[Translation]
Code of Audit and Supervisory Board Member Auditing Standards
Japan Audit & Supervisory Board
Members Association（＊）
Enacted on March 25, 1975
Revised on July 20, 1982
Revised on September 29, 1993
Revised on October 31, 1994
Revised on January 7, 2000
Revised on June 13, 2002
Revised on February 12, 2004
Revised on January 12, 2007
Revised on July 9, 2009
Revised on March 10, 2011
Final revision on July 23, 2015
(Notes)This translation is prepared only for reference purposes, and in the case of any matters fallingwithin the ambit of the Code of Audit and Supervisory Board Member Auditing Standards(the “Code”), reference should be made to the original Japanese text of the Code. The Codeis intended solely as a best practice benchmark by which audit and supervisory board
members (“ASBMs”) may perform their audit duties. It does not replace or supplement inany way whatsoever the current legal regime applicable to ASBMs and does not give rise toduties for ASBMs over and above those imposed by prevailing legal standards. Nonconformity with the Code would therefore not per se give rise to legal liability or a cause ofaction against the ASBMs concerned. ASBMs are expected to prepare their own auditing
standards applicable to the company, to the best possible level, by reference to the Code. The
same shall be applied to other rules or standards prepared or enacted by the Association,
including the “Audit Practice Standards for Internal Control Systems.”＊

N.B. “Japan Audit & Supervisory Board Members Association” is the English translation of the formalname of the Association. “Japan Audit & Supervisory Board Members Association” was formerlytranslated as “Japan Corporate Auditors Association” but was renamed in 2013 as a consequence of therevision of the recommended English translation of “Kansayaku” from “Corporate Auditor” to “Audit &Supervisory Board Member.” To avoid confusion, previously published portions have been updated touse the current translations of the Association’s name and “Kansayaku.”

1Revision of Code of Audit and Supervisory Board Member Auditing Standards
Japan Audit & Supervisory Board
Members Association
July 23, 2015
I

Background

Since its establishment in March 1975, the Code has been revised numerous times; in the
February 2004 revision, the Code aimed to set out not only responses to legal requirements,
but also “the audit practices that will be evaluated” and “the standards by which audit andsupervisory board members (“ASBMs”) will be held accountable,” in addition to which theCode established that the fundamental duties of ASBMs include “to prevent corporate
wrongdoing” and “to ensure and safeguard sound and continuous growth of their company”
and that the fundamental auditing view of ASBMs is towards “the establishment andoperation of a good corporate governance system.” Following that, due to factors such as theCompanies Act, the Ordinance for Enforcement of the Companies Act, and the like taking
effect in May 2006 and the “Final Report Regarding Findings of the Panel of Experts”(Japanese only) being published in April 2010, the Code has been revised several times, butthese fundamental points of the 2004 revision have been preserved.
Subsequently, the amended Companies Act, amended Ordinance for Enforcement of theCompanies Act, and the like took effect in May 2015, and the Corporate Governance Code(the “Governance Code”) took effect in June of that year. The Governance Code aims to
improve the supervisory functions of the board of directors and to ensure effective audits andseeks positive and proactive behavior from ASBMs beyond their “defensive functions,”
which fits exactly with the fundamental duties and fundamental auditing view of ASBMs set
out in the February 2004 revision.
The Association has decided to revise the Code at this time in order to respond to thesevarious changes in the environment surrounding ASBMs that have occurred since March2011.
As many of the matters reflected in this revision, due to the major amendment of theCompanies Act and the introduction of the Governance Code, may significantly affect ASBM
practices, there are many provisions that will need to be reviewed depending on practice
trends moving forward; accordingly, the Association will consider reviewing the Code as
appropriate.
II

Substance of the Revisions

1.

The Code includes both provisions on legal duties under the Companies Act and otherlaws and regulations as well as provisions on conduct that is desirable in considerationof good corporate governance; it is necessary for each company to appropriately adjust
the latter type of provisions in consideration of its own environment when formulating
its own ASBM auditing standards. Therefore, in order to make the Code easier to use,
the Association has altered the format to include the level of each provision andsupplementary notes.
(1)

The provisions have been categorized into levels according to their meanings, andstandard phrasing is used for each level to the extent possible. The meaning ofeach level is stated at the start of the Code, and each provision’s level is indicated2after that provision. Please note that the level categorization of the provisions isbased solely on the views of the Association and has not been confirmed by publicor governmental agencies, and please make use of the levels as a reference whenestablishing or reviewing your company’s own ASBM auditing standards inconsideration of the company’s environment.
(2)

The newly added supplementary notes indicate the provisions of the amended
Companies Act relevant to the current revision of the Code and explain theapplication of the Governance Code. In particular, the Governance Code is notitself legally binding, unlike laws and regulations such as the Companies Act.
Instead, it utilizes a “principles-based approach” in which companies are expected
to understand the intent of the Governance Code’s principles and endeavor toachieve effective corporate governance in a way that suits the environment
surrounding the company; even if a company decides not to adopt the principles
and supplementary principles of the Governance Code due to the company’s
circumstances, it can explain those circumstances and the company’s measures in
response thereto (known as the “comply-or-explain approach”) and leave ultimate
evaluation to the market. Accordingly, it is not appropriate to make eachprinciple and supplementary principle a standard of conduct to be universallycomplied with like the provisions of laws and regulations such as the Companies
Act, and there are instances in which it is not possible to adequately explain thatin the main text of the Code; therefore, explanations have been added in the new
supplementary notes. Provisions that directly reflect Governance Code principles
are in general categorized as level 4 under the system explained in (1) above dueto these characteristics of the Governance Code. The Association recognizes thatsome provisions may not be suitable in light of the actual conditions of somecompanies and has therefore made it possible to apply the provisions with somelatitude (including not adopting them) in order to suit the circumstances andenvironment of each company.

2.

The content of the Code has been revised to reflect the amendments to the Companies
Act, the Ordinance for Enforcement of the Companies Act, and the like as well as theprinciples of the Governance Code. Some of the principles of the Governance Codeapply directly to ASBMs. Even for many of the principles focused on management or
the board of directors, when ASBMs perform their audits, it is necessary for them tomonitor and verify how management or the board of directors is addressing thoseprinciples. Regarding this point, the current revision not only sets out a provision torespect the principles of the Governance Code in general, but also includes provisions in
response to principles that the Association believes deserve special consideration.

3.

The main contents of the revisions are as follows.
(1)

In consideration of the amendments to the Companies Act, the Ordinance for
Enforcement of the Companies Act, and the like, provisions have been added
regarding the determination of contents of proposals on the appointment,
dismissal, or non-reappointment of accounting auditors (Article 34).
Additionally, matters were added regarding systems to ensure the effectiveness ofaudits and other systems to ensure the appropriateness of corporate affairs(Articles 17 through 20, Article 24). Furthermore, provisions were addedconcerning the statement of opinions in audit reports regarding conflict-of-interest
3

transactions with parent companies and the like, the expression of opinions
regarding third-party allotments, etc. resulting in a change of control, and multiple
derivative lawsuits (Article 26, Article 49, Article 55).
(2)

In consideration of General Principle 2, General Principle 4, and other principlesof the Governance Code, the contents of the provisions on responsibilities andattitudes of ASBMs have been expanded, and provisions have been added
regarding the role of ASBMs in bearing part of the company’s supervisory
functions and regarding responses to the Governance Code (Article 2, Article 3,
Article 13). “Supervisory functions” here is a concept with a broader meaning
than the “supervision of the execution of the duties of directors” by the board of
directors that is prescribed in the Companies Act and refers to the overall
supervisory functions that are performed in cooperation between the board of
directors and ASBMs or the audit and supervisory board (“ASB”); theAssociation view audits by ASBMs and the ASB as one part of this concept ofsupervision in the broad sense. General Principle 4 of the Governance Code sets
out three roles and responsibilities as supervisory functions, some of which are tobe performed by ASBMs or the ASB (refer to General Principle 4). In addition toauditing whether the board of directors is appropriately fulfilling those
supervisory duties (refer to Article 381, paragraph 1 of the Companies Act),
another example of a means through which ASBMs can be involved in thesesupervisory functions is by proactively expressing opinions regarding internal
control systems, which serve as a foundation for appropriate risk-taking, from theinitial establishment stages of those systems. Additionally, depending on thecircumstances of the company, it may also be possible for ASBMs to proactively
state their views in consideration of risk management, the rationality of businessjudgments, and the like not only in regard to individual matters, but also when
formulating mid-term business plans. However, these types of involvement
should vary depending on the circumstances of each company, and this was taken
into account when determining the level category. The concept of the broad senseof supervisory functions was discussed in the Association’s news release titled“New Recommended English Translation for ‘Kansayaku’ and ‘Kansayaku-kai’”(October 23, 2012); the Code has been revised in consideration of the same
concept.
Provisions regarding participation in bodies such as optional advisory committees
have been added in Article 13, paragraph 3. This participation is not part of theinherent duties of ASBMs, and although the Association is not recommending that
ASBMs proactively participate in such bodies, we do not believe that there is any
issue in doing so to the extent that it does interfere with duties as ASBMs.

(3)

Additionally, in consideration of the general principles of the Governance Codeand the like, provisions have been added regarding ASBM training, involvement
in selection policies for ASBM candidates, dialogue with shareholders and otherstakeholders, coordination with outside directors and the like, evaluation of theaudit performance of the ASB, and other matters (Article 3, Article 9, Article 14,
Article 16, Article 36).

(4)

In previous versions of the Code, the Japanese characters used for the term renkei(translated in previous revisions as “cooperation”) have carried a looser nuance of“connection” or “linking”; in this revision, different characters have been used forrenkei (which is now translated as “coordination”) and impart a stronger nuanceof “coordination” and “cooperation.” The choice of the previous characters was4made in consideration of the fact that one part of the duties of ASBMs is to audit
whether the audits carried out by accounting auditors or internal audit divisions
and the like are appropriate and reasonable from an independent position, and
ASBMs therefore perform audits not hand-in-hand with accounting auditors,
internal audit divisions, and the like, but simply in limited connection with them.
Although the choice of the previous characters was based on carefulconsideration, and the intended reasoning should be respected, the use of theprevious characters may lead to confusion in some situations, such as the Codeusing the previous characters while the “Joint Research Report Regarding
Coordination Between Audit and Supervisory Board Members, Etc. andAccounting Auditors” (Japanese only), prepared by the Association and theJapanese Institute of Certified Public Accountants, uses the other characters in thesame context. Because the meaning of the term can be sufficiently understoodfrom the surrounding context, and in consideration of the actual benefits and thepossible confusion, the Association decided to use only the current characters inthis revision.
III

Companies to which the Code Applies

As with the previous revisions, the Code applies to large companies, as defined in the
Companies Act, and has been written mainly in consideration of listed companies. For
companies that are not large companies, it is desirable that ASBMs refer to the Code while
keeping in mind the company’s specific audit environment.

5

Revision of Code of Audit and Supervisory Board Member Auditing Standards
Japan Audit & Supervisory Board
Members Association
March 10, 2011
I

Background

The Code, including its structure, was revised in its entirety in February 2004 in order to
respond to changes in the domestic and international environments and to clarify the roles andduties currently expected of audit and supervisory board members (“ASBMs”). Following
that, due to the Companies Act, the Ordinance for Enforcement of the Companies Act, and thelike taking effect in May 2006, the Code was revised to reflect the Companies Act in January
2007 and July 2009. The Association has decided to revise the Code at this time in order to
respond to various changes in the environment surrounding ASBMs that have occurred since
the previous revision and to reflect developments in auditing practices.
II

Substance of the Revisions

While various issues were being raised both domestically and internationally regarding
corporate governance in Japan, securities exchange listing rules were revised as part of aneffort to improve listing systems, and the Association set out best practices to serve aspractical guidelines for ASBM audits in the “Final Report Regarding Findings of the Panel ofExperts” published by the Association in April 2010. The Association believes it is desirable
to implement these best practices in day to day audit activities and has therefore made thenecessary revisions.
The substance and main contents of the revisions are as follows.
1.

Due to revisions to listing rules for the Tokyo Stock Exchange and other securities
exchanges, listed companies are required to have at least one independent
director/ASBM. Because outside ASBMs are often designated as independent
directors/ASBMs, provisions on independent directors/ASBMs have been added(Article 5, paragraph 4).

2.

In the “Final Report Regarding Findings of the Panel of Experts” prepared in April
2010, best practices were set out regarding development of an ASBM audit
environment, auditing of internal control systems, auditing of third-party allotments,
consent to audit remuneration for accounting auditors, and consent to appointment
proposals; the contents of these best practices have been reflected in the relevant
provisions of the Code (Article 5, paragraph 1 and Article 14, paragraph 3 regarding
ensuring effectiveness of ASBM audits; Article 29 and Article 32 regarding exercising
the right to consent to determination of accounting auditor remuneration and to
appointment proposals; Article 44, paragraph 4 and others regarding strengthened
cooperation with accounting auditors).

3.

