The Japanese Institute of Certified Public Accountants

Overview of the Quality Control Review 2022

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.............................................................................................................. 21
5. Relationship with the CPAAOB ................................................................ 26【Part 2 Implementation Status and Results】....................................................28

1. Implementation Status and Results of Quality Control Reviews ................... 29
2. Recommendations for Improvement Related to Regular Reviews in FY2021 . 45
3. Overview of the Official Rosters .............................................................. 51
4. Future Action Plan ................................................................................. 542

【Part 1 Overview of the Quality Control Review】

3

1. The Japanese Institute of Certified Public
Accountants
The Japanese Institute of Certified Public Accountants (“JICPA”) is dedicatedto provide 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, 2022, the total number of members,
including associate members, stood at 41,321 which consisted of the following: thenumber of members totaled 33,490, including 33,217 of CPAs of Japan and of othercountries in Japan as well as 273 audit firms; and the number of associate members,
including junior accountants and successful candidates of the CPA examination, stood at
7,831.
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

39,2552022

41,3214

2. Activities of JICPA as a Self-Regulatory Body
JICPA is a self-regulatory body dedicated to continuously retain the 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. Overview of self-regulatory activities of JICPA is summarized in thefollowing diagram.
The “Quality Control Review System” is considered as one of the most significant selfregulatory activities of JICPA.

Building trust,Empowering our future5

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

Quality Control Review System
In the light of public nature in services prescribed in Article 2-1 of the CPA Act foraudit engagements, 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 ofaudit engagements, and to ensure social confidence in those services. The Certified
Public Accountants and Auditing Oversight Board (the “CPAAOB”) has monitored the
Quality Control Review System of JICPA since FY2004.
Based on the JICPA Constitution, the Quality Control Committee established in
JICPA conducts quality control reviews in accordance with the quality control review
standards and procedures to assess the design and operation status of the quality
control system of audit firms and CPAs (collectively as “audit firms”) and, as needed,issue recommendations for improvement and impose appropriate measures. Quality
control reviews are focused on instructing and supervising audit firms. They are notintended to badger and penalize audit firms or to interfere audit opinions issued byaudit 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 2007 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 official rosters of audit firmsthat engage in audits of listed companies (the "official roster of registered firms") andassociate registered audit firms, reflecting registration decisions made and measurestaken by the Quality Control Committee in the rosters, and making them available tothe public.
The Securities Listing Regulations of stock exchanges require that listed companies
should engage audit firms that are registered either on the official roster of registeredfirms or the official roster of associate registered audit firms (collectively as the6

“Official Rosters").
For more details, please refer to “4. Registration System for Audit Firms that
Engage in Audits of Listed Companies.”(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. For more details, please refer to a brochure titled “Explanatory Material for
the Quality Control Review Systems (Japanese only)” in chapters “II 3. Operation of thequality control review,” ”IV 2. The Registration System for Audit Firms that Engage in
Audits of Listed Companies” and ”V 1. Organizational structure related to self-regulationof JICPA.”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】[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.

7

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 examines requests from members to review the registration status on
the Official Rosters or measures undertaken for the registration.
⑥ Self-Regulatory Monitoring Conference
The conference provides opinions and advice on the operations based on a broader
perspective encompassing capital markets and social impact.

(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 staff 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 andprocedures. Audit firms are responsible for designing and operating these policies andprocedures under their quality control system. Engagement partners are responsible for
conducting audits in accordance with the quality control system of the audit firm.

8[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 system9(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 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

To assess the design and operationof an audit firm’s quality control
system in certain audit areas orcertain audit engagements

Frequency

In principle, the review isconducted every three years(every two years for large-sized
audit firms (*1)). Based on the
judgment of the Quality Control
Committee, the frequency may
be shortened or extended(however,thereviewisconducted at least once in every
five years)

When
the
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(*2)

All audit firms that provide audit
engagements

Procedures

Site visit

Site visit, inquiry or in writing(*1) Large-sized audit firm is defined as an audit firm engaged in more than 100 listed company
audits over a certain review period with more than 1,000 professional personnel working fulltime, namely Ernst & Young ShinNihon LLC, PricewaterhouseCoopers Aarata LLC, KPMG
AZSA LLC, and Deloitte Touche Tohmatsu LLC.
(*2) Audit firm subject to regular reviews is defined as an audit firm that audits Public Interest
Entities defined under the CPA Act as well as large-sized Credit Associations (“Shinkin Banks”)
and other financial institutions.

10[Audit firms subject to regular reviews](As of March 31, 2022)
Audit Firms
Audit firms subject toregular reviews
Of the above, the listedcompany audit firms(*2)

CPAs

(*1)

Total

152

64

216

131

11

142

(*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.”(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 control on a firm-wide basis and quality control in audit engagements areinterrelated.
⚫

Review quality control 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 audit engagements (“individual engagements”).
By considering the environment surrounding the audit firm, such as the level ofrisks in individual engagements and the nature of audit engagements, individual
engagements are carefully selected for a review so that an 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.

