The Japanese Institute of Certified Public Accountants

Overview of the Quality Control Review 2023

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Contents【Part 1 Overview of the Quality Control Review】 ................................. 3

1. The Japanese Institute of Certified Public Accountants ............................................. 4
2. Activities of JICPA as a Self-Regulatory Body ............................................................ 5
3. Quality Control Review Systems ................................................................................. 6
4. Registration System for Audit Firms that Engage in Audits of Listed Companies ..25
5. Relationship with the CPAAOB ..................................................................................30【Part 2 Implementation Status and Results】 .................................... 32

1. Implementation Status and Results of Quality Control Reviews ..............................33
2. Recommendations for Improvement Related to Regular Reviews .............................51
3. Overview of the Official Roster ...................................................................................58
4. Looking Back the Achievements after the Revision of Quality Control Review
System .............................................................................................................................61

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【Part 1 Overview of the Quality Control Review】

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1. The Japanese Institute of Certified Public
Accountants
The Japanese Institute of Certified Public Accountants (“JICPA”) is dedicated toprovide instruction and oversight of certified public accountants (“CPAs”) to
improve their qualifications to fulfill their mission as a CPA.
JICPA is the sole organization for CPAs in Japan. Founded in 1949, JICPA started as avoluntary organization and later became a corporation under the Certified Public
Accountants Act (the “CPA Act”) in 1966. Also, JICPA became a special private corporation
under a special law in April 2004.
Members of JICPA consist of CPAs of Japan, CPAs of other countries in Japan and audit
firms. Associate members of JICPA mainly consist of junior accountants and successful
candidates of the CPA examination. As of March 31, 2023, the total number of members,
including associate members, stood at 42,637 which consisted of the following: thenumber of members totaled 34,717, including 34,438 of CPAs of Japan and of othercountries in Japan as well as 279 audit firms; and the number of associate members,
including junior accountants and successful candidates of the CPA examination, stood at
7,920.
As a self-regulatory body of accounting profession, JICPA is engaged in various activities,
including maintaining professional ethics, retaining and improving qualifications ofmembers, and ensuring the quality of their work.
[Number of members (At March 31)]
1950
1960
1970
1980
1990
2000

285 （At December 31）
1,838
4,542
8,039
10,761
16,656

2010

29,9552020

39,25542,6372023

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2. Activities of JICPA as a Self-Regulatory Body
JICPA is a self-regulatory body dedicated to continuously retain high professional
abilities of our members, with an aim to maintain and improve the quality of auditing,accounting and other related fields of professional services and enhance social
confidence in those services.
The “Quality Control Review System” is considered as one of the most significant selfregulatory activities of JICPA.
Maintain and improve the quality of s
CPAs
Develop applicable standards andsupport members to ensure effective
compliance with the standrds

Maintain and enhance the quality

2. Continuing Professional Education

control system at audit firms(CPE) system

1. Development of professional codes
(e.g.

code

of

ethics,3. Quality Control Review System

practical

guidance)

Individual
engagement
issuesTake disciplinary actions against

Give instructions and supervision on

individual issues

individual engagements, andinvestigate and deliberate on issues
which might be subject to measures.
4. Investigation system

5. Discipline system※ Continuing Professional Education (CPE) system has been revised into Continuing
Professional Development (CPD) system since April 1, 2023.

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3. Quality Control Review Systems(1) Overview of the Quality Control Review System and a
Summary of the Registration System for Audit Firms that
Engage in Audits of Listed Companies①

Quality Control Review System
JICPA has implemented a system for quality control reviews, namely the “Quality

Control Review System,” as part of its self-regulatory activities since FY1999 with an
aim to maintain and enhance an appropriate quality level of audit engagements, andto ensure social confidence in those services.
The Quality Control Committee established in JICPA conducts quality control
reviews to assess the design and operation status of the quality control system ofaudit firms and CPAs (collectively as “audit firms”), notify them of the results andissue recommendations for improvement and impose appropriate measures asnecessary. Quality control reviews are focused on instructing and supervising audit
firms. They are not intended to badger and penalize audit firms or to interfere audit
opinions issued by audit firms.
②

Registration System for Audit Firms that Engage in Audits of Listed
Companies
JICPA has introduced the Registration System for Audit Firms that Engage in Auditsof Listed Companies in FY2007 to further enhance the quality control system of audit
firms that engage in audits of listed companies (“listed company audit firms”). Under
the system, the Listed Company Audit Firms Subcommittee, established within the
Quality Control Committee, is responsible for maintaining the official roster of audit
firms that engage in audits of listed companies and the official roster of associate
registered audit firms (collectively as the “Official Rosters”), reflecting registration
decisions made and measures taken by the Quality Control Committee in the rosters,
and making them available to the public.
[Note]
Against the backdrop of an increase in the number of listed company audit firms,
the Act Partially Amending the Certified Public Accountants Act and the Financial
Instruments and Exchange Act was enacted on May 11, 2022. The registration
system for audits of listed companies and similar companies is now stipulated under
the revised act. JICPA will continue to be involved by operating the registration
system based on its extensive insight and expertise.
6Based on the revised act, JICPA has reorganized related internal rules and newly
operated the Registration System for Auditors that Engage in Audits of Listed
Companies and Similar Companies on April 1, 2023. Accordingly, the Review Board
for Registration on Auditors that Engage in Audits of Listed Companies and Similar
Companies, instead of the Quality Control Committee, is responsible for registrationand other administrative matters for listed company audit firms effective April 1,
2023.
This report provides the operational status of the Quality Control Committee aswell as the Listed Company Audit Firms Subcommittee under the previous
registration system, namely the Registration System for Audit Firms that Engage
in Audits of Listed Companies, effective until March 31, 2023. (For details, pleaserefer to "4. Registration System for Audit Firms that Engage in Audits of Listed
Companies")
The table below shows the comparison between the Registration System for
Audit Firms that Engage in Audits of Listed Companies, the previous registration
system effective until March 31, 2023, and the Registration System for Auditorsthat Engage in Audits of Listed Companies and Similar Companies, the newregistration system effective from April 1, 2023.

Listed Companies

Registration System for
Auditors that Engage in Auditsof Listed Companies andSimilar Companies(until March 31, 2023)(from April 1, 2023)

Registration System for Audit
Firms that Engage in Audits of

Type

of

registration

Self-regulation

Laws and regulations

Quality Control Committee

Review Board for Registration

systemResponsible

on Auditors that Engage inparty in JICPA

Audits of Listed Companies
and Similar Companies

Rosters

・Official Roster of Audit Firms
that Engage in Audits of Listed
Companies
・ Official Roster of Associate
Registered Audit Firms
・ List of Deregistered Firms
from the Official Rosters
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・Official Roster of Auditors that
Engage in Audits of Listed
Companies
Companies

and

SimilarUnder the previous registration system effective until March 31, 2023, theSecurities Listing Regulations of each Financial Instruments Exchange stipulate that
auditors of listed companies must be audit firms registered on the Official Rosters.
(For example, refer to Rule 441-3 of the Securities Listing Regulations for the Tokyo
Stock Exchange. In addition, according to Article 205 (7) of the Securities Listing
Regulations, applicants for auditors on initial public offering must be audit firms
registered on the Official Rosters that underwent quality control reviews by JICPA.
Under the new registration system effective April 1, 2023, the Financial
Instruments and Exchange Act stipulates that auditors that engage in audits oflisted companies and similar companies must be audit firms registered on the“Official Roster of Auditors that Engage in Audits of Listed Companies and Similar
Companies.”8

(2) Organization Structure of the Quality Control Review
Systems
The Quality Control Review System and the Registration System for Audit Firms that
Engage in Audits of Listed Companies, collectively represented as the Quality Control
Review Systems, are operated mainly by the Quality Control Committee as shown in
the figure below.

⑥Self-Regulatory Monitoring Conference
Monitoring[Review Request System]
Note: Only when a request for review is made⑤Review Board forAppropriate Procedures①Quality Control
Committee[Quality Control Review System】* Effective until March 31, 2023
[Registration System for Audit Firms that Engage in
Audits of Listed Companies]②Center for Examinationof Quality Control④Listed Company
Audit Firms Subcommittee③Quality Control
Review Team

① Quality Control Committee
The committee is mainly responsible for the deliberation and decision-making on
quality control review results as well as the registration status of listed company audit
firms.
② Center for Examination of Quality Control
The center is responsible for examining the progress and results of quality control
reviews as well as the registration status of listed company audit firms.
③ Quality Control Review TeamThe team is responsible for conducting quality control reviews and investigating
whether the quality control system of audit firms is appropriate for a listed company
audit firm.
④ Listed Company Audit Firms Subcommittee
The subcommittee is mainly responsible for gathering information related to listedcompanies and listed company audit firms, and also maintaining the Official Rosters.
⑤ Review Board for Appropriate Procedures
The board reviews the registration status on the Official Rosters as well as
9measures undertaken by the Quality Control Committee for registrations whenrequested by members.
⑥ Self-Regulatory Monitoring Conference
The conference provides high-level opinions and advice on the operation of the
Quality Control Review Systems overseen by the Quality Control Committee.
【Reference】
Comparison of the organization structure of the Quality Control Review Systems
Until March 31, 2023

From April 1, 2023

Self-Regulatory Monitoring Conference

Self-Regulatory Monitoring Conference

Monitoring

Monitoring
Review Board forAppropriate Procedures

Quality Control Committee

Quality Control
Committee

Center for
Examination of

Listed Company Audit

Center for

Quality Control

Firms Subcommittee

Examination of
Quality Control

Review team

Quality Control
Review Systems

Review teamRegistration System for
Audit Firms that Engage
in Audits of Listed
Companies

Quality Control Review
Systems

Review Board for
Registration on
Auditors that
Engage in Audits of
Listed Companies
and Similar
Companies

Sharing information
on audit firms andtheir registration
status under theRegistration System
for Auditors that
Engage in Audits of
Listed Companies
and Similar
Companies
Registration System
for Auditors that
Engage in Audits of
Listed Companies andSimilar Companies※The Review Board for Appropriate Procedures is an organization which reviews, upon
members’ request, the registration status on the Official Rosters as well as measurestaken regarding registrations. As the Registration System for Audit Firms that Engage
in Audits of Listed Companies, effective April 1, 2023, has been changed to theRegistration System for Auditors that Engage in Audits of Listed Companies andSimilar Companies, the Review Board for Appropriate Procedures is removed fromthe above organization chart.
10(3) Quality Control System of Audit Firms
Quality control reviews are conducted to assess whether or not audit firms haveappropriately designed and operated a quality control system for the following
matters.
① Audit firms as well as all partners and professional staffs belonging to audit firms(collectively as “professional personnel”) comply with professional standards aswell as applicable laws and regulations.
② Audit firms or engagement partners issue audit reports appropriately.
The quality control system of an audit firm mainly consists of the following policies
and procedures. An audit firm is responsible for designing these policies and procedures,
whereas engagement partners are responsible for conducting individual audit
engagements (“individual engagements”)
system designed by the audit firm.