In consideration of the prevalence of group management and the increasing importanceof maintaining the soundness of the corporate group (such as taking measures to prevent
significant damage to the company due to misconduct in subsidiaries), fundamental

6

provisions regarding ASBM audits in the corporate group have been included (Articles
22 and 35).
4.

The importance of ASBM audits to prevent corporate wrongdoing is increasing. In
particular, in consideration of preventing the spread of damage due to misconduct, theduty of accountability, and other matters, thorough and highly transparent responses aresought, and there are increasing instances of third-party committees being established.
Provisions regarding a basic view of the response of ASBMs to these circumstances
have been added (Article 24).
(1)

Provisions have been added stating that, in cases of corporate wrongdoing, inconsideration of preventing the spread of damage and maintaining trust in thecompany, ASBMs must audit whether directors are responding appropriately andthoroughly in accordance with their duty of care (paragraph 1).

(2)

In cases of significant corporate wrongdoing, such as those involving directors, inorder to quickly restore trust in the company and prevent the spread of damage, itis necessary for companies to promptly take corrective actions, such as identifying
causes and preventing reoccurrence, for which transparency is ensured. In
consideration of the company’s corrective actions, it is important for ASBMs, as
non-executive officers, to exercise the authority to audit operations and other such
authorities granted to them under the Companies Act and thereby play a leadingrole in establishing a third-party committee with no conflicts of interest to
thoroughly examine matters such as the identification of causes and theprevention of reoccurrence. Additionally, when finding it necessary, ASBMs
should deliberate at meetings of the audit and supervisory board and examine theestablishment of a third-party committee by an outside ASBMs or the like(paragraph 2).

(3)

Unless they are found to have clear interests in the corporate wrongdoing inquestion, it is desirable that ASBMs, as non-executive officers, serve as membersof the third-party committee and appropriately perform their duties, keeping in
mind their duty of care to the company. Additionally, whether or not they serveas members of the committee, ASBMs will, taking care not to interfere withrequests to promptly identify causes, relationships with the relevant authorities,
and other matters, take such steps as receiving explanations regarding matterssuch as the process of the establishment of the third-party committee and thestatus of its response measures (paragraph 3).

5.

Due to the increasing importance of appropriate disclosure for listed companies,
provisions have been added regarding ASBM audits of the appropriateness of corporate
information disclosure, including securities reports (Article 41).

6.

In consideration of factors such as ASBMs being required to express an opinion if athird-party allotment is carried out, provisions have been added regarding ASBM audits
for third-party allotments (Article 46).

7.

The term “development” is used in connection to internal control systems in Article
362, paragraph 4, item 6 of the Companies Act, and it was defined in the previous
revision of the Code to include “operation”; however, it was pointed out to the
Association that this might cause misunderstanding in practice because “development
and operation” is a phrase commonly used for internal controls of financial reporting.
Accordingly, “development” has been replaced with “establishment and operation”
where appropriate.
7

Other necessary revisions have been made, as well.
III

Status of the Code; Companies to which the Code Applies

Under the principle of “clarifying the roles and duties currently expected of ASBMs” that wasset out when the Code was established, the Code includes best practices to serve as practicalguidelines for ASBMs in order to increase the effectiveness of ASBM audits. These bestpractices are not standards that must be followed without fail by ASBMs, so if ASBM
auditing activities do not conform to these practices, ASBMs will not be subject to automatic
legal liability; however, if the Code is adopted as-is to serve as the company’s own standards,
or the company prepares its own ASBM auditing standards with the Code as a reference, it
must be noted that ASBMs will bear a duty to perform audits in accordance with those
auditing standards.
As with the previous revisions, the Code applies to large companies, as defined in the
Companies Act, and has been written mainly in consideration of listed companies. For
companies that are not large companies, it is desirable that ASBMs conduct audits inreference to the Code while keeping in mind the company’s specific audit environment.

8

Revision of Code of Audit and Supervisory Board Member Auditing Standards
Japan Audit & Supervisory Board
Members Association
July 9, 2009
The “Ministerial Ordinance for Partial Amendment of the Ordinance for Enforcement of theCompanies Act and the Ordinance on Accounting of Companies, etc.” (Ministry of JusticeOrdinance No. 7 of 2009) took effect on April 1, 2009, and amended parts of the Ordinancefor Enforcement of the Companies Act and the Ordinance on Accounting of Companies.
Accordingly, the Association has decided to revise the Code of Audit and Supervisory Board
Member Auditing Standards.
The main contents of the revisions are as follows:(1)

The necessary revisions were made to the Code’s provisions on disclosure of “basic
policies regarding those who control the company’s determination of its financial andbusiness policies” (commonly called takeover defense measures) in business reports dueto the disclosure requirements for those basic policies having been changed to only
include “a summary of the contents of the basic policy” and “a summary of the specificcontents of measures.”(2)

In cases where there is a demand from shareholders to file a lawsuit pursuing theliability of directors, but a lawsuit is not filed, the above amendment clarified that inaddition to the determination of whether the parties subject to the demand had
responsibilities or duties, the reasons for that determination must also be submitted orprovided to the parties making the demand (as a “notice of reasons for not filinglawsuit”) when certain shareholders or the like so request; accordingly, the necessary
revisions were made to the Code.

9

Revision of Code of Audit and Supervisory Board Member Auditing Standards
Japan Audit & Supervisory Board
Members Association
January 12, 2007
I

Background

The Code, including its structure, was revised in its entirety in February 2004 (which revision
is herein referred to as the “2004 Code Revision”), in order to respond to changes in thedomestic and international environments, and to clarify the roles and duties currently
expected of audit and supervisory board members (“ASBMs”).
Thereafter, the Companies Act of Japan (Kaishahou) and the ministerial ordinances of the
Ministry of Justice thereof which took effect in May 2006 stipulated provisions, which werealready added to the Code at the time of the 2004 Code Revision, related to auditing theoperating effectiveness of internal control systems and the development of an environment for
ASBM audits, etc., and newly stipulated provisions related to the responsibilities, etc., of
ASBMs.
In order to respond to these changes of law after the 2004 Code Revision and environmental
changes, the Japan Audit & Supervisory Board Members Association has revised the Codeagain.
II

Substance of the Revisions

Taking into consideration the Companies Act of Japan and the ministerial ordinances of the
Ministry of Justice, we have decided that it is not necessary to change the underlying policyof the Code. The preamble to the 2004 Code Revision has been kept intact. On the other
hand, we have made revisions to maintain specific and systematic guidelines for audit
practices, similar to the previous Code. They are meant not only to address the legal
requirements, but also to clarify the audit practices that will be evaluated and to provide thestandards by which ASBMs will be held accountable.
In this revision of the Code, the points primarily taken into consideration are as follows:
The companies to which the Code applies shall be large-scale companies under theCompanies Act of Japan, as under the previous Code, and the revisions have been mademainly in consideration of listed companies. If the companies are not large-scale companies,
it is desirable to conduct audits in reference to the Code while keeping in mind eachcompany’s audit environment and relevant differences from large companies.
1.

In the case of a large-scale company that maintains a board of directors, board of
directors’ resolutions with respect to the basic policies of its internal control systems are
required by the Companies Act of Japan. We have revised the Code, in accordance withthe provisions of the Companies Act of Japan, with respect to, among other things,
monitoring and verifying the contents of the board of directors’ resolutions and theoperating effectiveness of internal control systems developed by directors. With respect
to establishing a more concrete manner of auditing internal control systems, etc., wehave decided to enact “the audit practice standards for internal control systems” basedon the Code.

2.

“Systems to ensure the effectiveness of ASBM audit activities” have been identified aspart of the basic policy of internal control systems for which a board of directors’10resolution is required. Directors and the board of directors must be cognizant ofdeveloping systems which are necessary for the performance of ASBM duties as
required by law. Thus, we have specifically and systematically provided for thedevelopment of an ASBM audit environment by creating a separate section in therevised Code.
3.

Matters concerning ASBMs that are required to be disclosed, such as matters pertaining
to candidates for ASBMs and the status of the performance of duties of outside ASBMs,
have been expanded by the Companies Act of Japan. Thus, we have made the required
revisions to the Code concerning the procedures and the criteria for selecting ASBM
candidates, in addition to the responsibilities, etc. of outside ASBMs.

4.

ASBMs shall be granted the power to consent to the determination of accounting
auditors’ remuneration, etc., and the accounting auditors shall be obligated by law toprovide the ASBMs with a notice of “matters concerning the performance of theaccounting auditors’ duties”. Thus, necessary provisions have been added to the Codein relation to the responsibilities to be discharged by ASBMs in ensuring theappropriateness and reliability of accounting audits.

5.

ASBMs’ opinions shall be provided in the audit report if the “basic policies regarding
those who rule on the company’s determination of its financial and business policies”
are included in a business report. Thus, a separate section addressing this issue has been
added to the Code and also refers to the responsibilities to be discharged by ASBMs in
ensuring the appropriateness of takeover defense measures.

6.

The Companies Act of Japan introduced a system that requires ASBMs to give notice of
their reasons for not filing a lawsuit pursuing the liability of a director; when demanded
to do so by shareholders or director(s), and thereby the appropriate decision-making of
ASBMs became more important. Thus, revisions have been made to the Code toaddress ASBMs’ actions related to derivative lawsuits, etc.

11

Revision of Code of Audit and Supervisory Board Member Auditing Standards
Japan Audit & Supervisory Board
Members Association
Revised on February 12, 2004
I

Background

The Code was adopted by our association in March 1975 and then revised several times toincorporate the revisions to the Japanese Commercial Code (together with the Law for Special
Provisions for the Commercial Code concerning Audits, etc., of Kabushiki Kaisha 1 , andcollectively herein referred to as the “Japanese Corporations Law”). The Code has functioned
as a set of standards of conduct for audit and supervisory board members (“ASBMs”) in
performing their duties. The main contents of the Code are a philosophy of auditing for
ASBMs and provisions regarding certain basic matters required by law. However, given thedramatic changes in recent years in the environment surrounding ASBM audits, it has become
necessary for the Code to be revised so that it provides sufficient standards of conduct for
ASBMs to perform their expected duties.
In the legal sphere, the ASBMs’ functions were reinforced by the 2001 revision of theJapanese Corporations Law in respect of corporate governance. Soon thereafter, the 2002
revision of the Japanese Corporations Law and related legislation introduced a new system of“a company with committees,” which provides an alternative governance system for largescale companies. A new era has thus been opened, where companies compete in quality ofcorporate governance systems, including their audit systems. In addition, rapid progress isbeing made in the revision of relevant laws, regulations and accounting standards to keep up
with the globalization of financial and capital markets, the move to consolidated management,
and the accumulation of judicial decisions concerning director liability in response to repeatedcorporate wrongdoing.
In order to respond to these changes in domestic and international environments, to clarify theroles and duties currently expected of ASBMs, and to present specific standards for theirconduct, we, Japan Audit & Supervisory Board Members Association, have reviewed andrevised the Code in its entirety, including its structure, by incorporating several studies andthe opinions of our internal committees and study groups.
II

Essence of Revision

In this revision of the Code, we have aimed not only to address the audit philosophy and legal
requirements as with previous revisions of the Code, but also to provide specific andsystematic guidelines for audit practices and thereby clarify the audit practices that will be
evaluated and to provide the standards by which ASBMs will be held accountable.
Recognizing that the ASBMs’ fundamental duties are to audit the directors’ performance of
their duties from an independent position and thus to prevent corporate wrongdoing and toensure and safeguard sound and continuous growth of their company, we have clarified that
ASBMs shall perform their duties with a view to the establishment and operation of a good
corporate governance system.
1

Translation note: “kabushiki kaisha” means joint stock corporation, the most typical type of limited
liability corporation under the Japanese Corporations Law.

12

The essence of the revision is as follows.
1.

With respect to decision-making by the board of directors and other organizations, theso-called business judgment rule is being established through judicial decisions fordetermining directors’ fulfillment of the duty of care. In light of this, we have includedin the revised Code the audit of whether management decisions are reasonably made on
the basis of sufficient information and in accordance with an appropriate decisionmaking process.

2.

With respect to individual director’s performance of their duties, it is being recognized,
particularly for large-scale publicly-held companies, that directors are required toestablish so-called internal control systems as part of their duty of care. In light of this,we have decided to include in the revised Code provisions concerning the audit ofwhether internal control systems have been developed in a manner appropriate for thecompany’s size, nature of business, and other relevant aspects of the company.

3.

While the previous Code already included items like preventive audits to avoid
corporate wrongdoing, internal controls, the relationship with accounting auditors(kaikei-kansanin), etc., we have now identified more specific audit standards thatrecognize the importance of development of the audit environment for ASBMs, taking
into consideration the points mentioned in paragraph 2, such as establishing systems toassist ASBMs in performing their duties and a system of cooperation with thecompany’s Internal Audit Division, etc. (defined in Article 32).

4.

While the ASBM system is based on individual independence (dokunin-sei) among
ASBMs, we have provided for strengthening the functions of the audit and supervisoryboard, its chairperson, outside ASBMs, etc., in order to improve their organizational
efficiency.

5.

