Auditing Mechanism

Auditing Mechanism

The Company enhances the effectiveness and efficiency of audits through mutual cooperation and regular exchange of information among the Audit & Supervisory Board members, the Accounting Auditor, and the Corporate Audit Department.

Status of Audits by the Audit & Supervisory Board Members

Organization, Personnel and Procedures

Hulic is a company with an Audit & Supervisory Board, which comprises five Audit & Supervisory Board members (two are full-time auditors and three are external auditors). Procedures and roles of Audit are based on the audit basic policy and role division formulated at the beginning of the period. Full-time auditors audit overall matters on a daily basis, make efforts to gather necessary information and maintain the audit environment. They report the result to Audit & Supervisory Board meeting and share information with external auditors. External auditors receive reports on the audit status from full-time auditors and attend the Board of directors and the Audit & Supervisory Board meeting and exchange questions and opinions from the objective perspectives.
Note that External Audit & Supervisory Board member Nobuyuki Kobayashi and Noriko Koike are registered as a certified public accountant. Both members have considerable knowledge of finance and accounting.

Status of Activities by Audit & Supervisory Board Members and the Audit & Supervisory Board

Frequency and Contents of Audit & Supervisory Board Meeting

The Audit & Supervisory Board is held every month, on the same day as the Board of Directors meeting and as necessary. The resolutions, reports, and discussions below were held during FY2024.

Resolutions: Audit reports, reappointment of the accounting auditor, consent to the remuneration of the accounting auditor, audit plans, etc.

Report : Status of audits (monthly), evaluation of the effectiveness of the Audit & Supervisory Board, quarterly audit progress reports, etc.

Priority Audit Items of FY2025

• Achievement of priority issues at each department of the Medium-Term Management Plan (2025-2027)
• Risk management system for diversification of investments, including overseas businesses, and group governance in response to the increase in subsidiaries and affiliates
• Verification of the effectiveness of the internal control system at the Hulic Group
• Reasonableness of the accounting audit

Major Activities of Audit & Supervisory Board Members

In addition to attending important meetings, such as the Audit & Supervisory Board and the Board of Directors as well as auditing the proceedings and content of resolutions, and expressing opinions as necessary, the Audit & Supervisory Board members collect information that contributes to improving internal controls by reviewing important approval documents and checking the status of business execution with department managers. The board members then apply the information to their day-to-day auditing work.

• *1Attended as an observer without voting rights and expressed opinions.
• *2This meeting, held quarterly to share information about risk management and issues at each company, includes Audit & Supervisory Board members of affiliated companies that have full-time Audit & Supervisory Board members. In addition, our full-time Audit & Supervisory Board members also serve as Audit & Supervisory Board members at major affiliated companies. By working to ensure effective audits throughout the fiscal year, we verify the efficiency of the internal control system within the Hulic Group.
• *3By institutionally ensuring opportunities to participate in these meetings, we have established a framework that enables agile participation, and when attending, members provide useful advice based on their professional expertise, thereby building an effective audit system.
• *4Participants exchange opinions on important matters learned during everyday auditing work and make recommendations, as necessary, to improve the effectiveness of corporate governance.
• *5Participants exchange information on recent audits and other topics every six months.

Coordination and Collaboration with Audit & Supervisory Board Members and the Accounting Auditor

The accounting auditor provides detailed explanations throughout the year, including each quarter, on the Hulic Group’s consolidated financial statements and accounting audits. In particular, these discussions have been deepened by having the accounting auditor provide reports, review the content of the reports and exchange questions, opinions, etc., on items identified as key audit matters (KAM) for FY2025.

Evaluation of the Effectiveness of the Audit & Supervisory Board

In FY2025, we conducted a self-evaluation using the survey form on the effectiveness of the Audit & Supervisory Board to review auditing methods and reflect them in the next fiscal year’s audit plan. After each Audit & Supervisory Board member provided their own evaluations. The Audit & Supervisory Board discussed the results and concluded that the audits for FY2025 were “effective.”

Status of Accounting Audit

Name of Accounting Auditor

Ernst & Young ShinNihon LLC

The Company enters into an agreement with the Accounting Auditor that limits liability for damages resulting from the neglect of duties based on Article 427, Paragraph 1 of the Companies Act and Article 41, Paragraph 2 of the Company’s Articles of Incorporation. The maximum amount of liability under the agreement is the higher of an amount predetermined by the Company and the amount stipulated by law.