11in accordance with the quality control

[Quality control system of audit firms]
Responsibility for quality control⚫

Cultivate a culture under which quality of audit engagements is emphasized

Professional ethics and independence⚫

Maintain independence from audit clients

Acceptance and continuance of engagements⚫

Assess the size, complexity and integrity of audit clients as well as the acceptancecapability of the audit firm (including resource management of professional
personnel), and determine whether the audit firm has the ability to conduct anaudit appropriately

Hiring, training and evaluating professional personnel⚫

Develop and maintain appropriate competence and capabilities required for
professional personnel

Engagement performance⚫

Build up information and techniques required for audits (e.g. audit manuals andguidance, audit practice tools)⚫

Instruct, supervise and review by engagement partners⚫

Prepare audit work papers in an appropriate and timely mannerEngagement quality control review⚫

Ensure adequate knowledge, experience and capability of reviewers as well as
objectivity from the audit engagement are maintained⚫

Conduct a thorough engagement quality control review

Monitoring the quality control system⚫

Evaluate impacts of deficiencies identified through the process of ongoing
monitoring and periodic inspections, and communicate and remediate the identified
deficiencies

Documentation of the quality control system⚫

Appropriately record and retain the status of design and operation of the quality
control system12(4) Types of Quality Control Reviews and Audit Firms Subject
to the Review
Quality control reviews consist of regular reviews and special reviews.
The Quality Control Committee gathers the latest information relating to audit firms
mainly through off-site monitoring. The committee selects audit firms subject to regularand special reviews each year based on the information and develops an annual quality
control review plan, which is revised as needed through ongoing information gathering.
[Type of quality control reviews]
Regular review

Special review

PurposeTo assess the design andoperation of an audit firm’s
quality control system

Frequency

In principle, the review isconducted every three years.
Based on the judgment of the
Quality Control Committee, thefrequency may be shortened or
extended (however, the review isconducted at least once in every
five years)

To assess the design and operationof an audit firm’s quality control
system in certain audit areas orcertain audit engagements
Whenthe
Quality
ControlCommittee deems it necessary, thereview is conducted in a timely
manner in order to mainly assess
the following matters:- Quality control system of an audit
firm- Status of audit engagements- Specific matters

Audit firms
subject toreview

Audit firms subject to regularreviews

All audit firms that provide audit
engagements

Procedures

Site visit

Site visit, inquiry or in writing【Audit firms subject to regular reviews】(As of March 31, 2023)
Audit Firms
Audit firms subject toregular reviews
Of the above, listedcompany audit firms(*2)

CPAs(*1)

Total

157

66

223

134

10

144

(*1) For CPA joint offices (the "Joint Offices") in which multiple CPAs jointly conduct audits andother services, quality control reviews are conducted on a joint office basis. The number of
the Joint Offices is included in the number of CPAs.
(*2) For detail, please refer to “4. Registration System for Audit Firms that Engage in Audits of
Listed Companies.”13

(5) Process of Quality Control Reviews① Regular review
In order to assess the status of audit quality controls on a firm-wide basis, regularreviews are conducted mainly through the following procedures. As illustrated below,
quality controls on a firm-wide basis and quality controls in audit engagements areinterrelated.
⚫

Review quality control system on a firm-wide basis
Review whether an audit firm designs and operates the system of audit quality
control appropriately.

⚫

Review quality control in audit engagements
Review whether the quality control system of an audit firm is appropriately applied
to individual engagements.
By considering the environment surrounding an audit firm, the level of individual
engagement risks, the nature of audit engagements and other factors, individual
engagements are carefully selected for a review so that the audit firm’s overall quality
management can be examined.
Also, when significant findings or a large number of findings are identified in thereview of individual engagements, the impact on the quality control system on a firmwide basis is assessed.

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[Areas reviewed in a regular review and their relationship]
Review the overall
quality control ofan audit firm
Audit Firm

監査事務所におけるReview quality

Audit firm’s quality
control system

Individual
engagement

Individual
engagement

control system on a
品質管理の確認firm-wide basis

Individual
engagement

Consider effects
on each other

Review quality
controls in audit
engagements
Select individual engagements to be reviewed② Special review
Audit firms subject to a special review are selected when an annual quality control
review plan is developed. Also, whenever it is deemed necessary to conduct a special
review immediately, audit firms are selected for such review even during the middleof the fiscal year.
In accordance with the purpose of a special review, the review scope for selected
audit firms is determined by considering certain areas of concern or specific audit
engagements.

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【Detailed procedure for quality control reviews】
In principle, the procedures for quality control reviews is as follows:

Planning a review

Examination

Flow of Procedures

Conducting areview

A quality control review plan is developed to review an audit firm and audit
engagements, considering risk areas and focusing on priority issues.
Examine the quality control review plan prepared by the Quality Control Review
Team.
Visit the audit firm, interview the representative of the firm as well as those
responsible for the quality control and engagement teams, and examine work papers.
The Center for Examination of Quality Control examines review reports drafted by

Examination/Deliberation
and approvaltheQuality Control Review Team, namely quality control review reports,

recommendation for improvement reports, and remedial actions, if applicable. The
Quality Control Committee is responsible for the deliberation and approval of thosereview reports.

Reporting review
resultIssue the finalized quality control review report to the audit firm, which describes
assessments and results of the review.
(For more detail, please refer to “(6) Results of Quality Control Revews.”)
If certain areas are identified for improvement, issue the finalized recommendation

Recommending
improvements

for improvement report to the audit firm.
(For more detail, please refer to “(7) Recommendations for Improvement.”)
If there are “significant deficiencies” or “extremely significant deficiencies”

Receiving an
improvement plan(collectively as “Significant Deficiencies”), the audit firm is required to prepare andsubmit a response to the Recommendation Report, called the “Improvement Plan.”
On top of quality control review reports, recommendation for improvement reports,

Examination/Deliberation andapproval

and notification of measures, the Center for Examination of Quality Control examines
the Improvement Plan. The Quality Control Committee is responsible for the
deliberation and approval of all these reports.

Notifyingmeasures

Notify the audit firm regarding measures to be taken based on the review results.
(For more detail, please refer to “(11) Measures taken under the Quality Control
Review System.”)※ In parallel with the above, the Quality Control Review Team also confirms remedialactions dome by an audit firm in response to improvement recommendations
pointed out in previous years. In certain cases, the Quality Control Review Teammay need to change the review plan for the year and visit an audit firm to confirm
its improvement status. (For more detail, please refer to “(10) Confirmation of
Remedial Actions.”)16

(6) Results of Quality Control Reviews
JICPA issues a quality control review report to audit firms, which contains a result ofquality control review for the audit firm.
Quality control review results are classified into the following three types based onwhether or not Significant Deficiencies are identified for non-compliance withprofessional standards or applicable laws and regulations in the design and operationof a quality control system of audit firms.

When no significant
deficiencies identified

When there is concern for
significant non-compliance

When there is concern for
extremely significant noncompliance

Result without
significant deficiencies

Result with significant
deficiencies

Result with extremely
significant deficiencies※ Results of special reviews provide an opinion as to whether or not there are Significant
Deficiencies for non-compliance with quality control standards or quality control systems from theviewpoint of the design and operation of a quality control system for certain areas of concern or
specific audit engagements, depending on issues subject to the special review.

Result with significant deficiencies is expressed under certain circumstances,including the following:•when the design or operation of the quality control system is significantly
inappropriate or insufficient•when there is concern that material misstatements may be overlooked in key
accounting areas (e.g. accounting estimates, revenue recognition)•

when an audit firm is not obtaining appropriate and sufficient evidence to reduce
audit risks to an acceptable low level for those key areas

When a reasonable basis cannot be obtained to form a review result for a quality
control review report because major review procedures cannot be conducted on
important components of items subject to the quality control review, no result is
expressed in the report (i.e. “disclaimer of result”).

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(7) Recommendations for Improvement
Regardless of the result of a quality control review, if recommendations for
improvement are identified, a Recommendation Report which describes such
recommendations for improvement will be prepared and issued to an audit firm
together with the quality control review report. Recommendations for improvement are
put into two sections under the Recommendation Report, namely recommendations forthe quality control system on a firm-wide basis and recommendations for the quality
control in audit engagements. Recommendations for improvement consist of three
types, which are extremely significant deficiencies, significant deficiencies, anddeficiencies.
Further, if an audit firm receives recommendations for improvement for Significant
Deficiencies, it is required to prepare and submit an Improvement Plan in response to
the recommendations by describing remedial actions against the Significant
Deficiencies.
Regardless of whether or not an Improvement Plan is issued, it is necessary for audit
firms to voluntarily improve all items for which improvement recommendations were
made. The Quality Control Review Team will not only provide necessary instructions tothem to encourage improvement but also review Improvement Status Reports
prepared by audit firms in the following fiscal year. (For more detail, please refer to“(10) Confirmation of the Remedaial Actions.”)