In order to ensure the appropriateness, transparency and reliability of corporate
disclosure, provisions have been included with respect to, among other things, theASBMs’ monitoring of the independence of accounting auditors, and monitoring andverifying whether the company has established and is operating such financial reporting
systems as are necessary and adequate for the directors to prepare accurate financial
statements, accounting documents and related disclosures.

6.

Provisions have been added to reflect the 2001 revision of the Japanese Corporations
Law and related legislation in respect of corporate governance, under which ASBMs are
expected to fulfill specific roles in situations involving conflict of interest between
directors and the company, such as that consent of the ASBMs is required for
exemption or reduction of a director’s liability or for the company’s participation in a
derivative lawsuit to assist the defendant directors.

7.

In order to improve the transparency and ensure the reliability of ASBMs’ audit
activities and audit reports, provisions have also been added concerning ASBMs’
conduct of audit reporting and disclosure as well as ASBMs’ duty to provide
explanations to the shareholders.

III

Ensuring the Effectiveness of Audits by ASBMs

In order for ASBMs to effectively discharge their responsibilities under the Code, it isextremely critical for directors, particularly representative directors, to be fully aware of theimportance and usefulness of ASBM audits, and to be aware that directors are strongly
required, as their own obligation, to develop an environment favorable to ASBM audits.
13

ASBMs are strongly required, not only by the company but also by society, to make efforts,
as an independent organization playing a key role in corporate governance, to promote suchawareness.
IV

Companies to which the Code Applies

The Code has been prepared for large companies (including those deemed large-scalecompanies) as defined under the Japanese Corporations Law, and chiefly with publicly-heldcompanies in mind. For small or medium companies, it is desirable to conduct audits inreference to the Code while keeping in mind each company’s audit environment and relevant
differences from large-scale companies.

14

Code of Audit and Supervisory Board Member Auditing Standards
Note: Regarding Levels of Provisions
Lv.

Category

1

Legally mandated matters

Phrasing
In principle, “must” and “must not” areused.
However, the phrasing of laws andregulations is taken into consideration insome cases.

2

Matters non-compliance with which may, inreasonable probability, constitute a breachof the duty of care

In principle, “must” is used.

3

Matters non-compliance with which does
not automatically constitute a breach of the
duty of care but for which, depending on themanner of non-compliance, a breach may berecognizedIn principle, “will” is used.

4

Matters for which there is a moral obligation
to endeavor, matters that are preferred ordesirable, and matters that are standards ofconduct but do not fall under levels 1 to 3
above (such as matters that should beconsidered or examined but for which no
specific behavioral guidelines are provided)

Appropriate phrasing is chosen inaccordance with the circumstances.

Matters that do not fall under levels 1 to 4
above, such as confirmation of rights

Appropriate phrasing is chosen inaccordance with the circumstances.

5“Should endeavor” is used for mattersfor which there is a moral obligation to
endeavor, and in principle, “should” isused for matters that are standards ofconduct but do not fall under levels 1 to
3 above.

Chapter I
Purpose of this Code
Article 1

Purpose1.

This Code of Audit and Supervisory Board Member Auditing Standards (this “Code”)
clarifies the responsibilities of audit and supervisory board members (“ASBMs”) andthe attitudes they should have in discharging such responsibilities and sets out audit
systems for discharging such responsibilities as well as standards and behavioral
guidelines for conducting audits. [Lv. 5]

2.

ASBMs should act in accordance with this Code, taking into consideration thecompany’s size, the nature of its business, various management risks surrounding thecompany, and other aspects related to the company’s particular audit environment, andshould endeavor to ensure the effectiveness of their audits. [Lv. 4]
15

Chapter II
Responsibilities and Attitudes of ASBMs
Article 2

ASBM Responsibilities

1.

ASBMs bear part of the supervisory functions of the company in cooperation with theboard of directors; by auditing the directors’ performance of their duties as anindependent organization entrusted by the shareholders, ASBMs are responsible forestablishing a good corporate governance system through which the company and its
corporate group will consider the interests of and endeavor to cooperate with various
stakeholders, achieve sound and sustainable growth and the creation of mid- to longterm corporate value, and accommodate society’s trust. [Lv. 3]

2.

Through fulfilling the responsibilities in the preceding paragraph, ASBMs should
ensure that the company’s decision-making is transparent and fair, endeavor to develop
an environment that enables timely and decisive decision-making by the company, andendeavor, without interpreting the scope of their functions too narrowly, to positively
and proactively express their opinions to directors and employees. [Lv. 4]

3.

ASBMs must attend the board of directors’ meetings and other important meetings,
verify the contents of reports received from directors, employees, the accounting
auditor, and other people in the company, conduct investigations with respect to thestatus of the operations and financial status of the company, and take any necessary
measures when appropriate, including expressing suggestions, recommendations, or
opinions to directors and employees and seeking injunctions against directors’ acts. [Lv.
2]
Supplement to paragraph 1
The concept of “supervision” in this Code is not limited to “supervising theexecution of the duties of directors” as stipulated in Article 362, paragraph 2, item 2 of
the Companies Act; it includes the broader sense of overall supervisory functions incorporate governance. Supervisory functions in this broader sense are shared incooperation between the board of directors and ASBMs (or the audit and supervisoryboard), and “auditing” is considered part of those functions. (The concept of the broad
sense of supervisory functions was discussed in the Association’s news release titled“New Recommended English Translation for ‘Kansayaku’ and ‘Kansayaku-kai’”(October 23, 2012); this Code has been revised in consideration of the same concept.)
Additionally, the cooperation with various stakeholders that is sought under the
Corporate Governance Code (in these supplements and references, the “GovernanceCode”) is to be carried out mainly by the board of directors and management; however,
because the ASBMs are required to support the board of directors and management interms of establishing corporate governance systems, the current revisions have been
made.
Reference for paragraph 1
Governance Code, General Principles 2 and 4

16

Supplement to paragraph 2
As stated in Principle 4.4 of the Governance Code, in order to sufficiently fulfill
their roles and responsibilities, including so-called “defensive functions,” it is not
appropriate for ASBMs to interpret the scope of their functions too narrowly. Already,in many cases of actual practice, ASBMs are expressing their opinions at important
meetings, such as board of directors’ meetings and management committee meetings, aswell as in a variety of situations about a wide range of matters, not only from theperspective of potential breaches of laws, regulations, or articles of incorporation, butalso in consideration of risk management, the rationality of business judgments, and thelike. (For specific examples, please refer to the Association’s news release titled“Results of Survey in Advance of 77th National Audit & Supervisory Board Members
Conference” (October 8, 2013; Japanese only).) However, it must be noted that thesetypes of actions should be taken in consideration of the circumstances of each company
and are not uniformly required for all companies.
Article 3

ASBM Attitudes

1.

ASBMs must endeavor to preserve their own independent position and must maintain afair and impartial attitude and act based on their own convictions. [Lv. 2]

2.

ASBMs should continuously endeavor to cultivate their knowledge for such purposes asimproving the quality of their audits in order to appropriately fulfill the roles andresponsibilities expected of them as bearers of part of the company’s supervisory
functions, in addition to which they should endeavor to find opportunities to continually
update that knowledge after assuming office. [Lv. 4]

3.

In order to obtain the proper perspective for auditing, ASBMs should endeavor toacquire necessary knowledge related to the company’s business, finances, organization,and the like and to find opportunities to sufficiently understand the roles andresponsibilities that are required of ASBMs, in addition to which they should endeavor
to deepen their understanding of management issues from an overall managerial
perspective, grasp changes in management conditions and the corporate environment,
and positively and proactively express their opinions. [Lv. 4]

4.

ASBMs should continually strive to communicate with directors, employees, and otherpeople in the company and its subsidiaries and should endeavor to collect sufficient
information and to develop the audit environment. [Lv. 4]

5.

In formulating audit opinions, ASBMs should endeavor to come to appropriate opinions
by diligently confirming the relevant facts, requesting attorneys’ and other outside
professionals’ opinions when finding it necessary, and seeking rational grounds for their
judgments. [Lv. 4]

6.

ASBMs must be careful to maintain the confidentiality of any information they obtainin the course of performing their duties. [Lv. 2]

7.

ASBMs should endeavor to make the directors, including the representative directors,
fully understand and recognize that it is important and indispensable for the directors todevelop a favorable environment for ASBM audits in order to establish and operate agood corporate governance system that accommodates society’s trust and ensures thesound and sustainable growth of the company and its corporate group. [Lv. 4]17

Reference for paragraph 2
Governance Code, General Principle 4, Principle 4.4, and Supplementary
Principle 4.14.1
Supplement to paragraph 3“Positively and proactively express their opinions” means that ASBMs are
expected to express their opinions in consideration of risk management, the rationalityof business judgments, and the like without hesitation whenever they determine it would
be beneficial for the company, instead of limiting their remarks or waiting for theiropinions to be asked for the reason that the matter should be left solely to management.

Chapter III
ASBMs and the Audit and Supervisory Board
Article 4

Full-time ASBMs

1.

The audit and supervisory board (“ASB”) must appoint one or more full-time ASBMs(joukin-kansayaku) from among the ASBMs. [Lv. 1]

2.

Full-time ASBMs should keep in mind their particular role as full-time personnel andshould actively endeavor to develop the audit environment and to collect information
within the company [Lv. 4], and they will monitor and verify, on a daily basis, the statusof the establishment and operation of internal control systems. [Lv. 3]

3.

Full-time ASBMs should endeavor to share with other ASBMs information obtained in
the course of performing their duties. [Lv. 4]

Article 5

Outside ASBMs and Independent ASBMs

1.

Outside ASBMs (shagai-kansayaku) should keep in mind that their election is requiredby law in order to strengthen the level of independence and neutrality of the audit
system, should actively try to obtain information necessary for their audit, and should
endeavor to share that information obtained with other ASBMs and to develop the audit
environment in cooperation with other ASBMs. [Lv. 4] Additionally, outside ASBMs
should endeavor in cooperation with other ASBMs to share information with theInternal Audit Division, Etc. (defined in Article 37, paragraph 1) and the accounting
auditor. [Lv. 4]

2.

Because of their independence, the reasons for their election, and other related matters,
outside ASBMs will keep in mind that they are particularly expected to express
objective and neutral audit opinions and will actively, candidly, and directly posequestions and state their opinions to the representative directors and the board of
directors. [Lv. 3]

3.

Outside ASBMs, keeping in mind that the status of the performance of certain of theirduties specified by law and regulation is disclosed in the business report, must performtheir duties appropriately. [Lv. 2]

18

4.

Outside ASBMs designated as independent ASBMs will keep in mind that they areparticularly expected to act to ensure that managerial decision-making is fair andimpartial in consideration of the interests of general shareholders and, by extension, theinterests of the company (in this article, “Interests of General Shareholders”) and will
exchange opinions with other ASBMs, strive in cooperation with other ASBMs to
exchange information with the departments in charge of exchanging opinions withgeneral shareholders and other such matters, and, when finding it necessary, express
their opinions to the representative directors and the board of directors in considerationof the Interests of General Shareholders. [Lv. 3]

Article 6

Functions of the ASB

1.

The ASB is composed of all ASBMs. [Lv. 1]

2.

Given that the ASB is the only deliberative or decision-making organization for the
purpose of formulating opinions regarding audits, each ASBM will report the status of
performance of their duties to the ASB. [Lv. 3] Additionally, each ASBM should
endeavor to ensure the effectiveness of audits through the utilization of the ASB. [Lv. 4]
However, the ASB’s resolutions must not preclude any ASBM from exercising his or
her own powers. [Lv. 1]

3.

The ASB must express its opinions to the directors or the board of directors asnecessary. [Lv. 2]

4.

In addition to the matters that the directors and employees are statutorily required toreport to the ASB, the ASB will determine through deliberations with the relevant
directors the scope of matters that the directors and employees are to report to the ASB
and will accordingly receive from them reports on such matters. [Lv. 3]

Article 7

Duties of ASB

The ASB must perform the following duties; however, the decision in item (iii) must
not preclude any ASBM from exercising his or her own powers: [Lv. 1](i)preparing audit reports;(ii)

appointing and removing full-time ASBMs; and(iii) deciding audit policy, methods for investigating the status of the operations andfinances of the company, and other matters regarding the performance of ASBM
duties.
Article 8

Operation of ASB

1.

It is desirable that ASB meetings be held on a regular basis and that the dates and times
for the meetings for the year be fixed in advance, taking into consideration thescheduled dates and times of the board of directors’ meetings, each ASBM’s availability
to attend, and other relevant factors. [Lv. 4] However, an ASB meeting will be held
whenever found necessary. [Lv. 3]

2.

The chairperson of the ASB should be appointed by resolution from among the ASBMs.
[Lv. 4] The chairperson will convene and preside over ASB meetings and perform any

19other duties entrusted to the chairperson by the ASB. [Lv. 3] However, the chairperson
must not preclude any ASBM from exercising his or her own powers. [Lv. 1]
3.

The ASB must deliberate based on each ASBM’s report and formulate an audit opinion.
[Lv. 2]

4.

The ASB must deliberate any matter for which its resolution is required based onadequate materials. [Lv. 2]

5.

