Auditing System and Internal Control System

Auditing System

Audit & Supervisory Board Member Audits

Chugai has an Audit & Supervisory Board, and audits of management decision-making and business execution are conducted independently from business operations by five Audit & Supervisory Board members, including three outside members.

Audit & Supervisory Board members express their opinions in real time from the standpoint of appropriate corporate governance in a variety of situations including at meetings of the Board of Directors, the Executive Committee (full-time Audit & Supervisory Board members only) and the Audit & Supervisory Board.

Internal Audits

The Audit Department, with a staff that includes certified internal auditors and certified fraud examiners, conducts audits of the status of business execution of the Chugai Group, including subsidiaries, from various standpoints, such as the effectiveness, efficiency and compliance of business activities; reports and makes recommendations to the Executive Committee; and reports to the Audit & Supervisory Board. In addition, Audit Department staff serve as Audit & Supervisory Board members at subsidiaries.

In addition, the Audit Department assesses whether effective internal controls are established and being implemented in accordance with internal control standards generally accepted as fair and appropriate in Japan to ensure the reliability of financial reporting based on the Financial Instruments and Exchange Act.

Accounting Audits

KPMG AZSA LLC handles accounting audits and internal control audits.

Cooperative Auditing

Audit & Supervisory Board members, the Audit Department and the Accounting Auditor cooperate closely by regularly exchanging information to improve the effectiveness of their respective audits. Audit & Supervisory Board members and the Accounting Auditor confirm each other’s audit plans and hold regular meetings to exchange opinions on matters including the results of quarterly audit reports. In addition, they work to strengthen governance at Group companies by coordinating with Audit & Supervisory Board members at subsidiaries on quarterly reports, fiscal year-end reports and other matters. The Office of Audit & Supervisory Board Members ensures the independence and enhances the auditing functions of Audit & Supervisory Board members.

Maintenance and Management of Internal Controls

On May 18, 2006, the Company approved the Board of Directors’ resolutions concerning the Internal Control System as its basic policies in maintaining systems for ensuring appropriate business operations. On April 22, 2015, the Company revised the Board of Directors’ resolutions concerning the Internal Control System in response to the main revisions of the Partial Amendment to the Companies Act and the amended Ordinance for Enforcement of the Companies Act, namely “enhancement of systems for groups of enterprises,” “enhancement of audit systems,” and “obligation to disclose status of operations,” which came into effect in 2015. Since this revision, the status of implementation of the Internal Control System is regularly reported at Board of Directors meetings, and necessary revisions are made in a timely manner to maintain effective internal controls.

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Corporate Governance

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