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[Recommendation Report and Improvement Plan]
Quality control review reportThree types of results:

Quality
Control・Result without significant deficiencies
・Result with significant deficiencies
・Result with extremely significant deficiencies

Issue

Audit firm

Committee
Recommendation Report
Ⅰ Quality control system of theaudit firm

SubmitRecommendation 1: Professional ethics/independence
Recommendation 2: Review

Ⅱ Quality control of audit
engagements
Recommendation 1: Audit evidence
Recommendation 2: Auditing accounting estimates

PrepareTo be prepared by an audit firm receiving
recommendations for improvement for
Significant Deficiencies

Improvement Plan
Ⅰ Quality control system of theaudit firm
Improvement plan in response to Recommendation 1
Improvement plan in response to Recommendation 2

Ⅱ Quality control of audit
engagements
Improvement plan in response to Recommendation 1
Improvement plan in response to Recommendation 2(8) Cause of Recommendations for Improvement (RootCause Analysis)
In order to develop and implement more effective and appropriate remedial actions,
it is essential for audit firms to identify the reason where deficiencies are coming from.
Therefore, in the event of a result with Significant Deficiencies, audit firms shall describe
causes that led to recommendations for improvement in their Improvement Plans.
In many cases, included in causes are not only direct causes but also root causes
behind recommendations for improvement. Such root causes commonly found inseveral causes are generally related to poor audit culture and weak management of anaudit firm. Therefore, when an audit firm receives a result with Significant Deficiencies,
it is required to describe in the Improvement Plan both causes and root causes that led
to recommendations for improvement after having a careful deliberation between thechief executive officer of the audit firm and the Quality Control Review Team.
19

Even when an audit firm ends up receiving Result without significant deficiencies, if
it appears to have concerns about the audit firm’s voluntary improvement, the Quality
Control Review Team explicitly states root causes on the top page of the
Recommendation Report, as needed, after having the same kind of communication withthe audit firm.

(9) The Objection System for Quality Control Reviews
The Quality Control Committee has a system in which an audit firm can file an
objection with the Center for Examination of Quality Control when it has reasonablegrounds to believe that their assertions related to Significant Deficiencies pointed out
in the quality control review report (draft) are not sufficiently examined. When filing an
objection, an audit firm is required to submit a written objection accompanied by
supporting documents of the claim.

(10) Confirmation of Remedial Actions
In the following fiscal year after a quality control review, all audit firms that received
recommendations for improvement as a result of the quality control review are required,
as a general rule, to submit an Improvement Status Report to the Quality Control
Committee. The Quality Control Committee confirms the remedial actions accordingly
as follows, depending on the level of improvement:

・Audit firms with result with Significant Deficiencies
After confirming an audit firm’s remedial actions through an Improvement Status
Report in the following fiscal year, the audit firm is subject to another regular review or
confirmation of improvement status with an on-site visit to physically confirm remedialactions.
・Audit firms with Result without significant deficiencies
In general, an audit firm is only subject to an inspection of its Improvement Status
Report. However, if improvements seem to be insufficient as a result of the inspection,
it is subject to another regular review or confirmation of improvement status with anon-site visit to physically confirm remedial actions.
When performing the confirmation of the improvement status, the Quality Control
Committee issues a Confirmation Result Report of the Improvement Status describing
20the status of improvement to an audit firm.

※Since special reviews are conducted when the Quality Control Committee determines
it is necessary to confirm the quality control system of an audit firm in a timely manner,
the improvement status will be confirmed in the following fiscal year, in principle, even
if only deficiencies are identified without any Significant Deficiencies.

(11) Measures Taken under the Quality Control Review
SystemMeasures to be taken against audit firms that are necessarily encouraged to
implement their voluntary improvement due to the insufficient level of quality controls
and monitored on their improvement status are determined based on the result ofquality control reviews.
【Types of measures】
・ Warning・ Severe warning
・ Recommendation to withdraw (entire or specific audit engagements conducted byan audit firm）
In general, measures determined by the Quality Control Committee based on21

recommendations for improvement identified through Quality Control Reviews,
including confirmation of improvement status, are as follows: recommendation towithdraw (for entire or specific audit engagements conducted by an audit firm) whenextremely significant deficiencies are identified; severe warning when significant
deficiencies are identified; and warning when deficiencies identified. However, whenrecommendations for improvement from previous quality control reviews remainunresolved and recognized again as recommendations for improvement in the current
fiscal year, the Quality Control Committee may toughen measures on top of generalmeasures described above.
If an audit firm unreasonably refuses or does not cooperate with quality control
reviews, the Quality Control Committee issues a recommendation to withdraw fromaudit engagements regardless of the frequency of quality control reviews.
Furthermore, under the Registration System for Audit Firms that Engage in Audits of
Listed Companies effective until March 31, 2023, when a recommendation to withdraw
from audit engagements is issued to a listed company audit firm, the registration on
the Official Rosters may be canceled in addition to the above-mentioned withdrawal
measures (For more detail, please refer to “4. Registration System for Audit Firms that
Engage in Audits of Listed Companies (3) Measures Taken against the Registration on
the Official Rosters”).
【Measures taken under the Quality Control Review System】
Findings
Extremely

significant

deficiencies
Significant deficiencies
Deficiencies

Quality control
review

Quality control
review

Quality control
review

1st time

2nd time

3rd and beyond

Recommendation to

Recommendation

Recommendation

to withdraw

to withdraw

Recommendation

Recommendation

withdraw(*)

Severe warning(*)
None

to withdraw(*)

Warning

to withdraw
Severe warning(*) Mitigated measures can be taken based on individual circumstances, such as thesize of the audit firm, history of audit engagements with listed companies, frequencyof quality control reviews, and results of previous reviews.

22

(12) Collaboration with the System for Individual Case
Review
The Quality Control Committee under the Quality Control Review System collaborates
as necessary with the Audit Practice Review and Investigatory Committee under the
System for Individual Case Review to improve the quality of audit work. Whensignificant issues are identified as a result of examinations and reviews under eachsystem, necessary measures are taken by sharing information in a timely manner as
needed. For example, if any doubts arise through quality control reviews about theappropriateness of audit opinion expressed by an audit firm or compliance with theconstitution or regulations of JICPA, such concerns will be reported to the Chairman of
the Audit Practice Review and Investigatory Committee.

(13) Disclosure of Quality Control Review Results to Third
Parties
In principle, audit firms are not allowed to disclose quality control review reports,
Recommendation Reports, Improvement Plans, and the Confirmation Result Report of
the Improvement Status (collectively as “Quality Control Review Reports”) to third
parties. However, audit firms are allowed to disclose the outline of the latest quality
control review results to third parties in their own reports, such as Audit Quality
Reports.

(14) Communication with Company’s Auditors regarding
Quality Control Review Results
Company auditors (or the Board of company auditors), Audit and Supervisory
Committee or Audit Committee (collectively as “Company’s Auditors”) of listedcompanies are responsible for understanding the overall design and operation of anaudit firm’s quality control system when they assess the validity of audit procedures
conducted by the audit firm as well as the outcomes or when listed companies enter
into new audit engagements.
That said, when auditing listed companies, audit firms are required to communicate
to the Company’s Auditors in writing or in the form of electromagnetic records about
quality control review results and associated measures taken in response to the results.
Such information may include whether or not recommendations for improvement were
issued for quality controls of individual engagements and also their issue areas as wellas the general trend. Audit firms should communicate such information on or after
receiving the Quality Control Review Reports.
23

(15) Monitoring the Operation of the Quality Control Review
Systems
The operation of the Quality Control Review Systems governed by the Quality Control
Committee is monitored by the Self-Regulatory Monitoring Conference, which mainly
consists of academic experts who are not members of JICPA. The Self-Regulatory
Monitoring Conference is a body dedicated to express opinions and provide advice froma broad perspective in order to ensure the objectivity and fairness of JICPA's selfregulatory activities and to contribute to social confidence in the CPA system.

24

4. Registration System for Audit Firms that
Engage in Audits of Listed Companies※ In line with the revised act, “Registration System for Audit Firms that Engage
in Audits of Listed Companies” is changed to “Registration System for Auditorsthat Engage in Audits of Listed Companies and Similar Companies” from April 1,
2023. Please note that the following explanation in this report is based on theprevious system effective until March 31, 2023.

(1) Overview of the Registration System for Audit Firms that
Engage in Audits of Listed Companies
JICPA has introduced the Registration System for Audit Firms that Engage in Auditsof Listed Companies, which requires all audit firms engaged in audits of listedcompanies to register with the system for the purpose of enhancing the audit quality
control of registered audit firms and ensuring trust in capital markets in relation tofinancial statement audits.
The Listed Company Audit Firms Subcommittee, which is established under the
Quality Control Committee, is responsible for preparing the Official Rosters and the listof deregistered firms from the Official Rosters.
The Official Rosters contain information not only about the profile of listed company
audit firms, but also the status of quality control reviews, summary of Significant
Deficiencies, disciplinary sanctions and others, which are published on JICPA’s website.

25

The type of the listed company audit firms and the list of deregistered firms are as
follows:【Type of listed company audit firms】
Type

Name ofRoster

Application Conditions
for Registration

Registered firms

Official
roster ofregisteredfirms

Associate registered
audit
firms
that
engage in audits oflisted companies

Audit firms that havespecific plans toengage in audits oflisted companies

Audit firms
before quality
control reviews

Official
roster of
associate
registered
audit
firms

Associate
registeredaudit firms

Audit firms thatpassed quality
control reviews

26

Audit firms thatsatisfy both of thefollowing:・Have an intention toenter into audit
engagements withlisted companies in
the future
・Already engaged in
audits of companies
that are recognized
to be equivalent tolisted companies

Application
Review Process
Determine theappropriatenessof registration
based on the
result of regularreviews
Determine theappropriatenessof registration
based on the
result of on-site
reviews
conducted by
the Quality
Control Review
Team

Determine theappropriatenessof registration
based on the
result of regularreviews

【List of deregistered firms】
Name of Roster・・
List of deregistered firms fromthe Official Rosters・・

Audit firms which are to be put on the list ofderegistered firms
Audit firms that do not apply for registration on
the official roster even though it signed an audit
engagement with listed companies
Audit firms that received orders to withdraw
from audit engagements based on the result ofquality control reviews, and thus is determined
to be removed from the official roster
Audit firms that are NOT allowed forregistration as a result of an application review
Audit firms removed from the Official Rosters
due to disciplinary sanctions, etc. (*).