ASBMs must confirm that the outline and the results of the proceedings and othermatters provided by any laws and regulations are appropriately stated in the minutes of
ASB meetings, and all attending ASBMs must affix to the minutes their respective
signatures or their respective names and seal impressions. [Lv. 1]

Article 9

Involvement in Procedure to Elect ASBMs, etc.; Consent Procedures

1.

With respect to any proposal for the appointment of ASBMs to be submitted by the
directors to a shareholders’ meeting, the ASB must deliberate on whether to give its
consent to the proposal. [Lv. 1] In determining whether to give consent, the ASB willtake into consideration the selection criteria, etc. set forth in Article 10. [Lv. 3]

2.

It is desirable that the ASB have a prior opportunity to deliberate with the directors
regarding the candidates for ASBMs, the contents of the selection policy for ASBM
candidates, the procedures for deciding on a proposal for the election of ASBMs, thenecessity for an election of substitute ASBMs, and other relevant matters. [Lv. 4]

3.

When finding it necessary, the ASB will either demand that the directors include theelection of ASBMs in the agenda of a shareholders’ meeting or will itself propose
candidates for ASBMs to be submitted by the directors to the shareholders’ meeting.
[Lv. 3]

4.

ASBMs must, if they come to have an opinion regarding the election, dismissal, or
resignation of any ASBM, express that opinion at a shareholders’ meeting. [Lv. 2]

5.

Election of substitute ASBMs and other such matters will be conducted pursuant to theprocedures provided for in this article. [Lv. 3]

6.

ASBMs and the ASB will examine whether the matters relating to preventing andresponding to improper business execution disclosed in proposals to appoint outside
ASBMs are appropriately stated. [Lv. 3]
Supplement to paragraph 2This refers to cases in which companies establish policies on nominating ASBM
candidates and the like; such policies are established with the involvement of the ASB,
not only by the board of directors.
Reference for paragraph 2
Governance Code, Principle 3.1(iv)-(v)Article 10 Criteria of Selection, etc. of Candidates for ASBMs
1.

The ASB should establish a specific policy for use in such situations as when giving
consent to proposals for the appointment of ASBMs, taking into consideration, among
20

other relevant factors, (i) the distinctions between full-time and part-time ASBMs andbetween inside and outside ASBMs together with the respective numbers thereof, (ii)the term of office of incumbent ASBMs, (iii) specialized expertise, and (iv) possible
vacancies in office. [Lv. 4]
2.

When consenting to the selection of a candidate for ASBM and being involved in theselection policy for ASBM candidates, the ASB will carefully examine suitability toserve as ASBM in light of whether the candidate can complete the term of office,whether the candidate’s independence from the executives can be sufficiently ensured,
whether the candidate can maintain a fair and impartial attitude, and other relevant
factors. [Lv. 3] It is also desirable that at least one ASBM has a significant level ofknowledge of financial and accounting matters. [Lv. 4]

3.

When selecting candidates for outside ASBMs, the ASB should confirm that there will
be no difficulties as to their independence, taking into consideration factors such as theirrelationship with the company, its parent company, representative directors, otherdirectors, and key employees, and should also examine factors such as each candidate’s
availability to attend the board of directors’ meetings, ASB meetings, and other relevant
meetings. [Lv. 4]

4.

The ASB will ask the board of directors to express its views on the designation of
independent ASBMs and, as necessary, deliberate with the board of directors in regard
thereto. [Lv. 3]

5.

When selecting candidates for ASBMs and outside ASBMs, in addition to the mattersset forth in the preceding three paragraphs, the ASB will also examine statutorily
required matters to be stated in the reference documents for shareholders’ meetings withrespect to a proposal for the election of ASBMs. [Lv. 3]

Article 11 Remuneration, etc. of ASBMs
1.

When there is neither a provision in the articles of incorporation nor any resolution of ashareholders’ meeting concerning the amount of remuneration, etc. to be received byeach ASBM, ASBMs must determine the amount of remuneration, etc. to be received
by each ASBM through deliberation, taking into consideration the distinction between
full-time and part-time positions, the sharing of audit affairs among ASBMs, thecontents and level of the remuneration, etc. of directors, and other relevant factors. [Lv.
1]

2.

If ASBMs come to have an opinion on the remuneration, etc. of ASBMs, they will
express such opinion as necessary at a board of directors’ meeting or at a shareholders’meeting. [Lv. 3]

Article 12 Audit Expenses
1.

ASBMs may receive advance payment or reimbursement from the company for
expenses arising in connection to the performance of their duties. [Lv. 5]

2.

It is desirable for the ASB to formulate in advance a budget for expenses arising inconnection to the performance of ASBM duties based on the policy stated in Article 17,
paragraph 2, item 6. [Lv. 4] However, ASBMs have the right to demand reimbursementfrom the company for any expenses incurred in an emergency or on an extraordinary
basis, as well. [Lv. 5]
21

3.

ASBMs have the right to demand payment from the company for expenses incurred
when ASBMs receive, as necessary, advice from outside professionals. [Lv. 5]

4.

ASBMs have the right to demand payment from the company for expenses incurred
when ASBMs obtain training and the like suitable for acquiring, appropriately updating,or otherwise cultivating the knowledge necessary in order to deepen their understandingof their roles and responsibilities. [Lv. 5]

5.

In incurring audit expenses, ASBMs should keep in mind the efficiency andappropriateness of each expenditure. [Lv. 4]
Supplement to paragraphs 3 and 4
The burden of expenses has been clarified, as well.
Reference for paragraph 4
Governance Code, Supplementary Principle 4.13.2, Principle 4.14

Chapter IV
Measures Based on the Corporate Governance Code
Article 13 Measures Based on the Corporate Governance Code1.

ASBMs in companies to which the Corporate Governance Code applies should performtheir duties with sufficient understanding of the purpose and intent of the Corporate
Governance Code. [Lv. 4]

2.

ASBMs and the ASB should monitor whether the following supervisory functions of
the board of directors are being appropriately exercised in order to promote thecompany’s sustainable growth and the increase of its corporate value over the mid tolong term and to improve profitability, capital efficiency, and the like and should fulfill
part of these supervisory functions within the scope of their own duties: [Lv. 4](i)setting the broad direction of corporate strategy and the like;(ii)

developing an environment where appropriate risk-taking by the representative
directors and other executive directors is supported; and(iii) effectively supervising the representative directors, other directors, and other suchpeople from an independent and objective standpoint.
3.

If ASBMs participate in bodies such as optional advisory committees related tonominations, remuneration, and the like, ASBMs will, keeping in mind their duty ofcare to the company, make appropriate judgments in order to achieve the company’ssustainable growth and increased corporate value over the mid to long term. [Lv. 3]
Supplement to paragraph 1
Because the content of the Governance Code aims to contribute to companies’
sustainable growth and increased corporate value over the mid to long term, Article 13,
paragraph 1 does not mean that companies to which the Governance Code does notdirectly apply should not take in its main points.
22

Supplement to paragraph 2
As set forth in Article 2, paragraph 1, ASBMs and the ASB bear part of thecompany’s supervisory functions (in the broad sense) in cooperation with the board of
directors; General Principle 4 of the Governance Code provides three roles andresponsibilities as examples of those supervisory functions, and ASBMs and the ASB
bear part of those roles and responsibilities. (Please refer to General Principle 4 of theGovernance Code.) In addition to auditing whether the board of directors isappropriately fulfilling those supervisory duties (refer to Article 381, paragraph 1 of theCompanies Act), another example of a means through which ASBMs can be involved inthese supervisory functions (in the broad sense) is by proactively expressing opinions
regarding internal control systems, which serve as a foundation for appropriate risktaking, from the initial establishment stages of those systems. Additionally, dependingon the circumstances of the company, it may also be possible for ASBMs to proactively
state their views in consideration of risk management, the rationality of businessjudgments, and the like not only in regard to individual matters, but also when
formulating mid-term business plans. However, paragraph 2 is set at level 4 because
the degree of these types of involvement should vary depending on the circumstances ofeach company. Any measures to be taken by ASBMs should be carried out inconsideration of the roles and responsibilities set forth in Article 2.
Supplement to paragraph 3
Whether to establish these advisory committees and whether ASBMs will
participate in them is handled at the discretion of each company in accordance with its
circumstances.
Reference for paragraph 3
Governance Code, Principle 4.10
Article 14 Constructive Dialogue with Shareholders
1.

When ASBMs engage in dialogue with shareholders with mid- to long-term
perspectives and other stakeholders, ASBMs should coordinate with related
departments and appropriately engage in such dialogue to a reasonable extent so that it
contributes to the company’s sustainable growth and increase of corporate value overthe mid to long term. [Lv. 4]

2.

The views and concerns of shareholders learned through the dialogue in the preceding
paragraph should be appropriately and effectively relayed to the representative
directors, other executive directors, the board of directors, and the ASB. [Lv. 4]
Supplement
This article has been included because there are already cases in which ASBMs
engage in dialogue with shareholders and other stakeholders, and expectations of theinvolvement of ASBMs as non-executive officers in such dialogue are likely to increasein the future. “Shareholders with mid- to long-term perspectives” means those who are
not focused only on short-term interests and who are able to “wait until the23improvements of corporate governance are achieved” (Governance Code,“Background,” section 8); a typical example of this type of shareholder is an
institutional investor or the like that has adopted the Stewardship Code and has a deep
understanding of and interest in the mid- to long-term increase of the corporate value ofthe companies in which it invests so as to secure long-term returns for its customers andbeneficiaries. “Coordinate with related departments” is included because it is necessary
for ASBMs, when engaging in shareholder dialogue, to coordinate sufficiently with IR
and other related departments and ensure that explanations are as consistent as possible
across the company as a whole so that those explanations are easy to understand forshareholders and other stakeholders.
Reference
Governance Code, General Principle 5

Chapter V
Development of the ASBM Audit Environment
Article 15 Regular Meetings with the Representative Directors
ASBMs should hold meetings with the representative directors on a regular basis toconfirm the management policies of the representative directors and to exchange
opinions with the representative directors on any issues to be addressed by thecompany, the risks surrounding the company, the status of the development of afavorable environment for ASBM audits (such as the ensuring of sufficient employees
to support ASBM duties (“Supporting Employees”) and establishment of systems forreporting to ASBMs), priority audit issues, and any other relevant matters and should
endeavor to deepen their mutual understanding and trust with the representative
directors. [Lv. 4]
Article 16 Coordination with Outside Directors, etc.
1.

If the company has appointed outside directors, the ASB should examine mattersrelating to exchanging information and coordinating with the outside directors andendeavor to ensure the effectiveness of audits. [Lv. 4] ASBMs and the ASB should
endeavor to ensure coordination with the outside directors so that the outside directors
are able to strengthen their capacity to collect information without affecting their
independence. [Lv. 4]

2.

If a lead independent outside director has been selected, ASBMs and the ASB should
endeavor to ensure coordination with that director. [Lv. 4]

3.

In addition to the preceding two paragraphs, ASBMs should, through such means as
holding meetings on a regular basis, exchange opinions with the non-executive officers,
including outside directors, regarding issues to be addressed by the company, the risks
surrounding the company, priority audit issues, and any other relevant matters andshould endeavor to exchange information, develop a shared awareness, and deepen trust
among the non-executive officers. [Lv. 4]24

Reference for paragraph 1
Governance Code, Supplementary Principle 4.4.1
Reference for paragraph 2
Governance Code, Supplementary Principle 4.8.2
Reference for paragraph 3
Governance Code, Supplementary Principle 4.8.1
Article 17 Systems to Ensure the Effectiveness of ASBM Audits
1.

ASBMs should endeavor to ensure the establishment of systems that will improve audit
effectiveness and facilitate the performance of audit duties. [Lv. 4]

2.

In order to ensure the establishment of the systems supporting ASBM audits mentioned
in the preceding paragraph, ASBMs will determine the contents of the following
systems and will request that directors or the board of directors develop such systems:[Lv. 3](i)the assignment of Supporting Employees and other matters relating to Supporting
Employees;(ii)matters relating to the independence of Supporting Employees from directors;(iii) matters relating to ensuring the effectiveness of instructions to Supporting
Employees;(iv) the following systems and any other systems relating to reports to be provided to
ASBMs:(v)(a)

systems for directors and employees to report to ASBMs; and(b)systems for directors, ASBMs, and employees of the company’s
subsidiaries, or anyone who receives a report from any of these, to report to
ASBMs;

systems to ensure that any person who made a report in the preceding item does
not receive disadvantageous treatment due to having made that report;(vi) procedures for the advance payment or reimbursement of expenses arising inconnection to the performance of ASBM duties and any other matters relating topolicies on the handling of expenses or debts arising in connection to theperformance of ASBM duties; and(vii) any other systems to ensure the effectiveness of ASBM audits.
Reference for paragraph 2This revision was made in consideration of Article 100, paragraph 3 of theOrdinance for Enforcement of the Companies Act.

25

Article 18 Supporting Employees
1.