11

[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

controls on a firm品質管理の確認
wide basis

Individual
engagement

Consider effects
on each other

Review quality
controls in individual
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.
A special review is conducted for selected firms after determining the scope basedon the purpose of the special review, considering certain areas of concern or specificaudit engagements.

12

[Detailed procedure for quality control reviews]
In principle, the procedure for quality control reviews is as follows:(Orange: Procedures performed by the Quality Control Review Team; Blue:
Procedures performed by the Quality Control Committee or the Center for
Examination of Quality Control)
Planning a review

A quality control review plan is developed to review an audit firm and audit
engagements, considering risk areas and focusing on priority issues.

Flow of Procedures

Center for
Examination of
Quality Control

Examine the quality control review plan prepared by the Quality Control Review

Conducting areview

Visit the audit firm, interview the representative of the firm as well as thoseTeam.

responsible for the quality control and engagement teams, and examine work papers.
The Center for Examination of Quality Control examines review reports drafted byCenter for
Examination of
Quality Control/
Quality Control
Committee

theQuality 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.”.

Center for
Examination of
Quality Control/Quality Control
Committee

On top of quality control review reports, recommendation for improvement reports,
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.”)
Review the improvement status of the audit firm in response to the improvement

Reviewing
improvement
statusrecommendations in the next fiscal year.
In addition to reviewing a written improvement status report, the Quality Control
Review Team may need to visit the audit firm to review the improvement status.
(For more detail, please refer to “(10) Confirmation of improvement status.”)Center for
Examination of
Quality Control /Quality Control
Committee

The Center for Examination of Quality Control examines the results of remedialactions. The Quality Control Committee is responsible for the deliberation andapproval of the confirmation result report of the improvement status.

13(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 design and operation of a quality control system of the audit
firm.
Results of quality control reviews are classified into the following three types based onwhether or not Significant Deficiencies are identified for non-compliance with professional
standards or applicable laws and regulations in the design and operation of 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 beoverlooked in key accounting areas (e.g. accounting estimates, revenue recognition); andwhen 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 importantcomponents of items subject to the quality control review, no result is expressed in thereport (i.e. “disclaimer of result”).

！

Detailed results of quality control reviews, including specific examples, aredisclosed in the "Explanatory Material for the Quality Control Review Systems"(Japanese only) for reference purposes.

14(7) Recommendations for Improvement
Regardless of the result of a quality control review, if deficiencies are identified for noncompliance with professional standards or applicable laws and regulations (i.e.
recommendations for improvement), a “Recommendation Report,” describing such
recommendations for improvement, will be prepared and issued to an audit firm together
with the quality control review report.
Also, in the event of result with Significant Deficiencies, the audit firm is required toprepare and submit a response to the recommendation report, called the “Improvement
Plan.”① Recommendation Report
Recommendations for improvement are put into two sections under therecommendation report, namely recommendations for the quality control on a firmwide basis and recommendations for the quality control in audit engagements.
②

Improvement Plan
Of the recommendations for improvement received, an audit firm shall prepare andsubmit to the Quality Control Committee an Improvement Plan describing remedialactions related to Significant Deficiencies. (Although the audit firm is not required todescribe remedial actions for other deficiencies, it is necessary for the audit firm tovoluntarily improve all items for which improvement recommendations were made.)
The Quality Control Review Team will provide necessary instructions to the audit firm
to encourage improvement regardless of whether or not the audit firm is required toprepare an Improvement Plan.

15

[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 individual
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 individual
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 some cases, there could be root causes behind recommendations for improvement.
Such root causes commonly found in several causes are generally related to poor audit
culture and weak management of an audit firm. Therefore, when an audit firm receives
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 the chief executive officer of the audit firm and the Quality
Control Review Team.

16

(9) Practical Operation for Quality Control Reviews (theObjection System)
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 reasonable grounds tobelieve 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. In FY2021, one audit firm filed an objection.

(10) Confirmation of Improvement Status
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
to submit their improvement status report to the Quality Control Committee, which canreview the report to check the status of implementation of each audit firm’s remedialactions. After checking the status, the Quality Control Committee issues a confirmation
result report of the improvement status describing the status of improvement to each
audit firm.
・Audit firms with result with Significant Deficiencies
Once confirming the status of remedial actions through the improvement status reportin the following fiscal year, such audit firms will be subject to another regular review or
will be examined for the actual improvement.
・Audit firms with result without significant deficiencies
If improvements seem to be insufficient for an audit firm as a result of reviewing theimprovement status report, such audit firm will be subject to regular review or will be
examined for the actual improvement and remedial actions will be confirmed by visiting
the firm.