Continuous Audit Period

From 2003 onwards
Due to significant research difficulties prior to 2002, the period of continuous audits may exceed such period.
The certified public accountants engage in Hulic accounting operations changes regularly based on the Certified Public Accountants Act, and auditors are engaged to conduct audits for no more than seven consecutive years.

Policy and Reason for Selecting the Accounting Auditor

When it is necessary to select a certified public accountant to perform audits, the Audit & Supervisory Board examines and confirms the following items through interviews and questions with the certified public accountant and an exchange of opinions with business execution divisions.

• Status of quality control
• Independence
• Expertise
• Appropriate member configuration
• Audit plan considering risk
• Appropriateness of audit fees

The Accounting Auditor will be dismissed based on agreement among all Audit & Supervisory Board members when they have judged that there is a reason for dismissal as provided for in Article 340, Paragraph 1 of the Companies Act. The Audit & Supervisory Board determines the proposal for dismissal or non-reappointment of the current Accounting Auditor when it concluded that they are not appropriate due to such reasons as violation of the Certified Public Accountants Act, etc., and based on that decision, the Board of Directors will submit the proposal at the general meeting of shareholders.

Evaluation of the Accounting Auditor by the Audit & Supervisory Board and Its Members

Through the interviews, questions, and exchanges of opinions conducted throughout the year as described above, the Audit & Supervisory Board monitored and verified whether the Accounting Auditor maintained an independent position and conducted appropriate audits. In addition, the Audit & Supervisory Board received explanations from the Accounting Auditor regarding the results of the quality control review by the Japanese Institute of Certified Public Accountants (JICPA), inspections by the Certified Public Accountants and Auditing Oversight Board (CPAAOB), and inspections by the Public Company Accounting Oversight Board (PCAOB), and conducted questions and answers. The Audit & Supervisory Board also received explanations from the Accounting Auditor regarding the audit firm’s quality control system, the monitoring system for the quality control system, and the quality control of the audit team for the Company, and conducted questions and answers. Based on these matters, and from the perspectives of the status of quality control, the independence of the audit team and the exercise of professional skepticism, the appropriateness of audit fees, the effectiveness of communication with management and the Audit & Supervisory Board, and the handling of group audits and fraud risk, the Audit & Supervisory Board determined that it was appropriate to reappoint Ernst & Young ShinNihon LLC as the certified public accountant, etc. for the 97th fiscal period.

Details of Audit Fees, etc.

Compensation for Audit by a Certified Public Accountant, etc.

(FY2024)
Non-audit services provided to the Company include tasks such as drafting comfort letters related to corporate bonds and offering of shares.

(FY2025)
Non-audit services provided to the Company include tasks such as drafting comfort letters related to corporate bonds of issuances.

Compensation for Ernst & Young Member Firms

(FY2024)
Non-audit services at consolidated subsidiaries involved tax-related outsourcing and others.

(FY2025)
None.

Compensation for Other Important Audit Attestation Services

None.

Policy for Determining Audit Fees

Audit fees for the certified public accountant are determined with the consent of the Audit & Supervisory Board in accordance with laws and regulations and in consideration of such factors as the size and characteristics of the Company and the number of days spent for the audit.

Reasons the Audit & Supervisory Board Gave Consent to Compensation of the Accounting Auditor

The Audit & Supervisory Board performs necessary checks regarding the details of the audit plan of the Accounting Auditor, the performance status of accounting audit duties and the basis for calculating compensation estimates, and has given consent for the compensation paid to the Accounting Auditor.

Status of Internal Audit

Regarding internal audits, the Corporate Audit Department, which is independent from the business execution line, objectively and comprehensively evaluates the status of achievement of the following items for the Company and its group companies based on the “Internal Audit Regulations” and the Basic Plan for Internal Audits approved by the Board of Directors, and provides advice, guidance, and corrective recommendations to resolve issues:

• appropriateness of risk management
• efficiency and effectiveness of business operations
• reliability of financial reporting
• compliance with laws, regulations, and internal rules
• safeguarding of assets, etc.

In addition, the results of internal audits of the Company and its group companies conducted by the Corporate Audit Department are reported to the Board of Directors on a quarterly basis.