ASBMs should endeavor to strengthen the systems of Supporting Employees in order toensure the effectiveness of audits, taking into consideration the company’s size, thenature of its business, various management risks surrounding the company, and otheraspects related to the company’s particular circumstances. [Lv. 4]

2.

It is desirable that the duties of the secretariat of ASBMs and the ASB be performed by
employees who are dedicated exclusively to serving as Supporting Employees.
However, if it is difficult to assign employees as dedicated Supporting Employees,
ASBMs or the ASB should request the directors or the board of directors to, at the least,
assign one or more employees who have other duties to also serve as Supporting
Employees. [Lv. 4]
Supplement to paragraph 2This clarifies that at the least, one or more employees who have other duties
should be assigned as Supporting Employees.

Article 19 Ensuring Supporting Employees’ Independence and the Effectiveness ofInstructions
1.

ASBMs should endeavor to ensure the independence of Supporting Employees from theexecutives. [Lv. 4]

2.

ASBMs will examine any matters necessary for ensuring the independence ofSupporting Employees and the effectiveness of instructions to Supporting Employees,
such as clarifying the following matters: [Lv. 3](i)Supporting Employees’ powers (such as investigative and information-collecting
powers, as well as authority to attend meetings as necessary as instructed by
ASBMs);(ii)

the organization to which Supporting Employees belong;(iii) rights of ASBMs to control and direct Supporting Employees;(iv) rights of ASBMs to consent to personnel changes, personnel evaluations, anddisciplinary actions in regard to Supporting Employees;(v)

ensuring an appropriate number of dedicated Supporting Employees or
Supporting Employees with other duties, each having the necessary knowledge
and abilities, and systems for Supporting Employees with other duties to engage
in supporting ASBMs;(vi) securing funds for the activities of Supporting Employees; and(vii) systems for the Internal Audit Division, Etc. to cooperate with Supporting
Employees.
Reference for paragraph 2This revision was made in consideration of Article 100, paragraph 3, item 3 of theOrdinance for Enforcement of the Companies Act.

26

Article 20 Systems for Reporting to ASBMs, etc.
1.

ASBMs should endeavor to strengthen the systems for directors and employees toreport to ASBMs (including systems for the directors, ASBMs, and employees of thecompany’s subsidiaries to report directly or indirectly to ASBMs) and other relevant
systems relating to reports to be provided to ASBMs. [Lv. 4]

2.

ASBMs will request that each director be thoroughly aware that if a director discovers
any fact that is likely to cause the company significant damage, he or she will beobligated to immediately report such fact to the ASB. [Lv. 3]

3.

In addition to the matters set forth in the preceding paragraph, ASBMs should deliberatewith directors and decide on the matters that will be reported to ASBMs or the ASB ona regular basis and who will provide those reports. The same applies to matters to bereported irregularly on an as-needed basis. [Lv. 4]

4.

ASBMs will request that the representative director establish internal company rules
and otherwise develop internal systems that enable matters determined in priordeliberation with the directors to be reported to ASBMs or the ASB in an effective andtimely manner. [Lv. 3]

5.

If the company has an internal reporting system for whistleblowers, ASBMs mustmonitor and verify whether that system effectively functions (both in the company andthroughout the corporate group) by confirming that material information is provided to
ASBMs and that it is ensured that any person who makes a whistleblowing report does
not receive disadvantageous treatment due to having made that report. [Lv. 2]
Additionally, ASBMs should endeavor to utilize information provided by the internalreporting system in performing their audit duties. [Lv. 4]

6.

To ensure that a system of coordination with the company’s Internal Audit Division,
Etc. (defined in Article 37) is effectively established and operated, ASBMs should
request that directors or the board of directors support and develop such a system. [Lv.
4]
Reference for paragraph 1
This revision was made in consideration of Article 100, paragraph 3, item 4(b) of
the Ordinance for Enforcement of the Companies Act.
Supplement to paragraph 1“Indirectly” has been added here in consideration of the fact that reports fromsubsidiaries are not always made to the ASBMs of the parent company.
Reference for paragraph 5This revision was made in consideration of Article 100, paragraph 3, item 5 of theOrdinance for Enforcement of the Companies Act and Supplementary Principle 2.5.1 of
the Governance Code.

27

Chapter VI
Operational Audits
Article 21 Audit of Directors’ Performance of Duties
1.

ASBMs must audit the directors’ performance of their duties. [Lv. 1]

2.

In order to discharge the responsibility stated in the preceding paragraph, ASBMs must
perform the following duties:(i)

ASBMs must monitor and verify the decision-making of the directors in passing
board of directors’ resolutions and in other situations as well as the performanceof the board of directors’ duty of supervision. [Lv. 2](ii)

ASBMs must monitor and verify whether the directors have established and areoperating internal control systems appropriately. [Lv. 2](iii) ASBMs must take necessary measures, such as making suggestions or
recommendations to the directors, in case ASBMs find (a) that any director has
committed or is likely to commit an act outside the purposes of the company orotherwise in violation of any law, regulation, or the articles of incorporation, (b)any fact that is likely to cause the company significant damage, a serious incident,
or the like, or (c) any fact that is significantly inappropriate for the corporate
affairs of the company. [Lv. 2](iv) Upon receipt of a report from a director to the effect that the company is likely tosuffer significant damage, ASBMs or the ASB must conduct necessary
investigations and take measures appropriate to the situation, such as providing
suggestions or recommendations to the directors. [Lv. 2]
3.

When finding it necessary, with respect to the matters set forth in the preceding
paragraph, ASBMs will demand the convocation of a board of directors’ meeting or
seek an injunction against an act of the directors in question. [Lv. 3]

4.

If ASBMs find that there is, in connection with the directors’ performance of theirduties, any misconduct or any material fact constituting a violation of any law,regulation, or the articles of incorporation, ASBMs must state that misconduct or fact in
the audit report. [Lv. 1] In addition, if there are any matters considered appropriate inorder to fulfill the duty of accountability to shareholders, ASBMs will state such mattersin the audit report. [Lv. 3]

5.

The ASB must conduct deliberations based on the ASBM audit report of each ASBM,
formulate the audit opinion of the ASB, and state that opinion in the ASB audit report.
[Lv. 1]

Article 22 Auditing the Decision-Making of the Board of Directors, etc.
1.

With respect to the directors’ decision-making by way of board of directors’ resolutions
or other means, ASBMs must monitor and verify the directors’ performance of theirlegal duties, including their duty of care and their duty of loyalty, by applying thefollowing considerations: [Lv. 2](i)There must be no material or careless error in understanding the relevant facts that
constituted the basis of the decision;

28

(ii)

The decision-making process must be reasonable;(iii) The contents of a decision must not violate any law, regulation, or the articles ofincorporation;(iv) The contents of a decision must not be obviously unreasonable as a decision ofordinary corporate management; and(v)
2.

A decision must be made in foremost consideration of the interests of thecompany, not of the directors or third parties.

When finding it necessary, in relation to the matters mentioned in the preceding
paragraph, ASBMs will make suggestions or recommendations to the directors or seek
an injunction against an act of the directors. [Lv. 3]

Article 23 Audit of the Performance of the Board of Directors’ Duty of Supervision
ASBMs must confirm whether the representative directors and other executive directors
are reporting to the board of directors on the status of the performance of their duties ina timely and appropriate manner and must monitor and verify whether the board of
directors is appropriately performing its duty of supervision. [Lv. 2]
Article 24 Audit of Internal Control Systems
1.

With respect to the following systems (“Internal Control Systems”) of the company
developed based on board of directors’ resolutions, ASBMs must monitor and verify thecontents of such resolutions and the status of the establishment and operation of theInternal Control Systems by the directors: [Lv. 1](i)systems to ensure that the performance of the duties of directors and employees
complies with all laws, regulations, and the articles of incorporation;(ii)

systems to retain and manage information related to the directors’ performance of
their duties;(iii) company rules and other systems relating to the management of the risk of loss;(iv) systems to ensure the efficiency of the directors’ performance of their duties;(v)

the following systems and other systems to ensure the appropriateness ofcorporate affairs in the corporate group consisting of the company, its parent
companies, and its subsidiaries:(a)systems relating to reports to the company regarding the performance of theduties of directors of subsidiaries;(b)company rules and other systems relating to the management of the risk ofloss of subsidiaries;(c)systems to ensure the efficiency of the performance of the duties of directorsof subsidiaries; and(d)systems to ensure that the performance of the duties of directors andemployees of subsidiaries conforms to laws, regulations, and the articles ofincorporation; and(vi) systems to ensure the effectiveness of ASBM audits set forth in Article 17,
paragraph 2.
29

2.

ASBMs must request on a regular basis that the directors report on the status of theestablishment and operation of the Internal Control Systems and must monitor andverify the status of the Internal Control Systems through, among other means,coordination with the company’s Internal Audit Division, Etc., and through reports fromthe accounting auditor. [Lv. 2]

3.

ASBMs will report the results of their audit of the Internal Control Systems to thedirectors or the board of directors, and when finding it necessary, ASBMs will provide
suggestions or recommendations to the directors or the board of directors relating to theimprovement of the Internal Control Systems. [Lv. 3]

4.

ASBMs will monitor and verify the status of board of directors’ resolutions related tosystems to ensure the effectiveness of ASBM audits and the status of the establishment
and operation of these systems by each relevant director, and when finding it necessary,
ASBMs will have an opportunity to deliberate with the representative directors andother directors. [Lv. 3]

5.

If ASBMs find that the directors or the board of directors are neglecting the appropriate
establishment and operation of systems to ensure the effectiveness of ASBM audits,
ASBMs must promptly provide suggestions or recommendations for improvement to
the directors or the board of directors. [Lv. 2]

6.

ASBMs must report the results of their audit regarding Internal Control Systems to the
ASB. [Lv. 2]

7.

If ASBMs find that the contents of board of directors’ resolutions regarding Internal
Control Systems are not appropriate, find that statements in business reports regarding
Internal Control Systems are significantly inappropriate, or find that there is any
material fact regarding the establishment and operation of the Internal Control Systems
constituting a breach of the directors’ duty of care, ASBMs must state so in the audit
report. [Lv. 1] In addition, if there are any matters considered appropriate in order tofulfill the duty of accountability to shareholders, ASBMs will state such matters in theaudit report. [Lv. 3]

8.

The ASB must conduct deliberations based on the ASBM audit report of each ASBM,
formulate the audit opinion of the ASB, and state that opinion in the ASB audit report.
[Lv. 1]

9.

Audits regarding Internal Control Systems will be governed by the “Audit PracticeStandards for Internal Control Systems” enacted separately in addition to this Code.
[Lv. 5]
Reference for paragraph 1(v)This revision was made in consideration of Article 100, paragraph 1 of theOrdinance for Enforcement of the Companies Act.

Article 25 Audits in Corporate Group1.

ASBMs of companies with subsidiaries must monitor and verify the directors’
performance of their duties relating to the administration of subsidiaries in considerationof consolidated group management. [Lv. 2]

2.

ASBMs should endeavor to perform their duties and to develop the audit environmentof the entire corporate group while taking into consideration the significance of thedamage that would be caused to the company by an incident of misconduct or a similar
30

event within a subsidiary and being mindful of whether Internal Control Systems areappropriately established and operated in the company and its subsidiaries. [Lv. 4]
3.

If the company has a significant affiliated company, audits will be performed inaccordance with the preceding two paragraphs in consideration of the significance ofthat affiliated company. [Lv. 3]

Article 26 Audit of Competitive Transactions, Conflict-of-Interest Transactions, etc.
1.

With respect to the following transactions or matters, ASBMs must monitor and verify
whether there exists any fact constituting a breach of directors’ duties: [Lv. 2](i)any competitive transaction;(ii)

any transaction involving a conflict of interest;(iii) the company’s provision, without compensation, of any economic benefit(including the provision of any economic benefit in exchange for extremely low
compensation);(iv) any irregular transactions with a parent company, etc., a subsidiary, or ashareholder, etc.; and(v)

the procedures for the company’s acquisition or disposal of its own shares as wellas the cancellation of shares.

2.

With respect to any transaction or matter set forth in the items of the preceding
paragraph, ASBMs must take all necessary measures, such as making suggestions or
recommendations to the directors, if ASBMs find, as a result of reports from thecompany’s internal departments, etc. or as a result of ASBM audits, any fact that
constitutes or is likely to constitute a breach of any duty of a director. [Lv. 2]

3.

In regard to transactions with parent companies, etc. that are required to be stated infinancial statement notes, ASBMs must state their opinions in the ASBM audit report
regarding the appropriateness of the board of directors’ judgment of whether thosetransactions harm the interests of the company and regarding the appropriateness of thereasons for that judgment stated in the business report. [Lv. 1]

4.