17

* Since special reviews are conducted when the Quality Control Committee
determines it is necessary to confirm the quality control system of an audit firmin 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 are determined based on the result of quality
control reviews to encourage audit firms with insufficient level of quality controls tovoluntarily improve their quality control system and to continuously monitor theirimprovement status. In principle, the Quality Control Committee determines measures
as presented in the following table based on the nature and frequency of findings
identified in quality control reviews, including the confirmation of improvement status. In
addition, when findings identified in previous quality control reviews are not improved,
coming up as findings again, the committee considers whether stricter measures underthe Quality Control Review System need to be imposed.
If an audit firm unreasonably refuses or does not cooperate with quality control reviews,
the Quality Control Committee determines to recommend the audit firm to withdraw fromaudit engagements regardless of the frequency of quality control reviews.
Furthermore, when a recommendation to withdraw from audit engagements is issued

18

to a listed company audit firm, the registration on the Official Rosters may be canceledon top of the withdrawal measures (For more detail, please refer to “4. Registration
System for Audit Firms that Engage in Audits of Listed Companies (3) Measures taken for
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

withdraw(*1)

to withdraw

Severe warning(*1)
None

(*2)

Recommendation
to withdraw(*1)

Warning

Recommendation
to withdraw(*2)
Recommendation
to withdraw(*2)
Severe warning(*1) 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.
(*2) A recommendation to withdraw from audit engagements is the strictest measure
among the measures under the Quality Control Review System. If an audit firm
receives “Result with extremely significant deficiencies” twice or more in a row, thestrictest measure will be applied to the firm. Likewise, if an audit firm receives“Result with significant deficiencies” three times or more in a row, the firm will berecommended to withdraw from audit engagements.

(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. When significant
issues are identified as a result of examinations and reviews under each system,
necessary measures are taken by sharing information in a timely manner as needed. For
example, if any doubts arise through quality control reviews about the appropriatenessof audit opinion expressed by an audit firm or the compliance with the constitution or
regulations of JICPA, such concerns will be reported to the Chairman of the Audit Practice
Review and Investigatory Committee.

19(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 the “Audit Quality Report.”(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 listed companies
are responsible for understanding the overall design and operation of an audit firm’s
quality control system in order to assess the validity of audit procedures conducted by
the audit firm as well as the outcomes.
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. Suchinformation may include whether or not recommendations for improvement were issued
for quality controls of individual engagements and also their issue areas as well as thegeneral trend. However, audit firms are not allowed to disclose the Quality Control Review
Reports. Audit firms should communicate such information on or after receiving the
Quality Control Review Reports.

(15) Monitoring the Operation of the Quality Control Review
SystemIn order to ensure the objectivity and fairness of JICPA's self-regulatory activities andto contribute to social confidence in the CPA system, the operation of 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 dedicated to express opinions and provide advice from a broad
perspective.
https://jicpa.or.jp/about/activity/self-regulatory/quality/monitoring.html

20

4. Registration System for Audit Firms that
Engage in Audits of Listed Companies(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 Audits of
Listed Companies, which requires all audit firms engaged in audits of listed companies toregister with the system for the purpose of enhancing the audit quality control ofregistered audit firms and ensuring trust in capital markets in relation to financial
statement audits.
Within the Quality Control Committee, the Listed Company Audit Firms Subcommittee
is established, which is responsible for preparing the Official Rosters and the list ofderegistered firms from the Official Rosters and publishing the information on JICPA’s
website.
http://tms.jicpa.or.jp/offios/pub/* Website only available in Japanese.
【Examples of the Official Rosters published on JICPA’s website (Japanese only)】
Measures;
Disciplinary
Name

Organization

Representative

Address

Disclosed

Quality control review

documents

implementation status (*1)

sanctions;

Other

Last

Administrative

Information

updatedpunishment;

(*3)

date

Recommendat
ions (*2)

Pledgew
IROHA
Audit

Company

Kansa Taro

& Co.

Tokyo
Pref.

Qualitycontrol

FY2021 Regular: Dec.2021

system overview

Review: Mar.2019

Explanatory

Follow: Feb. 2017

Jan.
Yes

10,
2022

document
Pledge
ABC
Audit
& Co.

Company

Kaikei

Osaka

HanakoPref.

Qualitycontrol

FY2021 Confrmation: Jan. 2022

Jan.

system overview

Special: Oct. 2020

31,

Explanatory

Review: Dec. 20182022

document（*1）The terms described in the "Quality control review implementation status" column are defined asfollows:
Regular: Regular review（Regular reviews conducted under the system up to June 2020 were
described as “Review”）
Special: Special review（detail is posted on the linked site）
Confirmation: Confirmation of improvement status
Follow: "Follow-up review" under the system up to June 2020
2nd Follow: "Second follow-up review" under the system up to June 2020（*2）If “Yes" in the “Measures; Disciplinary sanctions; Administrative punishment; Recommendations”
column, the detail is posted on the linked site.
（*3）If “Yes" is displayed in the “Other information” column, the contents are posted to the link
destination.

21

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. 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

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！ According to the Securities Listing Regulations of stock exchanges, an accounting
firm engaged in an audit of a listed company must be a registered firm. In addition, an
accounting firm engaged in IPOs must be a registered firm that passed a quality control
review. (For Tokyo Stock Exchange, refer to Article 205, Item 7-2, Article 441-3, etc.
of Securities Listing Regulations)

22【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.

