Internal Control System
Basic Policy on Internal Control System
The Nikon Group's basic policy on its internal control system was established in accordance with Japan's Corporate Law and its enforcement regulations, enacted in May 2006, in order to create a structure for ensuring appropriate business operations.
Structuring of Responsibility and Authority
Nikon Corporation has established the "Rules Governing the Authority of the Organization and Personnel," which provide a clear definition of the structure of responsibility and authority for each post as well as each organization. Furthermore, thorough control and guidance for Group companies both in Japan and overseas to conform with the "Decision Standard for Domestic and Overseas Subsidiaries" ensures the organized and efficient performance of duties.
Internal Audits
An internal audit department has been created as an independent organization that reports directly to the president. Based on audit plans for each fiscal year that have been approved by the president, this department audits the Nikon Group's systems and their operation status situation, examining whether the operations of each department are conducted in compliance with relevant laws and internal rules, as well as whether risks are being effectively managed. It also makes recommendations as to how such operations can be improved.
The internal audit department also functions as an independent department to monitor implementation of the Internal Control Reporting System stipulated under the Japanese Financial Instruments and Exchange Law (J -SOX) , and evaluates Company-level controls and Process-level controls of the Nikon Group. Furthermore, from the viewpoint of the Corporate Law the department also evaluates the effectiveness of corporate ethics structures and risk management structures ("a framework including rules concerning risk of loss management" under the law) as an internal audit function for internal control systems.
In addition, internal audit sections have been established for each region to audit overseas Group companies. These sections perform internal audits and J-SOX evaluations of their local companies from an independent position, while the head office's internal audit sections coordinates these activities. In order to further improve the quality of audits of overseas Group companies, we also established an internal audit section for the North America in a North American holding company in June 2011. In this way, by adding the Americas to our existing bases in Japan, Europe and Asia/Oceania, a Group internal audit system has been established which covers four regions worldwide.
All internal audit reports on Nikon Group companies both in Japan and overseas are submitted to the President. The results of these audits are also submitted to corporate auditors for the purpose of close cooperation and to share information. In order to further raise the audit functions required of internal audit sections, we will work to make additional improvements to our internal audit system, including reinforcing our personnel.
Implementation of an Internal Control Reporting System
Internal control reporting system, based on the Financial Instruments and Exchange Law, was introduced in April 2008 with the aim of ensuring the credibility of financial reporting.
Nikon Corporation conforms to the fundamental framework for internal controls indicated by the standards of the Financial Services Agency in order to implement this system, and has established and applied internal controls related to the credibility of financial reporting.
Specifically, evaluations are performed regarding the effectiveness of the design and operation of company-level internal controls at Nikon Group at the end of each fiscal year. Based on the same system, the effectiveness of process-level internal controls (including sales, purchasing, manufacturing, accounting, and IT) is also evaluated for Nikon Corporation and major Group companies both in Japan and overseas, as required by the law.
The standards and practice standards for internal control were revised by Financial Service Agency. In response to this, we made efforts in line with the objective of the revision, namely, "simplification of the evaluation process" during the year ended March 31, 2012. In other words, we endeavored to make evaluations more efficient, such as adopting biennial or other rotational evaluations for some business processes and instead carrying over the evaluation results from the previous fiscal year.
During the year ending March 31, 2013, we will encourage revisions to our business operations based on our past efforts and on the evaluations of effectiveness made during the year ended March 31, 2012. With regard to the evaluation process, we are also working to establish a more sustainable internal control system by creating efficient application techniques, such as further reducing the burden of evaluation work, while maintaining the effectiveness of major process-level internal controls and financial reporting.