(*) ”Disciplinary sanctions, etc.” represent administrative sanctions imposed by the
Financial Services Agency (FSA) as well as sanctions imposed by JICPA which are
stipulated in bylaws.

(2) Application Review Process for the Registration on the
Official Rosters① Application review process for the registration on the official roster ofassociate registered audit firms
If an audit firm that has currently not entered into any audit engagements with listedcompanies plans to enter into a new one, the audit firm must apply for registration on
the official roster of associate registered audit firms. The Center for Examination of
Quality Control and the Quality Control Committee review and deliberate whether or
not to register the audit firm based on the result of investigations or regular reviews
conducted by the Quality Control Review Team.
※ When the audit firm has not gone through any quality control reviews, it must apply
for registration every time it plans to engage with listed companies.
(Result of deliberation)
Registered on the official roster ofassociate registered audit firms(Can enter into audit engagements withlisted companies)
Cannot be registered on the official rosterof associate registered audit firms(Can NOT enter into audit engagementswith listed companies)

Decides to allow registration

Decides NOT to allow
registration27

② Application review process for the registration on the official roster ofregistered firms
If an associate registered audit firm enters into audit engagements with listedcompanies, it must apply for registration on the official roster of registered firms. Basedon the result of regular reviews, the Center for Examination of Quality Control and the
Quality Control Committee review whether or not to register the firm.
(Result or deliberation)
Registered on the official roster ofregistered firms(Can continue auditing of listedcompanies)
Deregistered from the official roster ofassociate registered audit firms(Can NOT continue auditing of listedcompanies)

Decides to allow registration

Decides NOT to allow
registration(3) Measures Taken against the Registration on the Official
Rosters
When extremely significant deficiencies are identified for a registered firm as a resultof quality control reviews and a recommendation for withdrawal is determined as ameasure taken against the firm, a decision is made at the same time to remove thefirm from the Official Rosters.
When Significant Deficiencies are identified as a result of quality control reviews,
consideration is given whether or not a removal is required based on the impact andfrequency of deficiencies identified.
Audit firms subject to removal are put on the list of deregistered firms anddesignated as auditors restricted from re-registration on the Official Rosters. Those
designated auditors are no longer allowed to apply for registration on the Official
Rosters, unless the designation is cancelled.

！ To ensure that audit firms are capable enough and have an appropriate system
to audit listed companies, application reviews are strictly conducted to assess theappropriateness of registration status on the Official Rosters and to determine
necessary measures to be taken against registered firms (For status in FY2022,
please refer to “Part 2 Implementation Status and Results, 3. Overview of the Official
Rosters”).
28

(4) Disclosures on the Official Rosters
As part of JICPA’s effort to disclose information to stakeholders in the capital market,
when Significant Deficiencies are identified for a registered firm as a result of quality
control reviews, the outline of deficiencies is disclosed in the Official Rosters. Whenregistered firms are cancelled for registration, the outline of deficiencies is disclosed in
the list of deregistered firms from the Official Rosters.
Also, when disciplinary sanctions are imposed on listed company audit firms by theCommissioner of the Financial Services Agency (FSA) or JICPA, such fact may bedisclosed according to the nature of disciplinary sanctions.

(5) Review Request System
Audit firms can file an application to the Review Board for Appropriate Procedures fora review when procedures are inappropriate, facts are significantly misinterpreted, or
new facts arise regarding the registration status on the Official Rosters or measures
undertaken for registration.

29

5. Relationship with the CPAAOB(1) Monitoring by the CPAAOBIn accordance with the CPA Act, JICPA has been monitored by the Certified Public
Accountants and Auditing Oversight Board (CPAAOB) since FY2004, a consultative
administrative body established within the Financial Services Agency (FSA), and reports
the status of quality control reviews on a monthly and annual basis to the CPAAOB.
【The relationship between the FSA, the CPAAOB, audit firms and JICPA】(2) Cooperation with the CPAAOB
In order to enhance the effectiveness of the Quality Control Review System, JICPA
holds staff meetings with the CPAAOB several times throughout the year. Throughanalyses of specific cases with CPAAOB, issues and associated measures for quality
control reviews are summarized to be reflected in quality control reviews in thefollowing fiscal years.
FY2022 was no exception, as JICPA reviewers and CPAAOB inspectors sat together
and used individual cases to analyze various conclusions derived from quality control
reviews and CPAAOB inspections. Improvement areas and issues identified through theanalyses were communicated to JICPA reviewers through announcements and trainings
for the purpose of enhancing quality control reviews.
Quality control reviews are generally conducted once every three years based on an

30

understanding that JICPA’s approach to audit firms are completed in a uniform andhomogeneous manner within the three-year time frame in practice. Given that thecurrent Quality Control Review System as well as basic policies for quality control
reviews (see “4. Looking Back the achievements after the revision of Quality Control
Review System” below) were introduced three years ago in FY2020, JICPA assessed
their operation status in FY2022 for the purpose of improving quality control reviews in
the future. In addition, JICPA discussed how to address newly introduced rules for theRegistration System for Auditors that Engage in Audits of Listed Companies and Similar
Companies as well as the Revision to the Standards on Quality Control.
Going forward, JICPA will expand effort to have a closer and a more effective
collaborative relationship with the CPAAOB in order to build a better Quality Control
Review System and respond flexibly to the ever-changing environment.

31

【Part 2 Implementation Status and Results】

32

1. Implementation Status and Results of
Quality Control Reviews(1) Quality Control Review Plan
Focus area in FY2022
Reviewers were required to check the following focus areas in conducting regularreviews in FY2022, based on previous recommendations for improvement and recent
trends in quality control reviews. Updated areas for the FY2022 quality control review
are highlighted in red.
●Design and operation of the quality control system of audit firms
・Culture that emphasizes the quality of audit engagement, governance of audit firms andorganizational operation
・Hiring, education/training, evaluation and assignment of professional personnel
・Professional ethics and independence (e.g. rotation of engagement partners and teammembers)
・Acceptance of new engagements
・Wrap-up of audit files and management and retention of audit records●Auditing individual engagements
・Key Audit Matters
・Auditing accounting estimates・Identifying, assessing and addressing the risk of material misstatements due to fraud
・Procedures for group audits
・Evaluation of internal control in financial statement audit and internal control audit
・Audit procedures over other information included in entities’ disclosures

Major considerations in developing regular review plans in FY2022
Major considerations in developing quality control review plans based on theunderstanding of operation management system of audit firms are as follows:①Enhance information gathering/analysis and focus on engagements for large-sized listedcompanies
・ Strengthen information gathering and analysis related to audit firms and individual
engagements.
・When selecting individual engagements for quality control reviews, focus on audit engagements
for large-sized listed companies.
・ Determine the number of individual engagements subject to review based on the risk
assessment of individual engagements as well as the evaluation result of monitoring
effectiveness conducted by audit firms.

33

②Reinforce risk approach in conducting regular reviews
・Focus on audit areas with higher risk of material misstatements.
・Determine the number of reviewers in charge of individual engagements depending on the size
or risk of the audit engagement.

③Communicate effectively with audit firms
・Have a good communication with audit firms in identifying the root cause of recommendations
for improvement as well as developing effective remedial actions.
・Provide instruction to improve the quality of audits by requiring audit firms to document theroot cause of recommendations for improvement when they prepare the Improvement Plan.

④Enhance post-review instructions
・After the completion of on-site reviews, including regular reviews, visit audit firms and makecalls as necessary to continuously provide instructions for developing effective Improvement
Plans and implementing remedial actions appropriately based on an understanding of root
causes that led to recommendations for improvement.

Preparations in FY2022 for the Revision of the Standards on Quality Control
In FY2022, JICPA amended the “Quality Control Standards Committee Report 1:
Quality Control at Audit Firms” and “Auditing Standards Committee Report 220: Quality
Control in Audits,” newly published “Quality Control Standards Committee Report 2:
Review of Audit Engagement,” and amended related Auditing Standards Committee
Reports. To have audit firms be prepared for the application from July 2023, JICPA andrelevant departments worked together to communicate the issuance of the newstandards and revisions to audit firms. Also, JICPA put efforts into checking the readinessof audit firms when conducting quality control reviews in FY2022, promoting audit firms
to prepare for the application of the new standards and revisions, and distributing
guidance materials created by JICPA to call audit firms’ attention to this matter.

34

(2) Quality Control Reviews in FY2022
The following table shows the result of quality control reviews in FY2022:
Number of audit firms
reviewed
Regular reviews
Confirmation of improvement
status
Total
Number of audit firms subject
to regular review (Note9)
Percentage of audit firms
reviewed under regular review
Percentage of audit firms

Number of audit
firms receiving
review reports

Number ofcarried-overaudit firms(Note3)92(76)89(Note4)(75)(Note5)

5

(2)

11

(11) (Note6)12(Note7)(9) (Note8)

1

(2)

103

(87)

101

(84)

6

(4)

216

(209)

43％

(36％)

48％

(42％)

reviewed(Note 1) FY2021 numbers are shown in parentheses.
(Note 2) The number of audit firms subject to special reviews is excluded from the above table.
(Note 3) The audit firms were subject to a regular review and confirmation of improvement status
in FY2022; however, the deliberation and approval of quality control review reports andConfirmation Result Report of the Improvement Status were carried over to the next fiscal
year (hereinafter referred as to the “carried-over audit firms”).
(Note 4) The number includes two audit firms carried over from FY2021 and excludes five audit
firms carried over to FY2023.
(Note 5) The number includes one audit firm carried over from FY2020 and excludes two audit
firms carried over to FY2022.
(Note 6) Confirmation was cancelled for one audit firm due to refusal of a review, which is excluded
from the table.
(Note 7) The number includes two audit firms carried over from FY2021 and excludes one audit
firm carried over to FY2023.
(Note 8) The number excludes two firms carried over to FY2022.
(Note 9) The number represents audit firms subject to regular review as of April 1, 2022 (thenumber in parentheses is as of April 1, 2021).