With respect to any material or abnormal transactions or matters other than those set
forth in the items of paragraph 1, ASBMs will keep in mind whether there exists any
fact constituting a violation of any law, regulation, or the articles of incorporation [Lv.
3] and must make suggestions or recommendations to the directors in order to preventthe occurrence of any material damage. [Lv. 2]
Reference for paragraph 3This revision was made in consideration of Article 129, paragraph 1, item 6 of theOrdinance for Enforcement of the Companies Act.
Supplement to paragraph 3
If, in response to Principle 1.7 of the Governance Code, the board of directors
establishes procedures for appropriate examination of transactions between relatedparties according to the importance and characteristics of the transactions to ensure thatthe transactions do not harm the interests of the company or the common interests of theshareholders, and the board conducts supervision in consideration of those procedures,
31

then ASBMs will likely in the same manner audit the status of the board of directors’
performance of those duties.
Article 27 Responses to Corporate Wrongdoing; Third-Party Committee
1.

If corporate wrongdoing (meaning an act in violation of laws, regulations, or the articles
of incorporation or another improper or inappropriate act that leads to public criticism;
the same applies below in this article) occurs, ASBMs should immediately request
reports from the directors and other relevant parties, should request as necessary that an
investigation committee be established and receive explanations from that committee,
and should endeavor to understand the facts of the corporate wrongdoing. [Lv. 4]
Additionally, ASBMs must monitor and verify the status of the response of directors
and the investigation committee in regard to matters such as identifying causes,
preventing the spread of damage, promptly resolving the issue, preventing reoccurrence,and publicly disclosing information. [Lv. 2]

2.

If ASBMs find that the response of the board of directors stated in the preceding
paragraph is not appropriate in consideration of factors such as independence,neutrality, or transparency, ASBMs will, after deliberations by the ASB, takeappropriate measures, such as recommending to the directors that they establish a thirdparty committee by requesting external, independent attorneys and other such persons to
examine matters such as the identification of causes and measures to prevent
reoccurrence of the corporate wrongdoing (in this article, a “Third-Party Committee”)
or, as necessary, establishing a Third-Party Committee by themselves requesting
external, independent attorneys and other such persons to examine such matters. [Lv. 3]

3.

It is desirable that ASBMs, excluding those found to have a clear interest in thecorporate wrongdoing, serve as members of the Third-Party Committee [Lv. 4]; even if
they do not, ASBMs will, unless doing so is found inappropriate in consideration ofmatters such as requests to promptly identify causes and relationships with relevant
authorities, request explanations from the Third-Party Committee regarding the processof the establishment of the Third-Party Committee, the status of its response measures,and other such matters and, as necessary, request the Third-Party Committee to attend
ASB meetings. [Lv. 3] If ASBMs serve as members of the Third-Party Committee,
they will, keeping in mind their duty of care to the company, appropriately performtheir duties as members in cooperation with the attorneys and other such persons also
serving as members. [Lv. 3]

Article 28 Audit of Business Reports, etc.
1.

ASBMs must formulate their own audit opinions on whether business reports andannexed specifications thereof (“Business Reports, Etc.”) for a given business year
provide appropriate statements by monitoring and verifying the directors’ performanceof their duties throughout the business year. [Lv. 1]

2.

ASBMs must receive a Business Report, Etc. for each business year from the specified
directors (tokutei-torishimariyaku, meaning the directors set forth in Article 132,
paragraph 4 of the Ordinance for Enforcement of the Companies Act; the same applies
below in this article) and audit whether the Business Report, Etc. accurately presents thestatus of the company in accordance with laws, regulations, and the articles ofincorporation. [Lv. 1]
32

3.

Based on the preceding two paragraphs, ASBMs must state their opinions in ASBM
audit reports on whether the Business Report, Etc. accurately presents the status of thecompany in accordance with laws, regulations, and the articles of incorporation. [Lv. 1]

4.

Based on the ASBM audit report by each ASBM, the ASB must state its opinion in the
ASB audit report on whether the Business Report, Etc. accurately presents the status of
the company in accordance with laws, regulations, and the articles of incorporation.
[Lv. 1]

5.

The ASB may by resolution appoint a specified ASBM (tokutei-kansayaku, meaning an
ASBM set forth in Article 132, paragraph 5 of the Ordinance for Enforcement of theCompanies Act) who will perform the duty of receiving the notice of Business Reports,
Etc. from the specified directors. [Lv. 5]

6.

In auditing Business Reports, Etc., ASBMs and the ASB will coordinate with theaccounting auditor as necessary. [Lv. 3]

Article 29 Status of Performance of Duties of Outside ASBMs in the Business Report
Of the matters concerning company directors/ASBMs and matters concerning outside
directors/ASBMs, etc. that are disclosed in the business report, ASBMs and the ASB
must verify whether the status of the performance of duties of outside ASBMs and othermatters concerning ASBMs are stated appropriately. [Lv. 2]

Chapter VII
Accounting Audits
Article 30 Accounting Audits
1.

ASBMs and the ASB must formulate their own audit opinions on the appropriateness ofthe methods and the results of the accounting auditor’s audits regarding whether theaccounting-related documents (meaning accounting documents, annexed specifications
thereof, consolidated accounting documents, and other documents set forth in Article 2,paragraph 3, item 3 of the Ordinance on Accounting of Companies; the same applies
below) for a given business year appropriately indicate the status of the assets and the
profits and losses of the company by monitoring and verifying the performance of
duties of directors through the business year. [Lv. 1]

2.

In order to ensure the appropriateness and reliability of accounting audits, ASBMs mustmonitor and verify whether the accounting auditor maintains an independent position
and a fair and impartial attitude and conducts appropriate audits as a professional. [Lv.
2]

Article 31 Confirmation of Systems to Ensure the Appropriate Performance of theDuties of the Accounting Auditor
In order to ensure the appropriate performance of the accounting auditor’s duties,
ASBMs must receive notices on the following matters from the accounting auditor andrequest an explanation from time to time to confirm whether the accounting auditor is33

following the standards for quality control necessary to appropriately perform theirduties: [Lv. 2](i)matters relating to the accounting auditor’s independence and other mattersrelating to its compliance with laws, regulations, and the accounting auditor’s
audit rules;(ii)

matters relating to policies on the acceptance and continuation of contracts foraudits, services similar to audits, and other services related to either; and(iii) other matters relating to systems to ensure the appropriate performance of theaccounting auditor’s duties.
Article 32 Audit of Accounting Policies, etc.
1.

ASBMs must, by requesting the opinion of the accounting auditor, verify whether theaccounting policies (meaning the principles and procedures of accounting, methods ofdisplaying accounting information, and other matters that form the basis of theaccounting-related documents’ preparation; the same applies below in this article) areappropriate in light of the status of the company’s assets, possible impact upon
accounting-related documents, applicable accounting standards, fair accounting
practices, and other relevant factors. [Lv. 2] When finding it necessary, ASBMs will
provide suggestions or recommendations to the directors. [Lv. 3]

2.

If the company intends to modify any of its accounting policies, ASBMs and the ASB
must, prior to such modification, request that the directors report the reason for andimpact of such modification, request the opinion of the accounting auditor with respect
to the appropriateness of such modification, and decide on the appropriateness of suchmodification. [Lv. 2]

Article 33 Audit of Accounting-Related Documents
1.

ASBMs must receive accounting-related documents for each business year from thespecified directors (meaning the directors set forth in Article 130, paragraph 4 of theOrdinance on Accounting of Companies, such as the directors who performed duties
relating to the preparation of accounting-related documents; the same applies below inthis article). [Lv. 1] ASBMs will request explanations from the directors, employees,
and other people in the company on important matters and confirm those matters. [Lv.
3]

2.

ASBMs must receive an accounting audit report and audit-related materials for theaccounting-related documents for each business year from the accounting auditor. [Lv.
1] ASBMs will request explanations from the accounting auditor for important mattersrelated to the accounting audit and examine the accounting audit report. [Lv. 3] If, after
such an examination, ASBMs determine that the methods or results of the accounting
auditor’s audits are inappropriate, ASBMs must conduct audits on their own and state
their determinations of inappropriateness and the reasons therefor in the ASBM audit
reports. [Lv. 1]

3.

Based on the ASBM audit report of each ASBM, the ASB must deliberate on theappropriateness of the methods used in the accounting auditor’s audits and the results
thereof and formulate its own audit opinion. [Lv. 1] If, after such deliberation, the ASB
determines that the methods or results of the audit by the accounting auditor are34

inappropriate, the ASB must state such determination of inappropriateness and thereasons therefor in the ASB audit report. [Lv. 1]
4.

The ASB may by resolution appoint a specified ASBM (meaning an ASBM set forth in
Article 130, paragraph 5 of the Ordinance on Accounting of Companies) who will
perform the duty of receiving the notice of the accounting-related documents from thespecified directors and the notice of the accounting audit report from the accounting
auditor. [Lv. 5]

Article 34 Procedures for Election of Accounting Auditor, etc.
1.

The ASB must establish policies for deciding to dismiss or to not reappoint an
accounting auditor. [Lv. 2]

2.

The ASB will examine, for each accounting period, the appropriateness of reappointing
the accounting auditor after obtaining necessary materials and receiving reports fromthe directors, relevant internal departments, and the accounting auditor. [Lv. 3]

3.

In determining the appropriateness of reappointing the account auditor, the ASB will,taking into consideration the examination in the preceding paragraph, confirm theappropriateness of matters such as the status of the accounting auditor’s performance ofits duties (including the status of the performance of duties in previous business years),
the accounting auditor’s audit systems, its independence, and its expertise. [Lv. 3]

4.

If the ASB determines that it is inappropriate to reappoint the accounting auditor, it
must promptly examine a new accounting auditor candidate. [Lv. 2] When doing so,
the ASB will obtain necessary materials and receive reports from the directors andrelevant internal departments, confirm the matters set forth in Article 31, and carefully
examine the candidate’s independence, past performance record, and other suchmatters; additionally, the ASB will hold meetings with the candidate regarding matterssuch as audit plans, auditing systems, and level of audit remuneration. [Lv. 3]

5.

In accordance with the confirmation and policies set forth in the preceding fourparagraphs, the ASB must determine the contents of proposals regarding theappointment, dismissal, or non-reappointment of the accounting auditor that will be
submitted to the shareholders’ meeting. [Lv. 1]

6.

In regard to proposals to appoint an accounting auditor, the ASB must confirm whether
the reasons that the candidate was selected as an accounting auditor candidate areappropriately stated in the reference documents for the shareholders’ meeting. [Lv. 2]
Reference for paragraph 1
This revision was made in consideration of Article 344 of the Companies Act (inwhich the authority and responsibility for determining the contents of proposals
regarding the appointment, dismissal, or non-reappointment of accounting auditors weretransferred to the ASBMs).
Supplement to paragraph 1
Article 126, item 4 of the Ordinance for Enforcement of the Companies Act
provides that policies for deciding to dismiss or to not reappoint an accounting auditor
are to be stated in the business report; however, even if statements in the business reportfall under the responsibility of directors, it is necessary for ASBMs to establish such35

policies because ASBMs have the authority and responsibility for determining thecontents of proposals regarding the appointment, dismissal, or non-reappointment ofaccounting auditors.
Article 35 Consent Procedures for Remuneration, etc. of the Accounting Auditor
1.

In each case where the company enters into an audit agreement with an accounting
auditor, ASBMs will obtain necessary materials and receive reports from directors,
relevant internal departments, and the accounting auditor, confirm the status ofdelegation of non-audit services and the appropriateness of the amount of remuneration
for those services, and verify whether the contents of the audit agreement, such as theamount of remuneration, etc. for the accounting auditor and the person in charge ofconducting the audit, are appropriate. [Lv. 3]

2.

When determining whether to consent to the amount of remuneration, etc. for theaccounting auditor, the ASB will, taking into consideration the verification in thepreceding paragraph, confirm the appropriateness of matters such as the contents ofaudit plans of the accounting auditor, the status of the accounting auditor’s performanceof its duties (including the status of the performance of duties in previous businessyears), and the basis for calculating the remuneration estimates. [Lv. 3]

3.

The ASB must confirm whether the reasons for its consent to the amount of
remuneration, etc. for the accounting auditor are appropriately stated in the business
report. [Lv. 2]
Reference
This revision was made in consideration of Article 126, item 2 of the Ordinancefor Enforcement of the Companies Act.

Chapter VIII
Method of Audit, etc.
Article 36 Audit Plan and Sharing of Audit Affairs among ASBMs
1.

The ASB will formulate its audit policies while taking into consideration the status of
the establishment and operation of Internal Control Systems and necessary factors suchas importance and timeliness; in addition, it will appropriately choose the matters to beaudited, the audit methods, and the timing of the audit and will prepare an audit plan.
[Lv.3] The audit plan will be prepared in consideration of the results of an analysis andevaluation of the effectiveness of the ASB as a whole, and important audit matters will
be designated as priority audit items in the plan. [Lv. 3]

2.

In preparing an audit plan, the ASB will, from time to time, deliberate or exchange
opinions with the accounting auditor and the company’s Internal Audit Division, Etc. inorder to ensure the efficient conduct of ASBM audits. [Lv. 3]

3.

The ASB will determine the sharing of audit affairs among ASBMs in order to conduct
a systematic and efficient audit. [Lv. 3]

36

4.

The ASB should explain its audit policies and audit plan to the representative directors
and the board of directors. [Lv. 4]

5.

