Internal Control System

Basic approach and system

As its internal control system, Kanamoto has established an Internal Control and Auditing Office that evaluates, improves and when necessary rectifies the status of compliance with the Company’s internal procedures and rules and with laws and regulations relating to all business activities, the status of branch administration, and the operation and effectiveness of Kanamoto’s internal controls pertaining to financial reporting including consolidated subsidiaries, a Legal Office that addresses legal affairs-related issues, a Compliance Committee chaired by Kanamoto’s President and CEO, and an Internal Control Committee headed by the Administration Division General Manager, which together comprise an organization corresponding to an internal controls system.
Kanamoto’s Basic Policy for Establishment of an Internal Controls System is provided below.

System to ensure directors and employees comply with laws and the Articles of Incorporation in the execution of their duties

Kanamoto and its subsidiaries have prepared Ethics Guidelines as part of the Corporate Philosophy, and use these as the Company standard for compliance. Under the Compliance Committee chaired by Kanamoto’s President and CEO, the Company has disseminated these guidelines throughout the Company and established a system for compliance with laws and the Ethics Guidelines, and has prepared a handbook summarizing Kanamoto’s Corporate Philosophy and employee conduct standards, which it distributes to all executives and regular employees to increase compliance awareness. As a consultation and reporting system, Kanamoto also has set up in-house and external compliance hotlines, and created a system to resolve problems quickly when consultations or reports are received directly from employees and other individuals, while strictly observing confidentiality and ensuring that individuals who report problems do not suffer any disadvantages.
Furthermore, the Company has established a Legal Office reporting directly to the president, to act as an advisory panel for important legal issues, and a system to enable the Company to give proper legal consideration to all decision making.

System for preserving and managing information concerning the execution of directors’ duties

Kanamoto retains documents and various information in accordance with laws and ordinances and its internally established document administration regulations and document retention rules. Information is controlled in accordance with internal information management regulations and general data management rules, and personal data are administered in accordance with the Kanamoto Rules on Personal Data Protection and the Company’s personal data protection manual.

Rules and other systems concerning management of loss risk

Kanamoto and its subsidiaries have established mechanisms to recognize and evaluate risks related to the business activities of each division, and prepared systems to avoid such risks. This has created a system capable of clarifying the authority and responsibilities of each division, supervising risk management conditions throughout the organization under the Board of Directors and discovering new risks. If unforeseen circumstances have occurred that will have a serious effect on the company's operations, or if there is concern such circumstances might occur, the Company and its subsidiaries will respond appropriately, and take measures to prevent a recurrence, based on its Emergency Response Manual (Contingency Plan).

System for ensuring efficient execution of directors’ duties

In addition to its regular Board of Directors meetings, Kanamoto and its subsidiaries hold extraordinary Board of Directors meetings from time to time as necessary to decide important matters and to make flexible decisions concerning the execution and supervision of management strategies and the Company’s business plans. The Company’s Board of Directors receives reports on important matters including the financial condition and other matters of the Company’s subsidiaries. For its management plan, the Company establishes budgets for the next business fiscal year and medium-term future, which gives the managers of each division the Company’s overall objectives based on specific numerical targets. Each division sets division-wide objectives, and executes progress management and specific measures aimed at achieving its goals. Kanamoto has also introduced the corporate officer system to accelerate management decision-making and clarify supervisory authority and responsibility for plan execution, and each corporate officer is responsible for achieving the management plan approved by the Board of Directors. To respond quickly to the severe pace of change in its management environment, the Company has also shortened the directors’term of office to one year.

System to ensure appropriate activities at Kanamoto and within the corporate group comprised of the parent company and subsidiaries

To ensure Kanamoto’s Ethics Guidelines are applied consistently across the entire Kanamoto Group, the Company has expanded the scope of the Compliance Committee, along with its consultation and reporting systems, to include all Group companies. This step strengthens the overall effectiveness of the Group’s compliance activities. In addition, in accordance with the provisions of the Financial Instruments and Exchange Act, the Company and its affiliates maintain an excellent management environment, and work to strengthen company-wide internal controls, internal controls pertaining to settlement of accounts financial reports and operating process control activities, create internal control systems that enable the Company to make proper and effective assessments and conduct appropriate operations. Furthermore, under Kanamoto’s internal management system concerning financial reporting, each organization (or individual) has affirmed the following roles.

1. Managers have the final responsibility for all of the organization’s activities, and prepare and implement internal controls based on this basic policy.
2. The Board of Directors has supervisory responsibility for the preparation and operation of the managers’ internal controls, and monitors and supervises managers to ensure the financial reporting and internal controls are executed properly.
3. The auditors monitor and verify the financial reporting and preparation and operation of the internal controls from an independent standpoint.
4. The Internal Control and Auditing Office objectively evaluates from an independent standpoint, the effectiveness of the internal controls related to financial reporting at Kanamoto and its affiliated companies on behalf of the Company’s managers in accordance with the audit rules, and when necessary makes proposals concerning improvements and corrections and reports to the managers and Board of Directors.

System for directors and employees to report to the auditors, other systems concerning reports to auditors, and other systems to ensure audits are performed effectively

To perform audits of the directors, the Company’s auditors attend the meetings of the Board of Directors, and also attend important meetings and committees, in order to understand other important decisions and the circumstances of execution of the Company’s business activities. If the directors and employees of Kanamoto and its subsidiaries discover facts that might cause the Company considerable harm, they are to report immediately to the auditors. The standing auditors will circulate a report and request for managerial decision, and if necessary can request explanations from the directors and employees. Those who reported to the auditors shall not be treated unfavorably on the grounds of giving such report. The auditors also meet regularly with the president and representative director, to exchange opinions concerning issues the Company should address and important audit matters. After audits are completed, the Internal Control and Auditing Office promptly submits an Auditors’ Report concerning the audit results to the president and representative directors and the auditors.
The auditors and the Internal Control and Auditing Office also exchange information and cooperate in other ways with outside specialists, including the accounting auditors and the Company’s attorneys.