35

The number of audit firms in each fiscal year that went through a regular review at
an interval shorter than three years from the previous review as well as the number ofaudit firms whose interval is more than three years but whose regular review schedule
is extended after are presented below.
FY2020

FY2021

FY2022510

1029(Note1)

12(Note2)

14

Number of audit firms
with shorter review
interval
Number of audit firms
with extended review
interval(Note1) FY2020 was affected by the revision of the Quality Control Review System and the spreadof COVID-19 pandemic. Accordingly, the number of audit firms whose interval was more than
three years but whose regular review schedule was extended further increased in FY2020.
Regular reviews for 24 audit firms, excluding three audit firms no longer subject to regularreviews, were performed in FY 2021 (including all audit firms whose regular review schedule
was extended due to the spread of COVID-19 pandemic). Two audit firms whose regularreview schedule was extended in FY 2021 were subject to regular reviews in FY 2022.
(Note2) All firms were subject to regular reviews in FY2022, except the following three firms: onewas dissolved; another was deregistered due to the termination of all audit engagementswith listed companies; and the third one was no longer subject to regular reviews.

36

Breakdown of audit firms by size for those subject to regular reviews as well as thosethat went through regular reviews and confirmation of improvement status is asfollows:[Breakdown of audit firms by size]
Number ofaudit firms
subject toregular review

Large-sized/

Number of audit firms that underwent:
Regular review

Confirmation of
improvement status

Listed company audit firms

9

(9)

3

(4)

-

(-)

24

(20)

10

(8)

4

(3)

28

(26)

12

(9)

1

(3)

49

(50)

21

(21)

4

(2)

32

(32)

17

(10)

1

(1)

Sub-total(Note2)

142

(137)

63

(52)

10

(9)

Other audit firms

74

(72)

29

(24)

1

(2)

Total

216

(209)

92

(76)

11

(11) (Note3)

second-tierAudit
firms bythenumber oflistedcompany
auditsOver 10companies
5～9companies
2～4
companies
Less than 2companies(Note1) Number of audit firms in FY2021 are shown in parentheses.
(Note2) Includes the number of audit firms deregistered from the official roster of registered firms
in FY2022.
(Note3) The number excludes one audit firm whose confirmation process was cancelled due tothe refusal of a review in FY2021.

(3) Initiatives for Improving the Effectiveness of Quality
Control Reviews
Quality control reviews have been conducted under the current system since July 2020
to improve effectiveness and transparency. JICPA pursued the following initiatives in
FY2022:① Providing instruction and oversight in response to root causes
The review team provides instructions to audit firms to improve the quality of audit,
such as having a good communication with them in identifying the cause ofrecommendations for improvement and developing improvement plans. It is also
important for the review team to encourage audit firms with result with Significant
Deficiencies to enhance quality control of audits and to oversee the progress ofimprovement, which could be achieved by determining measures based on quality
37control review results. For registered firms, it is also necessary for the review teamto reconsider their registration status in the Official Rosters.
When audit firms even with Result without significant deficiencies appear to haveconcerns about the audit firm’s voluntary improvement, the review team provides
instructions for improvement through communication with audit firms, such asadvising them to describe root causes on the top page of the Recommendation Report.
In FY2022, eight audit firms had their Recommendation Reports with suchdescriptions (seven firms in FY2021).
②

Understanding the operation management system thoroughly
The review team develops and executes review plans based on a thoroughunderstanding of operation management system of audit firms on top of their quality
control system and business environment surrounding clients for the selectedindividual engagements.
If there are recommendations for improvement as a result of review procedures,the review team provides instructions to audit firms to appropriately identify causesof findings, including whether or not there are problems in their operation
management system, so that audit firms can develop remedial actions to align withthe root cause analysis.
When confirming remedial actions in the following fiscal year, the review teamensures that remedial actions planned by audit firms is not merely a tentative
treatment, but a fundamental solution for them, including a change in operation
management system.
③

Enhancing instructions after on-site reviews
At the end of on-site reviews, the review team confirms whether remedial actions

planned by audit firms are feasible and effective enough, considering issues identified
through quality control reviews and underlying root causes, including operation
management system of audit firms. Also, the review team instructs audit firms toreview improvement plans as necessary. The approach and frequency of such postreview instructions are determined based on the importance of issues audit firms arefacing and the capability of audit firms to improve issues on their own.
➃ Improving the examination function of quality control reviews results
JICPA aims to improve examinations by utilizing the following systems:
PurposeConsultation system for

Throughout the quality control review process,38

subject matterssubject matter experts capable of providing
technical insights in specific areas, such as ethics,
accounting, and IT, are assigned as appropriate.
(Number of assignments: Four in FY2022 andeight in FY2021)

Preliminary

consultation

When a careful consideration is required for aon quality control review

specific review case, it is always good for members

results with the Center forof the Center for Examination of Quality Control to

Examination

have a deeper general understanding of each caseof

Quality

Control

as it leads to deeper discussions when examining
quality control review reports and other reports.
(See "1. Quality Control Review System, etc. (6)Performance Information Related to the Quality
Control Review" in the Book of Materials)

Preliminary discussion at

When a careful consideration is required for athespecific

Quality

Controlreview

case

prior

to

examination,

Committee prior to themembers of the Quality Control Committee can

examination

discuss about issues and concerns identified by theofqualitycontrol review reports

Center for Examination of Quality Control. In thisway, the Center for Examination of Quality Control
can improve the quality of examination and the
Quality Control Committee can contribute to amore in-depth examination. (See "1. Quality
Control Review System, etc. (6) Performance
Information Related to the Quality Control Review"in the Book of Materials)

Description of root cause

The

review

team

providesinstructions

forin the Recommendation

improvement to audit firms as necessary, such as

Report to encourage audit

advising them to describe the root cause on thefirms for improvement

top page of the Recommendation Report. This is
one way of instructing audit firms to improve thequality of audits. (See the above-mentioned "①
Providing instruction and oversight in response toroot causes ")39

(4) Results of Regular Reviews
FY2022 results of quality control reviews and associated measures represent those
deliberated and approved by the Quality Control Committee during the period from May
2022 to April 2023.
① Results of regular reviews
Regular reviews were conducted for 92 audit firms in FY2022, which resulted in“Result without significant deficiencies” of 84 audit firms, “Result with significant
deficiencies” of one audit firm and ”Result with extremely significant deficiencies” of
two audit firms. Five audit firms were carried over to the next fiscal year and no audit
firm received “Disclaimer of conclusion.”
FY2022

FY2021
Carried over to the next year

2
Result without
significant
deficiencies

69

Carried over to the next year
Result with extremely
significant deficiencies
Result without

50

significant

Audit firms

deficiencies

conducted
regular review

76

Result with extremely
significant deficiencies

Result withsignificant
deficiencies

84

5

2

Audit firms
conducted
regular review

92

Result withsignificant
deficiencies

1

The number of audit firms with result with Significant Deficiencies decreased fromfive in FY2021 to three in FY2022.
Out of the five audit firms with result with Significant Deficiencies in FY2021, twofirms were subject to regular review and one firm was subject to confirmation of
improvement status in FY2022. The other two audit firms were scoped out from regularreviews due to dissolution.
Out of two audit firms that underwent regular review in FY2021 whose quality control
review report issuance was carried over to FY2022, one ended up with “Result of
extremely significant deficiencies” and the other with “Result of significant deficiencies.”
The two audit firms underwent another regular review or confirmation of improvement
status in FY2022, and a quality control review report or a Confirmation Result Reportof the Improvement Status was issued in the same fiscal year.

40The three firms that were identified for their Significant Deficiencies in FY2022 seemto have the following common root causes: little appreciation on culture thatemphasizes the importance of audit quality; and chief executive officer’s lack ofunderstanding relating to the necessity of organizing the firm to conduct systemic
audits. These root causes typically result in deficiencies in the quality control system ofan audit firm, such as engagement partners failing to give proper instructions andsupervision, insufficient review of working papers, and poor engagement quality control
reviews and periodical inspections.
As a result of the above, a number of recommendations for improvement in focus
areas for individual engagements were also made, including auditing accounting
estimates and identifying, assessing and testing fraud risks and other risks of material
misstatements.
The following table shows the breakdown of audit firms receiving quality control
review reports for regular reviews by size and type of review results:41

[Breakdown by size of audit firms]（Unit: Number of audit firms）
Breakdown of review report type
Result without
significant
deficiencies

Listed company audit firms

Large-sized/
second-tierOver 10
Audit
companies
firms by
5～9
thecompanies
number2～4of listedcompanies
companyLess than 2auditscompanies
Sub-total

Result withsignificant
deficiencies

Result withextremely
significant
deficiencies

Carriedover
audit
firms

Total

3

(4)

-

(-)

-

(-)

-

(-)

3

(4)

9

(8)

-

(-)

-

(-)

1

(-)

10

(8)

12

(9)

-

(-)

-

(-)

-

(-)

12

(9)

19

(16)

(4)

-

(-)

2

(1)

22

(21)

17

(10)

-

(-)

-

(-)

-

(-)

17

(10)

60

(47)

1

(4)

-

(-)

3

(1)

64

(52)

Other audit firms

24

(22)

1

(1)

(Note2)(Note3)

3

(1)

2

(1)

30

(25)

Total

84

(69)

2

(5)

3

(1)

5

(2)

94

(77)

(Note2)

1（Note 1）FY2021 numbers are shown in parentheses.
（Note 2）Two audit firms that underwent regular review in FY2021 and were carried over to FY2022
are individually included in each category.
（Note 3）One audit firm that underwent regular review in FY2020 and was carried over to FY2021
is included.