(Note) ”Disciplinary sanctions, etc.” represent administrative sanctions imposed by the
Financial Services Agency as well as sanctions imposed by JICPA which are stipulated
in its 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 withlisted companies plans to enter into a new one, the audit firm must apply forregistration on the official roster of associate registered audit firms. 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. 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.
(Result of deliberation)
Decides to allow registration

Decides NOT to allow
registration

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)

23

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.
Based on 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 the firmfrom 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 and designatedas auditors restricted from re-registration on the Official Rosters. Those designatedauditors are no longer allowed to apply for registration on the Official Rosters, unless thedesignation is cancelled.

(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 or JICPA, such fact may be disclosed
24

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.

！

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 FY2021,
please refer to “Part 2 Implementation Status and Results, 3. Overview of the Official
Rosters”).

25

5. Relationship with the CPAAOB(1) Monitoring by the CPAAOBIn accordance with the CPA Act, JICPA reports the status of quality control reviews on
a monthly and annual basis to the CPAAOB, which is a consultative administrative bodyestablished in the Financial Services Agency.
[The relationship between the Financial Services Agency, the CPAAOB, audit
firms and JICPA]
Audit

Audit firms

Audit client

Quality control review
Disclosure

JICPA
Quality Control Committee
Report on quality
control review
Administrative measures and other measures

Financial Services Agency

Inspection

Inspection

Investors, etc.

Examination

Recommendation

Shareholders,

CPAAOB(2) Cooperation with the CPAAOB
In order to further enhance the effectiveness of the Quality Control Review System,JICPA regularly holds staff meetings with the CPAAOB. Through analyses of specific cases,
issues and associated measures for quality control reviews are summarized so that JICPA
can more effectively conduct quality control reviews in the following fiscal years.
In FY2021, both CPAAOB inspectors and JICPA reviewers looked into individual cases
to analyze and identify issues, which were further subject to discussions and deliberations
between the inspectors and reviewers. Since FY2020, quality control reviews have been
conducted under a new system based on the quality control review policy called the“Developing/conducting review plans and providing instructions based on a thoroughunderstanding of the operation management system of the audit firms," which isestablished through continuous case analyses with the CPAAOB. In FY2022, JICPA
continues to adhere to the policy and associated measures to improve operations andenhance the effectiveness of quality control reviews. Individual improvements and issues
identified through the analyses are communicated to reviewers through trainings andother means for the purpose of enhancing quality control reviews.
Also, through continuous discussions with the CPAAOB regarding the frequency ofregular reviews conducted for large-sized audit firms and the improvement of instructions

26

and monitoring provided to small- and medium-sized audit firms, JICPA has concluded
that regular reviews will be conducted every three years for large-sized audit firms,
instead of every two years, from now on. In addition, JICPA exchanged views with the
CPAAOB about paperwork submission and JICPA’s information gathering practice toenhance work efficiency in the Quality Control Review System for the purpose of reducing
administrative workload and improving efficiency of audit firms throughout the review
process.
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.

27

【Part 2 Implementation Status and Results】

28

1. Implementation Status and Results of
Quality Control Reviews(1) Quality Control Review Plan
Focus area in FY2021
Reviewers were required to check the following focus areas in conducting regularreviews in FY2021, based on previous recommendations for improvement and recent
trend in quality control reviews. Additional items for the FY2021 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 and management of audit firms
・Hiring, education/training, evaluation and assignment of professional personnel
・Professional ethics and independence (e.g. rotation of engagement partners and teammembers)
・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 consideration points in developing regular review plans in FY2021
Major consideration points in developing quality control review plans based on theunderstanding of operation management system of audit firms are as follows:① Enhance 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 assessmentof individual engagements as well as the evaluation result of monitoring effectiveness conductedby audit firms.

29

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 the root
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.

COVID-19 pandemic impact on the FY2021 quality control review
Following FY2020, quality control reviews in FY2021 were conducted under unusual
circumstances due to the spread of COVID-19 pandemic. A series of announcements weremade by JICPA regarding audit considerations related to COVID-19 and remote workrelated issues. Under such circumstances, quality control reviews in FY2021 focused onwhether sufficient and appropriate audit evidences could be obtained by auditors at atime when preventive measures were taken against the COVID-19 pandemic. Other
measures were also implemented to conduct reviews amid the spread of pandemic, suchas adjusting visit schedules and checking situations of audit firms in advance to avoid the“three Cs (Crowded places, Close contact settings and Closed spaces). Depending on thesituation, JICPA conducted virtual reviews, used large conference rooms, and ensured
fresh air thorough ventilation as needed.

