department audits the status of business execution in NGK and each domestic and overseas Group company based on audit plans approved by resolution of the Board of Directors, and provides information that will contribute to management decisions to the President and Board of Directors. The general manager of the Auditing Department is a member of the Internal Control Committee. While internal audits are conducted independently of Audit & Supervisory Board audits and accounting audits, the Auditing Department regularly discusses audit policy, plans, and results with Audit & Supervisory Board members and the accounting auditor to improve the effectiveness and efficiency of audits. Moreover, because audits in areas such as quality, environment, and safety and health require specialized knowledge, the dedicated departments serving as secretariats of the committees responsible for each area perform internal group audits. The results of these audits are reported in each committee and the committee summaries are reported to the Board of Directors.

Accounting Audits

Accounting audits are performed by an auditing firm and include financial statement and internal control auditing carried out in line with the Financial Instruments and Exchange Act and auditing carried out in line with the Companies Act.
Selection of the auditing firm to perform accounting audits was carried out by the Audit & Supervisory Board according to a variety of criteria. Among the key criteria were whether the firm maintains systems and structures in line with the Regulation on Corporate Accounting (“Matters Related to the Performance of Duties of Financial Auditor(s)”); whether it possesses professional expertise and can carry out appropriate auditing while maintaining a position of independence; and whether there is any grounds for dismissal of financial auditors, as per the Companies Act. Based on the results of this confirmation, the Company selected Deloitte Touche Tohmatsu LLC as the accounting auditor.
In addition to the above criteria for the selection of the accounting auditor, Audit & Supervisory Board members and Audit & Supervisory Board also evaluated the suitability of the accounting auditor from the perspective of whether it communicates with management, Audit & Supervisory Board members, the Finance Department, and Internal Auditing Department, performs Groupwide audits, and addresses risk of fraud appropriately, through the daily audit activities. Based on this, Deloitte Touche Tohmatsu LLC (“Deloitte”) has been determined to be qualified to serve as the accounting auditor for NGK.