！ “Result with Significant Deficiencies” is expressed when it is concluded based on
regular reviews that there is a concern for significant non-compliance withprofessional standards or applicable laws and regulations in the design and operationof a quality control system of audit firms. It does not automatically mean there is asignificant compliance violation in auditing engagements or a doubt in thereasonableness of audit opinions.
42➁ Focus areas and review results
Reviewers are required to check focus areas for regular reviews when conducting onsite reviews to provide instruction to audit firms as necessary and enhance theirunderstanding.
a．Design and operation of the quality control system of audit firms
The following items regarding the design and operation of the quality control system
of audit firms were assessed for their appropriateness and effectiveness. As a result,the number of audit firms that received recommendations for improvement is shownin the table below.
（Unit: Number of audit firms）
Focus areas
1．Culture that emphasizes the quality of audit
engagement, governance and management of audit
firms
2．Hiring, education/training, evaluation andassignment of professional personnel
3. Professional ethics and independence(Rotation of engagement partners and teammembers)
4. Acceptance of new engagements
5. Wrap-up of audit files and management andretention of audit records

FY2020

FY2021

FY2022

4

4

5

4

5

6

-

1

2

※(Note2)※(Note2)

7

4

11

21

（Note 1）Some audit firms received multiple recommendations for improvement.
（Note 2）Not applicable as these items were not identified as focus areas in FY2020 and FY2021.

Recommendations for improvement related to “1. Culture that emphasizes thequality of audit engagement, governance and management of audit firms” includecomments about lack of awareness among representatives of the audit firms about
the necessity of appreciation on culture that emphasizes the importance of audit
quality.
Also, recommendations for improvement related to “4. Acceptance of new
engagements” include comments about signing new audit engagements without
sufficiently evaluating audit engagement risks.
The number of recommendations for improvement related to “5. Wrap-up of audit
files and management and retention of audit records” increased in FY2021 andFY2022, many of which were about inappropriate archiving practice within audit firms.
For example, it was unclear whether an audit firm completed archiving within adesignated time frame in accordance with its archiving policy simply because the43actual date of the completion of archiving was never recorded.
b．Individual engagements
The following items were identified as focus areas for individual engagements. The
number of audit firms that received recommendations for improvement by eachfocus area is presented below.
（Unit: Number of audit firms）
Focus areas

FY2020

FY2021

FY2022

1．Key Audit Matters

※

-

11

2．Auditing accounting estimates

17

47

51

2

5

-

・Revenue recognition

16

32

28

・Risk of management’s override of internal

15

27

35

2

3

5

2

-

-

1

(Note2)

3．Identifying, assessing and addressing the risk ofmaterial misstatements due to fraud
・Professional skepticism

controls
4．Procedures for group audits
5．Evaluation of internal control in financial
statement audit and internal control audit
6．Audit procedures over other information
included in entities’ annual report

31(Note 1）Some audit firms received multiple recommendations for improvement.
(Note 2）Not applicable as these items were not identified as focus areas in or before FY2020.

The number of audit firms that underwent regular reviews increased by 16 audit
firms, from 76 audit firms in FY2021 to 92 audit firms in FY2022. The number ofaudit firms that received recommendations for improvement related to focus areas
increased as well. Recommendations for improvement were mainly related to thefollowing areas as they were in FY2021.
Regarding ”2. Auditing accounting estimates,” recommendations were mainly
related to impairment accounting of fixed assets, as well as accounting estimates,
including valuation of loans receivable, valuation of inventories, and allowance for
doubtful accounts. For example, comments included insufficient consideration given
on methods, rationale and underlying data used by management in developing
accounting estimates.
In ”3. Identifying, assessing, and addressing the risk of material misstatement due
to fraud,” recommendations for ” Risk of management’s override of internal controls”

44

increased, whereas those for “Revenue recognition” decreased in FY2022. Issues
around the risk of management’s override of internal controls were mainly related tojournal entry testing, such as inadequate assessment of fraud risk scenarios andfailure to perform detailed testing on extracted journal entries. Recommendations
related to revenue recognition were mainly given on insufficient audit procedures toaddress fraud risks, failure to conduct audit procedures designed to test fraud risks,and lack of audit evidence with stronger corroboration.
The Quality Control Review Team provides instructions to audit firms to improvethese recommendations and confirm remedial actions done by the firms.

(5) Results of Special Reviews
In FY2022, a special review was conducted for one audit firm, which signed anagreement to audit restated financial statements included in amended annual securities
reports and issued an audit opinion. Original financial statements for the same period
were audited by a predecessor auditor. The purpose of the special review was to confirm
the design and operation of the audit firm’s quality control system, especially aroundengagement acceptance procedures, the appointment of engagement team members,
and engagement performance.
Results of the special reviews, including the number of audit firms, are as follows:
FY2020

FY2021

FY2022
Audit ofamendedannualsecurities
report forprevious fiscal
years

ThemesMerger of audit
firms

Auditor change

Audit ofamended annual
securities reportfor previous
fiscal years

Number ofaudit firms

1

6

1

1

ResultResult without
significant
deficiencies

Result without
significant
deficiencies

Result without
significant
deficiencies

Result without
significant
deficiencies

45

(6) Confirmation of the Remedial Actions① Confirmation of improvement status
Results of the confirmation of improvement status for the 11 audit firms are as
follows:

FY2021
Carried over tothe next year

２

Audit firm
conducted
confirmation of

Result without
insufficient
improvement

６11

FY2022

1
Audit firm

Result without
insufficient
improvement

7

conducted
confirmation of

improvement
statusCarried over tothe next year

improvement
statusResult withinsufficient
improvement

11

Result withinsufficient
improvement３３

According to the confirmation of improvement status in FY2022, three out of theseven audit firms without insufficient improvements showed improvement in all of
the recommendations for improvement identified in the previous fiscal year's quality
control review but were identified for different new recommendations for
improvement in associated areas. Also, like in FY2021, there were three audit firms
with "Result with insufficient improvement” in FY2022. Out of the three audit firms
with "Result with insufficient improvement” in FY2021, two firms were subject toregular reviews in FY2022 by shortening their review cycles and one firm went
through another confirmation of improvement status in FY2022, which were
determined based on individual circumstances of the audit firms.
Of the two audit firms that went through confirmation of improvement status in
FY2021 but whose issuance of the Confirmation Result Report of the Improvement
Status was carried over to FY2022, one ended up with "Result with insufficient
improvement" and the other with "Result without insufficient improvement."
Accordingly, regular reviews were conducted and quality control review reports were
issued to the two audit firms in FY2022.
The following represents a breakdown by the size of audit firms whose
improvement status was confirmed.

46

【Breakdown by the size of audit firms】（Unit：Number of audit firms）
Confirmation results
Result without
insufficient
improvement
Listed Company Audit
Firms

Large-sized/
second-tierOver 10companies
Audit
5～9
firms bycompanies
thenumber of
2～4
listedcompanies
companyLess than
audits2
companies
Sub-total
Other audit firms

Result withinsufficient
improvement

Carried-overaudit firms

Total

-

(-)

-

(-)

-

(-)

-

( -)

3

(2)

-

(1)

1

(-)

4

( 3)

1

(3)

-

(-)

-

(-)

1

( 3)

3

(1)

-

(1)

-

(-)

3

( 2)

-

(-)

1

(1)

-

(-)

1

( 1)

7

(6)

1

(3)

1

(-)

9

( 9)

1(Note2)(-)

3(Note2)

(-)

-

(2)

4

( 2)

Total
8
(6)
4
(3)
1
(2)
13
(11)
（Note 1）FY2021 numbers are shown in parentheses. The number excludes one audit firm whose
confirmation process was cancelled due to the refusal of a review.
（Note 2）The two audit firms that went through confirmation of improvement status in FY2021 but
whose issuance of the Confirmation Result Report of the Improvement Status was carried overto FY2022 are included individually in each category.

②

Confirmation of remedial actions in writing

Improvement Status Reports submitted by audit firms showed the following
results:（Unit：Number of audit firms）
Number of audit firms that are
subject to the review of
Improvement Status Reports
With
Number of audit firms
concernwith concerns of
insufficientNo
improvement
concern

FY2020

FY202160

46

1(Note2)59

FY2022(Note1)

56(Note3)

-

1

44

56

(Note 1) Includes one audit firm that could not be confirmed for its status of whether or not
remedial actions were appropriately implemented based on a review of its Improvement Status
Report. Thus, no conclusion could be made in FY2021 whether it had concerns of insufficient
improvement. A regular review was conducted for the audit firm in FY2022, which ended up
with Result without significant deficiencies.
(Note 2) As a result of reviewing an Improvement Status Report submitted by the audit firm in
FY2020, the audit firm still had concerns of insufficient improvement. Therefore, the audit firm
was subject to a regular review in FY2021 with a shorter review interval and ended up with
Result without significant deficiencies.
(Note 3) JICPA changed the review plan in FY2021 and conducted confirmation of improvement

47

status for one firm. As a result, a Confirmation Result Report of the Improvement Status withresult with insufficient improvement was issued to the audit firm in FY2022.

(7) Measures taken as a Result of Quality Control Reviews① Determination of measures
The following table shows measures taken as a result of regular reviews.
（Unit: Number of audit firms）
Result of quality control
reviews
Resultswithextremely
significant deficiencies

Results with
deficiencies

significant

Results without significant
deficiencies withrecommendation forimprovement
Total

Measures (Note2)
Recommendation towithdraw from audit
engagements
Recommendation towithdraw from audit
engagements(Insufficient
improvement)
Sub-Total
Recommendation towithdraw from audit
engagements(Insufficient
improvement)
Severe warning
Severewarning(Insufficient
improvement)
Warning
Sub-Total
Warning(Insufficient
improvement)

FY2020

FY2021-

1

FY2022
1

1

2

1
1

1
-

3

1

1

3
1

1
-

1
3

1
5

2

1

3

6

5

9

11

（Note 1）More than one measure could be taken against an audit firm as a result of quality control
reviews. With that in mind, audit firms are classified in the above table based on the most severe
measure taken against them. Therefore, the number of measures in the table above does notagree with the total number of measures taken against audit firms.
（Note 2）”Recommendation to withdraw from audit engagements (Insufficient improvement),” “Severe
warning (Insufficient improvement),”and “Warning (Insufficient improvement)” in the ”Measures”
column were determined based on the confirmation of improvement status as a result of
insufficient improvement in their remedial actions.
（Note 3）There were two audit firms in FY2020, one in FY2021, and two in FY2022, which were carriedover from previous fiscal years and whose measures were determined in FY2020, FY2021 andFY2022, respectively. The result of quality control reviews and measures taken against those audit

48

firms were “Unqualified conclusion with warning (Insufficient improvement)” and “Qualified
conclusion with warning” in FY2020, “Results with extremely significant deficiencies andRecommendation to withdraw from audit engagements” in FY2021, and “Results with extremely
significant deficiencies and Recommendation to withdraw from audit engagements (Insufficient
improvement)” and “Results with significant deficiencies and Recommendation to withdraw fromaudit engagements (Insufficient improvement)” in FY2022. Based on the July 2019 JICPA
Constitution amendment, JICPA revised the Quality Control Review Systems from the viewpointof improving effectiveness and transparency. Accordingly, regular reviews conducted in FY2019
under the system prior to July 2020 are categorized in the table as follows: “Unqualified conclusion”
as “Results without significant deficiencies;” and “Unqualified conclusion” as “Results without
significant deficiencies.”