The audit policies and the audit plan will be modified from time to time as necessary.
[Lv. 3]
Supplement to paragraph 1
In practice, when formulating the audit plan for each year, there are many
examples of companies identifying points for improvement, setting priority tasks for the
next term, and selecting on-site audit locations based on the previous year’s audit plan
and an analysis and evaluation of performance and including such matters in the audit
plan. It is also desirable to conduct performance evaluations for each ASBM, but
including that in this Code would diverge greatly from actual practice, so it is not
mentioned in this article. Additionally, whether or not to disclose the evaluation results
is left to the discretion of the company and is therefore not mentioned in this Code.
Reference for paragraph 1
This revision was made in consideration of Supplementary Principle 4.11.3 of theGovernance Code.

Article 37 Systematic and Efficient Audits through Coordination with Internal Audit
Division, etc.
1.

In performing investigations into the status of the operations and finances of thecompany or other audit duties, ASBMs should endeavor to conduct systematic andefficient audits by maintaining close coordination with the company’s internal audit
division and other departments that hold jurisdiction over the monitoring functions in
the Internal Control Systems (collectively, the “Internal Audit Division, Etc.”). [Lv. 4]

2.

ASBMs will receive reports on a regular basis from the company’s Internal Audit
Division, Etc. related to its audit plan and the results of its audits and will request, as
necessary, that the company’s Internal Audit Division, Etc. conduct investigations. [Lv.
3] ASBMs will effectively utilize the results of the audits of the Internal Audit
Division, Etc. for ASBM audits of the Internal Control Systems. [Lv. 3]

3.

ASBMs will receive reports regularly and whenever needed and will request
explanations as necessary concerning the establishment and operation of Internal
Control Systems from the department in charge of compliance, department in charge ofrisk management, accounting department, financial department, other departments thathave responsibility for internal control functions (collectively in this article, the“Internal Control Division”), and any other departments found necessary by ASBMs in
addition to the directors. [Lv. 3]

4.

After receiving the reports from each ASBM, the ASB will examine the matters to besuggested or recommended to the directors or the board of directors. [Lv. 3] However,a determination of the ASB must not preclude any ASBM from exercising his or her
own powers. [Lv. 1]

Article 38 Method of Audits in Corporate Group

37

1.

In regard to the status of the administration of subsidiaries, ASBMs will receive reports
and explanations from directors, employees, and other such persons and inspect therelevant materials. [Lv. 3]

2.

In performing their duties, ASBMs should endeavor to actively communicate andexchange information with, among others, the ASBMs, Internal Audit Division, Etc.,
and accounting auditors of the company’s parent companies and subsidiaries. [Lv. 4]

3.

When finding it necessary for the purpose of auditing the directors’ performance of theirduties, ASBMs will request that subsidiaries report on their business or will investigate
the status of their operations and finances. [Lv. 3]

4.

If the company has a significant affiliated company, audits should be performed inaccordance with paragraph 1 and 2 in consideration of the significance of that affiliatedcompany. [Lv. 4]

Article 39 Attendance and Statement of Opinions at Board of Directors’ Meetings
1.

ASBMs must attend board of directors’ meetings and, when finding it necessary, state
their opinions at the meetings. [Lv. 1]

2.

If ASBMs find that directors have engaged or are likely to engage in misconduct, that
there are facts constituting a violation of any law, regulation, or the articles ofincorporation, or that there are other significantly inappropriate facts, ASBMs must
report that finding to the board of directors without delay. [Lv. 1]

3.

When finding it necessary, in order to make a report to the board of directors mentioned
in the preceding paragraph, ASBMs will demand the convocation of a board of
directors’ meeting. [Lv. 3] If a convocation notice is not dispatched within a certain
period from such demand, ASBMs will themselves convene a board of directors’
meeting. [Lv. 3]

4.

ASBMs must confirm that the outline and the results of the proceedings and othermatters provided by any laws and regulations are appropriately stated in the minutes ofboard of directors’ meetings, and all attending ASBMs must affix to the minutes theirrespective signatures or their respective names and seal impressions. [Lv. 1]

Article 40 Written Resolutions of the Board of Directors
When directors intend to omit resolution proceedings under the provisions of laws andregulations on matters that are to be resolved by the board of directors, ASBMs will
examine the content (including the omission of the board of directors’ resolution
proceedings) and, when finding it necessary, make an objection. [Lv. 3]
Article 41 Attendance and Statement of Opinions at Board of Directors’ Meetings
Formed by Special Directors
1.

When the board of directors stipulates that resolutions of the board can be made byspecial directors (tokubetsu-torishimariyaku), the ASB may by resolution appoint inadvance an ASBM to attend board of directors’ meetings formed by special directors.
[Lv. 5] However, it must not preclude any other ASBMs from attending board of
directors’ meetings formed by special directors. [Lv. 1]

38

2.

All ASBMs present at board of directors’ meetings formed by special directors must,when finding it necessary, state their opinions at the meeting. [Lv. 1]

3.

All ASBMs present at a board of directors’ meeting formed by special directors must
confirm that the outline and the results of the proceedings and other matters provided byany laws and regulations are appropriately stated in the minutes of such meeting andmust affix to the minutes their respective signatures or their respective names and seal
impressions. [Lv. 1]

4.

ASBMs present at a board of directors’ meeting formed by special directors must reporton the agenda items of the meeting and other relevant matters to the other ASBMs. [Lv.
2]

Article 42 Attendance at Important Meetings, etc.
1.

In order to understand important decision-making processes and the status of theperformance of directors’ duties, ASBMs will attend meetings not only of the board of
directors but also of the management committee, executive committee, risk
management committee, compliance committee, and other important meetings orcommittees [Lv. 3] and, when finding it necessary, will state their opinions at suchmeetings. [Lv. 3]

2.

With respect to the meetings to be attended by ASBMs set forth in the preceding
paragraph, ASBMs will make necessary requests to directors and other relevant officers
in order to ensure ASBMs have the opportunity to attend such meetings and to receive
sufficient explanations of relevant matters prior to attending. [Lv. 3]

3.

ASBMs not attending a meeting or committee mentioned in paragraph 1 will receive areport and explanation of the agenda items from other ASBMs, directors, or employees
who attended such meeting or committee and will inspect the relevant materials. [Lv. 3]

Article 43 Audit of Document/Information Management
1.

ASBMs will inspect material internal documents circulated for approval and othermaterial documents relating to business execution and, when finding it necessary, will
request explanations from directors or employees or state their opinions to suchindividuals. [Lv. 3]

2.

ASBMs will investigate whether certain documents and company rules, material
records, and other material information are appropriately maintained, retained, andmanaged and, when finding it necessary, will request explanations from directors or
employees or state their opinions to such individuals. [Lv. 3]

Article 44 Audit of Statutory Disclosure Information, etc.
1.

In regard to systems to ensure that securities reports and other information the company
is required to disclose under laws and regulations that significantly affects the company(in this article, “Statutory Disclosure Information, Etc.”) do not contain any material
errors or significantly misleading statements, ASBMs will, in accordance with Article
24, monitor and verify the preparation of Statutory Disclosure Information, Etc. and theestablishment and operation of disclosure systems. [Lv. 3]

39

2.

ASBMs will monitor and verify whether the directors adequately disclose information
in a timely and appropriate manner with respect to occurrences or circumstances
affecting the company’s status as a going concern, material accidents or disasters,material litigation, and any other matters that may materially affect the soundness of thecompany. [Lv. 3]

Article 45 Investigation, etc. of Directors and Employees
1.

ASBMs must, when finding it necessary, request reports on business from directors andemployees or investigate the status of the operations and finances of the company. [Lv.
2]

2.

ASBMs will, as necessary, conduct investigations through methods such as hearingsand on-site audits, fully confirm the facts, and seek rational grounds for formulating
audit opinions. [Lv. 3]

Article 46 Investigation of Company Assets
ASBMs should endeavor to ascertain the current status and actual value of thecompany’s assets, including matters such as the status of the acquisition, holding, anddisposal of material company assets and the management status of the assets andliabilities of the company. [Lv. 4]
Article 47 Coordination with the Accounting Auditor
1.

In addition to holding meetings with the accounting auditor on a regular basis andrequesting the accounting auditor to attend ASB meetings as necessary, ASBMs and the
ASB should endeavor to develop systems to maintain close coordination with theaccounting auditor and enable effective and efficient audits through such methods asreceiving reports from the accounting auditor on its audit whenever needed and in atimely manner and actively exchanging opinions and information. [Lv. 4]

2.

ASBMs and the ASB will receive an outline of the audit plan and an explanation of thepriority audit items and other such matters from the accounting auditor and will
exchange opinions on such matters with the accounting auditor. [Lv. 3]

3.

ASBMs should endeavor to share with the accounting auditor information that ASBMs
acquire in the course of operational audits through such methods as providing theaccounting auditor with information useful to the accounting auditor’s audits orinformation on matters that may affect the accounting auditor’s audits. [Lv. 4]

4.

ASBMs may attend the accounting auditor’s on-site audits and its audit presentations asnecessary and may, from time to time, request a report from the accounting auditor on
the process of its audits. [Lv. 5]

5.

If ASBMs receive an accounting auditor’s report or the like to the effect that there
exists, in connection with the directors’ performance of their duties, any misconduct or
any material fact constituting a violation of any law, regulation, or the articles ofincorporation (including facts that may affect the ensuring of the appropriateness offinancial and accounting documents), ASBMs must, upon deliberations of the ASB,
conduct any necessary investigation and take any necessary measure in a timely

40manner, including making reports to the board of directors or providing suggestions or
recommendations to the directors. [Lv. 2]
Supplement to paragraphs 1 and 3“Receiving reports and exchanging opinions” has been separated from theprovision of information to the accounting auditor, which has been set out in paragraph
3.

Chapter IX
Basic Policies Regarding the Company’s Control, etc.; Third-Party Allotments, etc.
Article 48 Basic Policies Regarding the Company’s Control, etc.
1.

2.

If the company establishes a basic policy regarding those who control the company’s
determination of its financial and business policies (in this article, a “Basic Policy”),
ASBMs must examine the following matters and state their opinions in the audit
reports, keeping in mind the status of deliberations of the board of directors and othercommittees and meetings: [Lv. 1](i)a summary of the contents of the Basic Policy; and(ii)

a summary of the specific contents of the following measures:(a)the effective utilization of the company’s assets, the formation of an
appropriate corporate group, and other special measures contributing to theachievement of the Basic Policy; and(b)measures for preventing control of the company’s determination of its
financial and business policies by those who are inappropriate in light of the
Basic Policy (in this article, “Takeover Defense Measures”).

ASBMs must examine the determinations of the board of directors as to whether theyfall under the following requirements of each measure set forth in item (ii) of thepreceding paragraph and the reason for such determinations, keeping in mind the status
of deliberations of the board of directors and other committees and meetings, and muststate their opinions in the audit reports as to whether: [Lv. 1](i)such measures are in line with the Basic Policy;(ii)such measures do not impair the common interests of the company’s shareholders;and(iii) such measures are not for the purpose of maintaining the status of the company’s
directors.
3.

If ASBMs assume membership in a committee to make certain determinations regardingwhether to trigger Takeover Defense Measures, ASBMs will appropriately make suchdetermination to promote the maximum interests of the company, keeping in mind their
duty of care to the company. [Lv. 3]

Article 49 Audit of Third-Party Allotments, etc.

41

In addition to the audits set out in Article 22 and in Article 44, paragraph 1, when thecompany issues shares for subscription or share options for subscription (“Shares for
Subscription, Etc.”):(i)

If the company conducts an issuance of shares for subscription in which there is achange in the controlling shareholder and through which the subscriber of the
Shares for Subscription, Etc. (or its subsidiaries) will come to hold a majority ofthe voting rights of all shareholders, ASBMs must express their opinion regardingthat issuance of Shares for Subscription, Etc. [Lv. 1](ii)

If the company conducts a third-party allotment of shares or share options(including bonds with share options), ASBMs will examine matters related towhether the allotment constitutes an issue at discount and express their opinions
as required by laws, regulations, the listing rules of financial instruments
exchanges, and the like. [Lv. 3](iii) Regarding large-scale third-party allotments (meaning situations in which theratio of voting right dilution in the most recent six months caused by third-party
allotments is 25% or more or situations in which third-party allotments create acontrolling shareholder; the same applies below in this article) conducted withouta resolution of the shareholders’ meeting, ASBMs will examine matters such aswhether the purpose of the allotment is to maintain the status of the company’s
directors and will, as necessary, provide suggestions or recommendations to thedirectors. [Lv. 3] If ASBMs express third-party opinions as people independent
from the large-scale third-party allotment, they will appropriately perform theirduties, keeping in mind their duty of care to the company. [Lv. 3]
Reference for item (i)This revision was made in consideration of Article 42-2, item 7 of the Ordinancefor Enforcement of the Companies Act.

Chapter X
Responses to Derivative Lawsuits, etc.
Article 50 Representation in Lawsuits between Directors and the Company
If a lawsuit is filed by the company against a director or by a director against thecompany, ASBMs must represent the company. [Lv. 1]
Article 51 Consent to Partial Exemption of Directors, etc. from Liability
1.