30

(2) Quality Control Reviews in FY2021
The following table shows the result of quality control reviews in FY2021:

Number of audit

Number of audit firms

firms reviewed

receiving review reports

76

(56)

75

11(Note6)

(13)

9

87

(69)

84

209

(206)

36％

(27％)

42％

(33％)

Regular reviews
Confirmation of improvement
status
Total
Number of audit firms subject
to regular review (Note7)
Percentage of audit firms
reviewed under regular review
Percentage of audit firms(Note4)(57)

Number ofcarried-overaudit firms

2

(1)

(13)

2

(-)

(70)

4

(1)

(Note5)reviewed(Note 1) FY2020 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 in FY2021; however, the deliberation andapproval of quality control review reports were carried over to the next year (hereinafterreferred as to the “carried-over audit firms”).
(Note 4) The number includes one audit firm carried over from FY2020 and excludes two audit
firms carried over to FY2022.
(Note 5) The number includes two audit firms carried over from FY2019 and excludes one audit
firm carried over to FY2021.
(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 represents audit firms subject to regular review as of April 1, 2021 (thenumber in parentheses is as of April 1, 2020).

The number of audit firms that went through a regular review in FY2021 at an interval
shorter than three years from the previous review as well as the number of audit firms
whose interval is more than three years but whose regular review schedule is extended
to FY2022 or after are presented below. The number of audit firms with an extended
review interval increased in FY2020, the previous fiscal year, amid the spread of pandemic.
Regular reviews were conducted in FY2021 for those firms, unless specific reasons were
provided.
FY2020

FY2021

5

10

29

12

Number of audit firms
with shorter review
interval
Number of audit firms
with extended review
interval

31

Breakdown of audit firms by size for those subject to regular reviews and those thatwent through regular reviews or confirmation of improvement status is as follows:[Breakdown of audit firms by size]
Number of

Number of audit firms that underwent:

audit firms
subject toRegular review

regular review

Listed company audit firms

Large-sized/
second-tier(Note2)
Over 10companies
5～9companies
Other
2～4
companies
Less than 2companies

Confirmation of
improvement status

9

(9)

4

(3)

-

(-)

20

(17)

8

(5)

3

(5)

26

(32)

9

(8)

3

(5)

50

(40)

21

(8)

2

(2)

32

(38)

10

(14)

1

(1)

Sub-total(Note3)

137

(136)

52

(38)

9

(13)

Other audit firms(Note4)

72

(70)

24

(18)

2

(-)

Total

209

(206)

76

(56)

11(Note5)(13)(Note 1) Number of audit firms in FY2020 are shown in parentheses.
(Note 2) Large-sized audit firms: Ernst & Young ShinNihon LLC / PricewaterhouseCoopers Aarata
LLC / KPMG AZSA LLC / Deloitte Touche Tohmatsu LLC
Second-tier audit firms: GYOSEI & CO. / BDO Sanyu & Co. / Grant Thornton Taiyo LLC /Crowe Toyo & Co. / PricewaterhouseCoopers Kyoto(Note 3) Includes the number of audit firms deregistered from the official roster of registered firms
in FY2021.
(Note 4) "Other audit firms" represent audit firms other than the listed company audit firms.
(Note 5) The number excludes one audit firm whose confirmation process was cancelled due to therefusal of a review.

32

(3) Initiatives for Improving the Effectiveness of Quality
Control Reviews
Quality control reviews have been conducted under the new system since July 2020 to
improve transparency and effectiveness. Major initiatives in FY2021 are as follows: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
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 with result without significant deficiencies appear to havedifficulties in voluntary improvement, the review team provides instructions for
improvement, such as providing advice to describe the root cause at the beginningof the recommendation report.
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 the business environment surrounding selected individual
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 the progress of remedial actions in the following year, the review
team ensures that the implementation of remedial actions by audit firms is not merely
a tentative treatment, but a fundamental solution for them, including a change inoperation management system.
③

Using a consultation system for subject matters
Subject matter experts (e.g. ethics, accounting, IT) are assigned to the Center for

Examination of Quality Control in the Quality Control Committee as members ofspecialized working groups, which are capable of providing technical insights as33

necessary throughout the quality control review process. In FY2021, the consultation
system was used in eight cases, compared to three in FY2020.
④

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

improvement plans developed 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 to review improvement plans as necessary. The approach andfrequency of such post-review instructions are determined based on the importanceof issues audit firms are facing and the capability of audit firms to improve issues on
their own.