The following table shows measures taken as a result of refusal of review andconfirmation of improvement status.
（Unit: Number of audit firms）
Resultofqualitycontrol reviews

Measures

Recommendation
toRefusal of review
withdraw from audit
engagements
Confirmation
results Recommendation towithinsufficient withdraw from audit
improvement
engagements(Insufficient
improvement)
Warning(Insufficient
improvement)
Total

FY2020

FY2021

FY2022-1(Note 2)

-

1

-

1

2

3

3(Note 3)344（Note 1）More than one measure could be taken against an audit firm as a result of quality control
reviews. With that in mind, audit firms are classified in the above table based on the most severe
measure taken against them. Therefore, the number of measures in the table above does notagree with the total number of measures taken against audit firms.
（Note 2）Review was refused and the confirmation of improvement status was canceled accordingly.
（Note 3）Includes one audit firm that was confirmed for its improvement status in FY2021 and for which
the issuance of a Confirmation Result Report of the Improvement Status and determination of
measures were carried over to FY2022.

49

② Reporting to the Chairman of the Audit Practice Review and Investigatory
Committee

Through quality control reviews, when a significant doubt arises on theappropriateness of an audit opinion expressed by an audit firm or when a significant
doubt arises as to the compliance with the regulation and constitution of JICPA, theissue shall be reported to the Chairman of the Audit Practice Review and Investigatory
Committee.
The number of audit firms reported to the Chairman of the Audit Practice Review
and Investigatory Committee is as follows:（Unit: Number of audit firms）
Refusal of review
Resultswithextremely

significant

FY2020

FY2021

FY2022-

1(Note)

-

1

3

-

1

-

deficiencies
Results with significant deficiencies

1(Note) One audit firm refused a review and thus the confirmation of improvement status wascanceled accordingly, which was reported to the Chairman of the Audit Practice Review andInvestigatory Committee.

50

2.
Recommendations
forRelated to Regular Reviews

Improvement

The following table shows the breakdown of recommendations for improvement madeto audit firms as a result of regular reviews, which are classified into those related to“Quality control system of the audit firm" and "Quality control of individual engagements."
Recommendations for improvement related to carried-over audit firms from previous
fiscal years are also included in the table.
【Breakdown of recommendations for improvement】
Number of recommendations for
improvement
Fiscal year

Number of audit firmsthat received quality
control review report
Of which, numberof audit firms
withrecommendations
for improvement

Individual
engageme
nts
selectedfor quality
controlreview

Qualitycontrolsystem of theaudit firm

Qualitycontrol ofindividual
engagements

Total

FY2021

69

453

522

75

73

182

FY2022

112

577

689

89

89

194

（Note）One carried-over audit firm from FY2020 is included in the FY2021 column, which received
recommendations for improvement. The number of those related to “Quality control system of
the audit firm” and “Quality control of individual engagements” were eight and 42, respectively.
One individual engagement was selected for quality control review.
Likewise, two carried-over audit firms from FY2021 are included in the FY2022 column, which
received recommendations for improvement. The number of those related to “Quality control
system of the audit firm” and “Quality control of individual engagements” were 19 and 67,
respectively. Four individual engagements were selected for quality control review.

(1) Recommendations for Improvement Related to “Quality
Control System of the Audit Firm”
The following table shows the number of recommendations for improvement related to“Quality control system of the audit firm.”

51

【 Number of recommendations for improvement related to “Quality control
system of the audit firm”】
Number ofrecommendations for
improvement
Result of reviews

Result without
significant
deficiencies
Result with
Significant
Deficiencies
Total

(A)

Number of audit firms thatreceived quality control review
reportOf which, number of(B)
audit firms withrecommendations for
improvement

Average per
audit firm
（A/B）

67(49)

0.8(0.7)

84(69)

30(23)

36%( 33%)

45(20)(Note 3)

9.0(Note 4)(3.3)

5( 6)

5( 6)

100%(100%)112(69)1.3

89(75)

35(29)

39%( 39%)(0.9)（Note 1）FY2021 figures are in parentheses.
（Note 2）One carried-over audit firm from FY2020 is included in the FY2021 column, which received
results with Significant Deficiencies with eight recommendations for improvement. Likewise, twocarried-over audit firms from FY2021 are included in the FY2022 column, which received resultswith Significant Deficiencies with 19 recommendations for improvement.
（Note 3）Out of the total recommendations, 22 (14) led to Significant Deficiencies.
（Note 4）In FY2022, a number of extremely significant deficiencies were identified, causing an increasein the average number of recommendations per audit firm compared to FY2021.

【Audit firms that received quality control review report in FY2022】 89 firms[Result with Significant Deficiencies][Result without significant deficiencies]
84 audit firms

67

Average number ofrecommendations
per audit firm
0.8

Number of

Number ofrecommendation

40% recommendation60%

Total number ofrecommendations for
improvement112！

5 audit firms

45

Average number ofrecommendations
per audit firm
9.0

Recommendations for improvement represent matters with a certain degree ofconcern for significant non-compliance against professional standards as well as
applicable laws and regulations. They are recommendations described in therecommendation for improvement reports, representing matters requiring
improvement for the purpose of enhancing audit quality control.
！ Since the number of audit firms that underwent regular reviews varies from year
to year, the number of recommendations for improvement cannot simply becompared year-on-year. Still, they should be able to provide some useful
information about the trend in recommendations made. Hence, recommendations
for information are broken down into “Quality control system of the audit firm” and“Quality control of individual engagements.”52

Major recommendations for improvement (Quality control system of the audit
firm)
Among the recommendations related to quality control system of the audit firm, theoccurrence rate(Note) of “Wrap-up of audit files and management and retention of audit
records,” “Engagement quality control review,” “Monitoring the system of quality control”
and “Ethics and independence” increased in FY2022 compared to FY2021.
【Occurrence rate of recommendations for improvement (Quality control system of
the audit firm)】
30%
25%
20%
15%
10%

5%
0%

Wrap-up of audit

Overall system offiles andquality control

Engagement

Monitoring themanagement andincludingquality control

system of quality

retention of audit

information

review

control

Ethics andindependence

records

security

FY2021

16%

17%

7%

9%

8%

FY2022

25%

17%

10%

10%

9%

Number of audit firms provided with(Note）”Occurrence rate of recommendations for=

improvement”

recommendations for each item
Number of audit firms that received
quality control review report！

For more details on recommendations for improvement, please refer to“Explanation of Quality Control Review Cases in FY2022” (Japanese only) page 14
of Part 1 onwards and page 4 of Part 2 onwards.

53

(2) Recommendations for Improvement Related to “Quality
Control of Individual Engagements”
The following table shows the number of recommendations for improvement related
to “Quality control of individual engagements.”【 Number of recommendations for improvement related to “Quality control ofindividual engagements”】
Number of recommendations for
improvement (A)Average per
audit
engagement（A/B）

Result ofreviews

Result without
significant
deficiencies
Result with
Significant
Deficiencies
Total

Numberof auditfirms thatreceived
qualitycontrolreview
reportIndividual engagements selected for quality
control review (B)Of which, number ofengagements provided withrecommendations for
improvement

451

(352)

2.4 (2.1)

84

(69)

186

(170)

147

(118)

79%( 69%)126(101)(Note3)

15.8(Note4) (8.4)

5

( 6)

8

( 12)

8

( 12)

100%(100%)

577

(453)

3.0 (2.5)

89

(75)

194

(182)

155

(130)

80%( 71%)(Note 1) FY2021 figures are in parentheses.
(Note 2) One carried-over audit firm from FY2020 is included in the FY2021 column, which received
results with Significant Deficiencies with 42 recommendations for improvement for one selectedengagement. Likewise, two carried-over audit firm from FY2021 are included in the FY2022
column, which received results with Significant Deficiencies with 67 recommendations for
improvement for four selected engagements.
(Note 3) Out of the total recommendations, 35 (14) led to Significant Deficiencies.
(Note 4）In FY2022, a number of extremely significant deficiencies were identified, causing an increasein the average number per audit firm compared to FY2021.

54

【Audit firms that received quality control review report in FY2022】
89 audit firms (194 engagements)[Result with Significant Deficiencies][Result without significant deficiencies]

5 audit firms (8 engagements)

84 audit firms (186 engagements)
Result of review
6%
Average number ofrecommendations per
audit firm
2.4
Occurrence rate ofrecommendations for improvement

21%

Average number ofrecommendations per
audit firm
15.8

Review
reports89

Occurrence rate of94%

Number ofrecommendations for improvement
recommendation

Number ofrecommendation

126

451

22％

79％

78%

Total number ofrecommendations foraudit engagements
577

55

100%

Recommendations for improvement for audit firms with “Result without
significant deficiencies”
Regarding audit firms with “Result without significant deficiencies,” the number ofrecommendations for selected individual engagements is represented as follows:【Number of recommendations for improvement for selected engagements 】【Audit firms with Result without significant deficiencies】

there were 39 engagements

84 audit firms (186 engagements)
43

39

40

engagementswith no recommendation and
43 engagements with only one

60
Number of(Information)This indicates that32

recommendation.