ASBMs will deliberate at ASB meetings when giving the following consents: [Lv. 3](i)consent to submit to the shareholders’ meeting a proposal concerning the partial
exemption of a director from liability;(ii)

consent to submit to the shareholders’ meeting a proposal concerning theamendment of the articles of incorporation to provide that directors may bepartially exempted from liability by a board of directors’ resolution;

42

(iii) consent to submit to the board of directors a proposal concerning the partial
exemption of a director from liability based on the provisions of the articles ofincorporation; and(iv) consent to submit to the shareholders’ meeting a proposal concerning theamendment of the articles of incorporation to provide that the company may enter
into an agreement with an outside director or other non-executive director for hisor her partial exemption from liability.
2.

ASBMs will decide whether to give consent mentioned in any item of the preceding
paragraph by thoroughly examining and, as necessary, requesting outside professionals’
opinions regarding, (i) for proposals for an amendment of the articles of incorporation,
the appropriateness of such amendment, the appropriateness of the reason for the
proposal, and other relevant factors, and (ii) for proposals for the partial exemption of
liability, the reason for the exemption, the results of investigations by ASBMs, thecontents of any relevant court judgments, and other relevant factors. [Lv. 3]

3.

ASBMs will prepare and keep records concerning the process and results of theinvestigations and deliberations made by ASBMs to determine whether to give consent
under any item of paragraph 1. [Lv. 3]

4.

When a proposal for the partial exemption from liability of an accounting auditor underlaws and regulations (including proposals for an agreement for limiting liability) is
submitted to the shareholders’ meeting or the board of directors, ASBMs and the ASB
should follow the provisions of this article. [Lv. 4]

5.

If ASBMs come to have an opinion regarding the partial exemption from liability of
ASBMs or other such matters, they will, as necessary, express their opinions at board of
directors’ meetings and the like. [Lv. 3]
Reference for paragraph 1, item (iv)This revision was made in consideration of Article 427 of the Companies Act.

Article 52 Receipt of Demand to File a Derivative Lawsuit; Notice of Reasons for Not
Filing Lawsuit
1.

If any ASBM receives a demand from shareholders to file a lawsuit to pursue theliability of directors, such ASBM must promptly provide the other ASBMs with noticeof such demand, and an ASB meeting must be convened to thoroughly deliberate on the
response to such demand and to determine whether to file a lawsuit. [Lv. 1]

2.

In determining whether to file a lawsuit mentioned in the preceding paragraph, ASBMs
will in a timely manner make any necessary investigation, including requesting status
reports or opinions from the directors to be sued and from any relevant departments ofthe company, collecting relevant materials, and requesting the opinions of outside
professionals. [Lv. 3]

3.

ASBMs will provide notice of the results of any determination made under paragraph 1
to the board of directors and to the directors to be sued. [Lv. 3]

4.

In cases where a lawsuit to pursue the liability of directors is not filed as a result of thedetermination under paragraph 1, if the shareholders who demanded the filing of thelawsuit or the directors whose liability was to be pursued request, ASBMs must submit
to them without delay documents stating the following matters and must provide noticeof the reasons for not filing the lawsuit; [Lv. 1] in this case, ASBMs will consider the43

contents of that notice through deliberations of the ASB after requesting the opinions ofoutside professionals: [Lv. 3](i)the contents of investigations conducted by ASBMs (including materials that wereused as the basis for the determination of the following item);(ii)

determination as to whether the directors to be sued had a responsibility or duty
and the reasons for that determination; and(iii) if determining that the directors to be sued had a responsibility or duty, the reason
for not filing a lawsuit pursuing their liability.
5.

ASBMs will prepare and keep records concerning the process and results of theinvestigations and deliberations made to determine whether to file a lawsuit. [Lv. 3]

Article 53 Consent to Participation in a Derivative Lawsuit
1.

When consenting to the company’s participation in a derivative lawsuit to assist thedefendant directors, ASBMs will conduct deliberations at an ASB meeting. [Lv. 3]

2.

In determining whether to consent to the participation mentioned in the preceding
paragraph, the ASBMs will request status reports or opinions from the representative
directors, from the defendant directors, and from any relevant departments of thecompany and will request opinions of outside professionals, as necessary. [Lv. 3]
ASBMs will prepare and keep records concerning the process and results of thedetermination as to whether to consent to the participation. [Lv. 3]

Article 54 Judicial Settlement1.

In cases of derivative lawsuits where the court has given notice and issued demand to
the effect that the plaintiff shareholders and the defendant directors are to settle the casein court, ASBMs must, at an ASB meeting, etc., promptly and thoroughly deliberate on
the response to such notice and demand and determine whether to object to thesettlement. [Lv. 2]

2.

In determining the appropriateness of the judicial settlement mentioned in the preceding
paragraph, ASBMs will request status reports or opinions from the representative
directors, from the defendant directors, and from any relevant departments of thecompany and will request opinions of outside professionals, as necessary. [Lv. 3]
ASBMs will prepare and keep records concerning the process and results of thedetermination as to the appropriateness of the judicial settlement. [Lv. 3]

Article 55 Handling of Multiple Derivative Lawsuits, etc.
1.

ASBMs of ultimate, wholly-owning parent companies (meaning companies that havesubsidiaries that are subject to the system of lawsuits to pursue specific liability(commonly called the multiple derivative lawsuit system) (such subsidiaries, “WhollyOwned Subsidiaries” in this article); the same applies below in this article) will respondto lawsuits to pursue specific liability against directors or liquidators of a WhollyOwned Subsidiary (in this article, “Wholly-Owned Subsidiary Directors, Etc.”) in
accordance with the provisions of this chapter, keeping in mind the following:

44

(i)

If the ultimate, wholly-owning parent company receives a notice from a WhollyOwned Subsidiary to the effect that the Wholly-Owned Subsidiary has received
notice of action from the shareholders of the ultimate, wholly-owning parent
company regarding the filing of a lawsuit to pursue specific liability against
Wholly-Owned Subsidiary Directors, Etc., then ASBMs of the ultimate, whollyowning parent company must represent the ultimate, wholly-owning parent
company. [Lv. 1](ii)

If the ultimate, wholly-owning parent company conducts a lawsuit to pursue
specific liability against Wholly-Owned Subsidiary Directors, Etc., then ASBMsof the ultimate, wholly-owning parent company must represent the ultimate,wholly-owning parent company. [Lv. 1](iii) If the ultimate, wholly-owning parent company participates in a lawsuit to pursue
specific liability to assist the defending Wholly-Owned Subsidiary Directors, Etc.,
then ASBMs of the ultimate, wholly-owning parent company must determine
whether or not to consent to that participation. [Lv. 1]
2.

If a Wholly-Owned Subsidiary receives a demand to file a lawsuit to pursue specificliability against Wholly-Owned Subsidiary Directors, Etc. from the shareholders of theultimate, wholly-owning parent company, then ASBMs of the Wholly-Owned
Subsidiary must represent the Wholly-Owned Subsidiary. [Lv. 1]
Supplement to Article 55
This revision was made in consideration of the multiple derivative lawsuit systembeing introduced in the Companies Act. In the case of a filing against subsidiarydirectors/ASBMs of actions such as (i) multiple derivative lawsuits or (ii) derivative
lawsuits by parent company shareholders when there has been a share exchange, etc.,
parent company ASBMs should respond to the lawsuit while keeping in mind that they
themselves may be subject to certain liabilities, as well.

Chapter XI
Reports on Audits
Article 56 Report and Explanation of the Contents of Audits, etc.
In order to ensure the transparency and reliability of audit activities and audit results,
ASBMs must be aware that explaining, as necessary, the status of the performance of
their duties and the contents of their audits is an important responsibility of ASBMs.
[Lv. 2]
Article 57 Preparation of Audit Records
ASBMs must prepare and keep audit records. [Lv. 2] Audit records will record themethods and results of ASBM audits as well as the processes, reasons, and otherrelevant matters leading to the formulation of ASBM audit opinions. [Lv. 3]

45

Article 58 Reporting to the Representative Directors and the Board of Directors
1.

ASBMs and the ASB will regularly report the status of implementation of their audits
and the results thereof to the representative directors and the board of directors. [Lv. 3]

2.

ASBMs and the ASB will report to the representative directors and the board of
directors the process and results of audits regarding the priority audit items for thecurrent accounting period and of investigations, etc. specially made for that period and,
when finding it necessary, will provide suggestions or recommendations and takemeasures appropriate to the situation. [Lv. 3]

Article 59 Preparation and Notice of Audit Reports
1.

ASBMs must prepare ASBM audit reports and submit them to the ASB. [Lv. 1]

2.

The ASB must prepare an accurate and clear ASB audit report through deliberations
based on the ASBM audit report prepared by each ASBM. [Lv. 1]

3.

The ASB will confirm, with respect to business reports, accounting-related documents,
or other documents received from the specified directors (meaning specified directors
set out in Article 28, paragraph 2 and Article 33, paragraph 1; the same applies below inthis article), whether all matters required by law and other matters to be disclosed havebeen appropriately stated in such documents, and the ASB will, as necessary, request
explanations from the directors, state their opinions, or request modifications. [Lv. 3]

4.

In preparing the ASB audit report, the ASB will confirm whether there has been any act
by a director that is in violation of any law, regulation, or the articles of incorporation,
any subsequent events, or any other relevant matters and will, keeping in mind thematters listed in Article 44, paragraph 2, examine whether there is any matter thatshould be stated in its ASB audit report. [Lv. 3]

5.

In cases where the contents of an ASBM’s own audit report are different from thecontents of the ASB audit report, that ASBM will append a note with the contents of hisor her own ASBM audit report to the ASB audit report. [Lv. 3]

6.

Each ASBM will affix his or her signature or his or her name and seal impression on his
or her own ASBM audit report and the ASB audit report. [Lv. 3] Additionally, full-time
ASBMs and outside ASBMs should state their positions as such. [Lv. 4] The date of
preparation must be stated on the ASB audit report. [Lv. 1]

7.

The specified ASBMs (meaning the specified ASBMs set out in Article 28, paragraph 5
and Article 33, paragraph 4; the same applies below in this article) must provide noticeof (i) the contents of the ASB audit report concerning the Business Report, Etc. and of
the ASB audit report concerning accounting-related documents to the specified directors
and (ii) the contents of the ASB audit report concerning accounting-related documents
to the accounting auditor. [Lv. 1] However, in cases where the audit report concerning
the Business Report, Etc. and the audit report concerning accounting-related documents
are both prepared together as one audit report, ASBMs must provide notice of thecontents of such audit report to the accounting auditor. [Lv. 1]

8.

In the preceding paragraph, the specified ASBMs should, as necessary, (i) agree withthe specified directors on and determine the date to provide notice of the contents of the
ASB audit report concerning the Business Report, Etc. to the specified directors and (ii)agree with the specified directors and the accounting auditor on and determine (a) thedate to provide notice of the contents of the accounting audit report concerning46

accounting-related documents to the specified ASBMs and (b) the date to provide noticeof the contents of the ASB audit report concerning accounting-related documents to thespecified directors and the accounting auditor. [Lv. 4]
Article 60 Disclosure by Electronic or Magnetic Means
1.

With respect to all or some of the matters to be stated or displayed in the reference
documents for shareholders’ meetings, business reports, accounting documents, or
consolidated accounting documents (including the accounting audit report and ASB
audit report related to such consolidated accounting documents), in cases where acompany has provisions in its articles of incorporation to the effect that if measures aretaken to disclose such documents via the Internet, they will be deemed to have been
provided to the shareholders, then when directors intend to take such measures, ASBMs
will examine whether such measures should be taken and, when finding it necessary,
make an objection. [Lv. 3]

2.

In cases where directors take measures mentioned in the preceding paragraph under theprovisions in the articles of incorporation, ASBMs may demand that directors givenotice to shareholders that the business report, accounting documents, or consolidated
accounting documents actually provided to shareholders are a part of such documentsthat were audited when preparing the audit report. [Lv. 5]

Article 61 Reporting and Explanation at Shareholders’ Meeting, etc.
1.

With respect to proposals and documents to be submitted to a shareholders’ meeting,
ASBMs must investigate whether there are any matters that are in violation of any law,regulation, or the articles of incorporation or that are otherwise significantly
inappropriate and, if such a matter is found, must report the results of the investigation
at a shareholders’ meeting. [Lv. 1] At the shareholders’ meeting, ASBMs should state
their own opinions, as necessary, for the purpose of discharging their responsibility ofaccountability. [Lv. 4]

2.

ASBMs will provide explanations on questions by shareholders at shareholders’meetings in accordance with the management of the proceedings by the chairperson of
the shareholders’ meeting. [Lv. 3]

3.

ASBMs will confirm that the outline and results of the proceedings and other mattersprovided by laws and regulations are appropriately stated in the minutes ofshareholders’ meetings. [Lv. 3]

Supplementary Provisions
In this Code, the term “state” includes “recording” in electronic or magnetic records unlesscontrary to the context. The various documents mentioned in this Code include those
prepared in the form of electronic or magnetic records. [Lv. 5]End47