(4) Results of Regular Reviews
FY2021 results of quality control reviews and associated measures represent those
deliberated and approved by the Quality Control Committee during the period from May
2021 to April 2022.
① Results of regular reviews
Regular reviews were conducted for 76 audit firms in FY2021, which resulted in“Result without significant deficiencies” of 69 audit firms, and “Result with significant
deficiencies” of five audit firms. ”Result with extremely significant deficiencies” wasnil. Two audit firms were carried over to the next year and no audit firm received“Disclaimer of conclusion.”
FY2021

FY2020Carried over to the next year

1
Result without
significant
deficiencies

52

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

2

1

significant

Audit firms

deficiencies

conducted
regular review

56

Result with extremely
significant deficiencies

Result withsignificant
deficiencies

2

69

0

Audit firms
conducted
regular review

76

Result withsignificant
deficiencies

5

As the number of audit firms that underwent regular reviews increased fromFY2020, the number of audit firms with result with Significant Deficiencies also
increased from three in FY2020 to five in FY2021. One of the three audit firms with34

result with Significant Deficiencies in FY2020 was originally subject to improvement
status confirmation in FY2021 but rejected a review. The other two audit firms were
excluded from audit firms subject to regular reviews due to a change in auditors.
There was one audit firm that underwent regular review in FY2020, whose quality
control review report issuance was carried over to FY2021 ending up with a result of
extremely significant deficiencies. The audit firm underwent another regular review
in FY2021, whose quality control review report issuance will be carried over to thenext fiscal year.
The five firms identified for their Significant Deficiencies seem to have the following
common root causes: little appreciation on culture that emphasizes the importanceof audit quality; chief executive officer’s lack of understanding relating to thenecessity of organizing the firm to conduct systemic audits; and the firm being unable
to conduct systemic audits due to resignations and time constraint. These root causes
typically result in deficiencies in the quality control system of an audit firm, such as
engagement partners failing to give proper instructions and supervision, insufficient
review of working papers, and poor engagement quality control reviews andperiodical inspections.
As a result of the above, all of the five firms also end up receiving a number ofrecommendations for improvement in focus areas for individual engagements,
including auditing accounting estimates and identifying, assessing and testing fraudrisks 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:35

[Breakdown by size of audit firms]（Unit: Number of audit firms）
Breakdown of review report type

Listed company audit firms

Large-sized/
second-tierOver 10companies
Other
5～9
than
large- companies
sized/ 2～4
second companies
tierLess than 2companies

Resultwithout
significant
deficiencies

Result withsignificant
deficiencies

Result withextremely
significant
deficiencies

Carriedover
audit
firms

4

(3)

-

(-)

-

(-)

-

(-)

4

(3)

8

(5)

-

(-)

-

(-)

-

(-)

8

(5)

9

(8)

-

(-)

-

(-)

-

(-)

9

(8)

-

(-)

1

(-)

21

(10)

16

(Note3)

(9)

4

(1)

(Note3)

Total

10

(14)

-

(-)

-

(-)

-

(-)

10

(14)

47

(39)

4

(1)

-

(-)

1

(-)

52

(40)

Other audit firms

22

(14)

1

(2)

(Note4)

(1)

1

(1)

25

(18)

Total

69

(53)

5

(3)

1

(1)

2

(1)

77

(58)

Sub-total

1（Note 1）FY2020 numbers are shown in parentheses.
（Note 2）Audit firms other than large-sized audit firms and second-tier audit firms are categorized
by the number of listed companies they audit.
（Note 3）The two audit firms that underwent regular review in FY2019 and were carried over to
FY2020 are included.
（Note 4）The 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 with professional
standards or applicable laws and regulations in the design and operation of a quality
control system of audit firms. It does not automatically mean there is a significant
compliance violation in auditing engagements or a doubt in the reasonableness of audit
opinions. For examples of significant deficiencies, please refer to Section I and II of"Explanation of Quality Control Review Cases in FY2021" (Japanese only).

36

② Focus areas and review results
Reviewers are required to check focus areas for regular reviews when conducting
on-site 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 shown in the table below.
（Unit: Number of audit firms）
Focus areas
1．Culture that emphasizes the quality of audit
engagement
2．Governance and management of audit firms
3．Hiring, education/training, evaluation andassignment of professional personnel
4．Professional ethics and independence(Rotation of engagement partners and teammembers)
5．Addressing Key Audit Matters
6. Wrap-up of audit files and management andretention of audit records

FY2019FY2020

FY2021

3

2

3

3

2

1

1

4

5

3

-

1

-(Note 2)---(Note 2)411（Note 1）Some audit firms received multiple recommendations for improvement.
（Note 2）Not applicable as these items were not identified as focus areas in FY2019.

In FY2021, six audit firms identified for their Significant Deficiencies (including one
carried-over audit firm from FY2020) received recommendations for improvement on“1. Culture that emphasizes the quality of audit engagement” and “2. Governanceand management of audit firms.” These recommendations were mainly due to thefollowing: lack of awareness among representatives of the audit firms about thenecessity of conducting systemic audits; and resignation of many partners, leading
to a weak operation management system and a lack of the firm’s capability inaddressing fraud risks.
Also, recommendations for improvement related to “3. Hiring, education/training,
evaluation and assignment of professional personnel” include comments aboutinconsistent evaluation standards for professional personnel with inadequate
evaluation process in place.