30

27
15

20
0
0

1

2

3

4

more
than 5

Number of recommendations for selected engagements

Classification by registration status【Listed Company Audit Firms】【Other audit firms】

60 audit firms (151 engagements)

24 audit firms (35 engagements)
2

21

9

37

9

13

Engagements by
number of
2 recommendations

Engagements by
number ofrecommendations

22

5

34

8

24

Number of recommendations

Number of recommendations

0

1

2

3

4

more than 5

0

1

2

3

4

more than 5

Average number of recommendations

Average number of recommendations

per engagement

per engagement

2.3

3.1

56

Major recommendations for improvement (Quality control of individual
engagements)
Among the recommendations related to quality control of individual engagements,
the occurrence rate (Note) of “Auditing accounting estimates,” “Journal entry testing,”“Audit evidence,” “Identifying, assessing and addressing the risk of material
misstatement, including fraud risk (except for journal entry testing)“ and “Internal
control” increased in FY2022 compared to FY2021.
【Occurrence rate of recommendations for improvement (Quality control of individual
engagements)】
45%

(注40%
1)「業務選定数に対する割合」 ＝「各項目について改善勧告事項が生じた監査業務数」「選定した監査業務数」

35%
30%
25%
20%
15%
10%
5%
0%

Identifying,assessing andaddressing the

Auditing
accounting
estimates

Journal entry
testingrisk of material
Audit evidence

misstatement,Internal control

including fraud
risk (except forjournal entry
testing)

FY2021

37%

19%

16%

14%

10%

FY2022

41%

25%

22%

16%

13%

Number of engagements provided with(Note）”Occurrence rate”＝recommendations for each item
Number of selected engagements！

For more details on recommendations for improvement, please refer to“Explanation of Quality Control Review Cases in FY2022” (Japanese only) Part 1,
page 26 of Part 1 onwards and page 21 of Part 2 onwards.
57

3. Overview of the Official Roster※ In line with the revised act, “Registration System for Audit Firms that Engage
in Audits of Listed Companies” is changed to “Registration System for Auditorsthat Engage in Audits of Listed Companies and Similar Companies” from April 1,
2023. Please note that the following information regarding the Official Rosters
is based on the previous system effective until March 31, 2023.

(1) Registration on the Official Rosters
For the fiscal year from April 1, 2022, to March 31, 2023, eight audit firms were
newly registered through application reviews and five audit firms were deregistered
due to termination of audit engagements with listed companies or for other reasons.
Also, there was one audit firm put on the list of deregistered firms during the relevant
period and subsequently excluded from the list. As a result, there were 144 listedcompany audit firms as of March 31, 2023.
【Breakdown of the listed company audit firms】（As of March 31, 2023）
Audit Firm
Registered firms

Total

125

8

133

9

2

11

134

10

144

Associate registeredaudit firms
Total

CPAs

（*）

（*）Joint Offices are subject to quality control reviews on a joint office basis. One
Joint Office is counted as one CPA and is included in the number of CPAs in
this table.
If an audit firm newly plans to enter into audit engagements with listed companies, theQuality Control Review Team reviews whether or not to register the audit firm on theofficial roster of associate registered audit firms. The Quality Control Review Team
investigates whether a quality control system is appropriately implemented and provides
instructions as needed mainly around the following areas. The Center for Examination of
Quality Control and the Quality Control Committee review and deliberate whether or not
to register the audit firm based on the result of investigations or regular reviews
conducted by the Quality Control Review Team.
・Developing policies and manuals related to quality controls
・Securing sufficient human resources to audit listed companies
・Preparing engagement partners’ rotation plans
・Considering fee dependence on specific clients (i.e. listed company expected to sign58

an audit contract)
・Assessing audit risks around audit work expected to be performed
The following table shows the number of newly registered firms approved by the Quality
Control Committee during the period from April 1 to March 31 of each fiscal year after
receiving applications to become registered firms or associate registered audit firms.
FY2020

FY2021

FY2022

Audit firms registered on the11310
official roster of registeredfirms
Audit firms registered on the77８
official roster of associate
registered audit firms
Numberofapplication
reviews to be registered as13
20
16
associate registered audit
firms（Note 1）The number of audit firms registered on the official roster of associate
registered audit firms differs from the number of application reviews because
audit firms are required to file an application to be registered as an associate
registered firm each time they plan to enter into an audit engagement withlisted companies.
（Note 2）As a result of the quality control review in FY2021, there was one audit
firm not allowed to be registered on the official roster of registered firms andone audit firm that was removed from the Official Rosters by the end of March
31, 2023.

(2) Measures taken for the Registration on the Official Rosters
During the period from April 1, 2022 to March 31, 2023, the Quality Control
Committee decided to take measures against one audit firm regarding the registration
status on the Official Rosters.

(3) Disclosures and Review Requests Related to Listed
Company Audit Firms
During the period from April 1, 2022 to March 31, 2023, disclosures of disciplinary
sanctions against listed company audit firms and review requests in the fiscal year are
as follows:①

Disclosure as a result of quality control reviews for listed company audit
firms
Two audit firms were disclosed in the Official Rosters for their significant
59deficiencies as a result of quality control reviews. However, given that improvement
was seen in regular reviews conducted in FY2022, such disclosure was removed fromthe Official Rosters.
②

Disclosures of disciplinary sanctions against listed company audit firms

Five audit firms were disclosed in the Official Rosters for their disciplinary sanctions,which are described below:
Audit firms on which the CPAAOB recommended theCommissioner of the FSA to impose administrative４

sanctions or other measures
Audit firms that received an order to improve businessby the FSA

３

Audit firms that received disciplinary sanctions by

JICPA(Note) The number of audit firms on the column differs from the total number offirms that received disciplinary sanctions because one audit firm may have received
multiple disciplinary sanctions.
③

Designation of auditors restricted from re-registration on the Official Rosters
In FY2022, two members including, audit firms, were newly designated as auditors

restricted from re-registration on the Official Rosters, and no members were taken
off from the designation list. As of March 31, 2023, total 14 members remain to be
designated as auditors restricted from re-registration on the Official Rosters.
④

Review requests made to the Review Board for Appropriate Procedures
In FY2022, one audit firm made a new review request to the Review Board forAppropriate Procedures with respect to registration status on the Official Rosters or
measures undertaken for the registration. The matter was resolved as of March 31,
2023.
Although the Listed Company Audit Firm Registration and Complaint Review
Committee (*), the previous review board, had been reviewing two audit firms since
FY2018, no conclusions were reached because disputes were ongoing. The two cases
are subject to review by the Review Board for Appropriate Procedures from October
1, 2019; however, no conclusions are yet made as of the end of FY2022.
（*）The committee was originally set under the Quality Control Review System as a complaint
review body. As of October 1, 2019, it was unified into the Review Board for Appropriate
Procedures based on the July 2019 JICPA Constitution amendment.

60

4. Looking Back the Achievements after the
Revision of Quality Control Review System
Under the July 2019 JICPA Constitution amendment, JICPA revised the Quality Control
Review System to improve effectiveness and transparency, which had been operated
since FY2020 together with policies for quality control reviews based on the recognitionof practical issues in the areas of developing and implementing review plans with anunderstanding of audit firms' operation management system, analyzing root causes, andproviding instructions for improvement. Quality control reviews are generally conducted
once every three years based on an understanding that JICPA’s approach to audit firms
are completed in a uniform and homogeneous manner within the three-year time framein practice. Therefore, JICPA has reflected on its major achievements made over thelatest three-year cycle from FY2020 to FY2022 as follows:(1) Improved risk approach when drafting the annual plan and making revisions
during the period① Enhanced flexibility for regular reviews and relaxed requirements for special
reviews
The revision allowed more flexibility in terms of the frequency of regular reviews
and relaxed requirements for conducting special reviews. As a result, JICPA was able
to draft annual review plans more easily and also allocate resources efficiently andintensively to higher-risk audit firms.
➁ Reinforced off-site monitoring
JICPA regularly conducted off-site monitoring on each audit firm during interval
periods, thereby obtaining information on changes in an audit firm’s operational
management system as well as the situation of acceptance of individual engagements.
The results were reflected in annual review plans in a timely manner to improve thequality of planning.
➂ Conducted confirmation of improvement status
Based on the results of regular reviews and off-site monitoring, JICPA carefully
selected audit firms that appeared to have concerns about their voluntary
improvement and confirmed their improvement status by covering wider areas forconfirmation purposes depending on the situation of each audit firm. There werecases where insufficient improvements or new recommendations for improvement
were successfully identified through such confirmation processes. JICPA is confident

61

that risk approach-based instructions for improvement has gained wider acceptancein practice and been implemented effectively.
(2) Strengthened instruction capability① Required audit firms in the Recommendation Report to make improvements in
response to root causes
Regardless of whether they are Significant Deficiencies or not, when a number offindings were identified or when similar findings were identified across several
individual engagements, JICPA determined that continuous improvement instructions
based on root causes were required for such audit firms. In detail, JICPA reinforced
instructions by requiring audit firms to provide results of root cause analysis in writing
and also actively requesting audit firms in the Recommendation Report to make
improvements in response to root causes.
➁ Provided instructions for small- and medium-sized audit firms after on-site reviews
At the end of on-site reviews, JICPA mainly focused on the registered firms, andconfirmed whether their measures for improvement were feasible and effective
enough to address root causes, including their operation management systems.
Further, JICPA strived to provide instructions by requiring the firms to reassess suchmeasures for improvement as necessary.
(3) Enhanced transparency in the Quality Control Review System① Improved disclosures for deficiency information on the Official Rosters
Prior to the revision, when qualified conclusion with concerns of extremely
significant non-compliance was issued to an audit firm, JICPA took measures againstthem by disclosing the summary of its conclusion on the official roster of registeredfirms. Whereas, during the three-year period from FY2020 to FY2022, JICPA strived
to improve transparency in the Quality Control Review System, when either"extremely significant deficiencies" or "significant deficiencies" were identified, bydisclosing their deficiencies’’ summary on the official roster of registered firms.

(NOTE) The 2023 Quality Control Review Policy and the three-year Quality Control Review Basic Policy
are published on JICPA's website (Japanese Only) .

62

63