37

The number of recommendations for improvement related to “6. Wrap-up of audit
files and management and retention of audit records” increased in FY2021, many ofwhich were about inappropriate archiving practice within audit firms. For example, it
was unclear whether an audit firm completed archiving within a designated timeframe in accordance with its archiving policy simply because the actual date of thecompletion of archiving was never recorded.
b．Individual engagements
The following items were identified as focus areas in FY2021 for individual
engagements. The number of audit firms that received recommendations for
improvement by each focus area is presented below.
（Unit: Number of audit firms）
Focus areas
1．Key Audit Matters

FY2019FY2020--(Note2)

FY2021(Note2)-

2．Auditing accounting estimates

32

17

47

3．Identifying, assessing and addressing the riskof material misstatements due to fraud

3

2

5

19

16

32

46

15

27

3

2

-

-(Note2)32-(Note2)1-・Professional skepticism
・Revenue recognition
・Risk of management’s override of internal
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(Note 1）Some audit firms received multiple recommendations for improvement.
（Note 2）Not applicable as these items were not identified as focus areas prior to FY2021.

The number of audit firms that underwent regular reviews increased by 20 audit
firms, from 56 audit firms in FY2020 to 76 audit firms in FY2021. The number ofaudit firms that received recommendations for improvement related to focus areas
increased as well. Many of the recommendations for improvement were related to
the following areas as they were in FY2020.
Regarding ”2. Auditing accounting estimates,” recommendations were mainly
related to impairment accounting of fixed assets, including goodwill, as well as

38

accounting estimates, including valuation of loans receivable, valuation of inventories,
and allowance for doubtful accounts. For example, comments included lack of
capability to critically assess assumptions used by management and insufficientconsideration given on the methods used by management in developing accounting
estimates and their underlying data.
In ”3. Identifying, assessing, and addressing the risk of material misstatement due
to fraud,” many of the recommendations were related to ”Revenue recognition.”
Particularly, comments were given on insufficient audit procedures to address fraudrisks, failure to conduct audit procedures designed to test fraud risks, and lack ofaudit evidence with stronger corroboration. Also, recommendations related to "Riskof management’s override of internal controls,” which saw a declining trend in FY2020,
increased in FY2021. Many were related to journal entry testing, such as inadequate
assessment of fraud risk scenarios and failure to perform detail testing on extracted
journal entries.
The Quality Control Review Team provides instructions to audit firms to improvethese recommendations and follow up on remedial actions taken by the firms.

(5) Results of Special Reviews
In FY2021, 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 in a short time frame. Original financial statements
for the same period were audited by a predecessor auditor.
The purpose of the special review was to confirm whether quality control of the audit
firm (such as procedures of engagement acceptance, resource management ofprofessional personnel, and engagement performance) were properly operated.
Results of the special reviews, including the number of audit firms, are as follows:
FY2020

FY2021

ThemesMerger of audit firms

Auditor change

Audit of amended
annual securities
report for previous
years

Number ofaudit firms

1

6

1

ResultResult without
significant deficiencies

Result without
significant deficiencies

Result without
significant deficiencies

39

(6) Confirmation of Improvement Status① Confirmation of improvement status
The following represents a breakdown of 11 audit firms by the size of audit firms
whose improvement status was confirmed.
In addition to the table below, there was one audit firm that rejected a quality
control review in FY2021 and therefore was unable to confirm its improvement status.
（Unit：Number of audit firms）
Confirmation results
Result withinsufficient
improvement

Carriedover audit
firms

-

(-)

-

(-)

-

(-)

-

(-)

2

(4)

1

(1)

-

(-)

3

(5)

3

(4)

-

(1)

-

(-)

3

(5)

1

(1)

1

(1)

-

(-)

2

(2)

-

(1)

1

(-)

-

(-)

1

(1)

Sub-total

6

(10)

3

(3)

-

(-)

9

(13)

Other audit firms

-

(-)

-

(-)

2

(-)

2

(-)

Total

6

(10)

3

(3)

2

(-)

11

(13)

Large-sized/
second-tierOver 10companies
5～9companies
2～4
companies
Less than 2companies

Other

Listed Company Audit
Firms

Result without
insufficient
improvement

Total（Note 1）FY2020 numbers are shown in parentheses.

Like in FY2020, there were three audit firms with "Result with insufficient
improvement” in FY2021. Of the three audit firms with "Result with insufficient
improvement” in FY2020, one was subject to a regular review in FY2021 with ashorter review interval while another firm was confirmed for its improvement status
for two consecutive years. The remaining one audit firm was dissolved in FY2020.
②

Confirmation of remedial actions in writing
Improvement status reports submitted by audit firms are reviewed as follows. The

audit firm with insufficient improvement in FY2021 underwent confirmation of
improvement status in the same fiscal year and was carried over to FY2022.

40

（Unit：Number of audit firms）
FY2020
Number of audit firms that are subject
to the review of improvement status
reports
With
Number of audit firms withconcernconcerns of insufficientNo
improvement
concern60

FY202146(Note1)

1(Note2)

1

59

44

(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. The audit firm is subject to a regular review in FY2022.
(Note 2) As a result of reviewing a 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 withresult without significant deficiencies.

41

(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 and related measures
Result of quality
Measures (Note2)
FY2019FY2020control reviews
Results with
Recommendation to
extremely significant withdraw from audit
deficiencies
engagements
Recommendation towithdraw from audit
1
1
engagements(Insufficient improvement)
Severe warning
2
Sub-Total
3
1
Results with
Recommendation tosignificant
withdraw from audit
deficiencies
engagements
Recommendation towithdraw from audit
1
engagements(Insufficient improvement)
Severe warning
Severe warning
1(Insufficient improvement)
Warning
3
1
Sub-Total
3
3
Results without
significant
Warning
deficiencies with
1
1
(Insufficient improvement)
recommendation forimprovement
Total
7
5

FY2021
1

1
-

3
1
1
5

3

9

（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 was one audit firm in FY2019, two in FY2020, and one in FY2021, which were carriedover from previous years and whose measures were determined in FY2019, FY2020 and FY2021,
respectively. The result of quality control reviews and measures taken against those audit firms

42were “Qualified conclusion with warning” in FY2019, and “Unqualified conclusion with warning(Insufficient improvement)” and “Qualified conclusion with warning” in FY2020 and “Results withextremely significant deficiencies and Recommendation to withdraw from audit engagements” in
FY2021.

The following table shows measures taken as a result of refusal of review andconfirmation of improvement status.
（Unit: Number of audit firms）
Result of quality control reviews and related measures
Result of quality
Measures
FY2019 FY2020
control reviews
Refusal of review
Recommendation towithdraw from audit
engagements
Confirmation results
Recommendation towith insufficient
withdraw from audit
improvement
engagements
1(Insufficient
improvement)
Warning(Insufficient42
improvement)
Total
4
3

FY20211(Note 2)-34（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.

43

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
Results with extremely significant
deficiencies
Results with significant deficiencies

FY2019FY2020--3(Note2)--1

FY20211(Note1)1-(Note1 ) 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.
(Note 2) FY2019 column represents the number of audit firms reported to the Chairman when
“Negative conclusion” or “Qualified conclusion with concerns of extremely significant noncompliance” were expressed in FY2019 or before.

44

2.
Recommendations
for
Improvement
Related to Regular Reviews in FY2021
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
years are also included in the table.
【Breakdown of recommendations for improvement】
Number of recommendations for
improvement
Fiscal year

FY2020
FY2021

Qualitycontrolsystem of theaudit firm

Qualitycontrol ofindividual
engagements

Total

39
69

299
453

338
522

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

57
75

56
73

Individual
engageme
nts
selectedfor quality
controlreview

148
182（Note）Two carried-over audit firms from FY2019 are included in the FY2020 column, both of 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 one and 14,
respectively. Three individual engagements were selected for quality control review.
Likewise, 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.

(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.”

45

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

Result of reviews

Result without
significant
deficiencies
Result with
Significant
Deficiencies
Total

Number ofrecommendations for
improvement（A）
Average per
audit firm
（A/B）
49(25)

Number of audit firms that received
quality control review report(B)

Of which, number ofaudit firms withrecommendations for
improvement

0.7(0.5)

69(53)

23(21)

33%(40%)2)

3.3(3.5)

6(4)

6(4)

100%(100%)

69(39)

0.9(0.7)

75(57)

29(25)

39%(44%)20(14)(Note（Note 1）FY2020 figures are in parentheses.
（Note 2）Out of the total recommendations, 14 (7) led to Significant Deficiencies.
（Note 3）Two carried-over audit firms from FY2019 are included in the FY2020 column. One audit firm
received Qualified conclusion with one recommendation for improvement, and the other audit
firm received Unqualified conclusion without any recommendations. Likewise, one carried-overaudit firm from FY2020 is included in the FY2021 column, which received results with Significant
Deficiencies with eight recommendations for improvement.

【Audit firms that received quality control review report in FY2021】 75 audit firms【Result with Significant Deficiencies】【Result without significant deficiencies】
69 audit firms

Number of

Number ofrecommendation

Average number of49

recommendation

29%

71%

0.7

20

Average number ofrecommendations

recommendations
per audit firm

6 audit firms

per audit firm
Total number of

3.3

recommendations for
improvement
69！

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.”46

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 of “Overall system of quality control,” “Wrap-up of audit files andmanagement and retention of audit records,” “Monitoring the system of quality control”
and “Engagement quality control review” increased in FY2021 compared to FY2020.
【Occurrence rate of recommendations for improvement (Quality control system of
the audit firm)】
2020

20%
15%
10%
5%
0%

2021

Wrap-up of
Overall system

audit files andMonitoring theof quality

management

system ofcontroland retention ofquality control

Ethics andindependence

Engagement
qulity control
reviewaudit records
2020

9%

7%

7%

9%

5%

2021

17%

16%

9%

8%

7%

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 FY2021” (Japanese only).

(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.”47

【 Number of recommendations for improvement related to “Quality control ofindividual engagements”】

Result ofreviews

Result without
significant
deficiencies
Result with
Significant
Deficiencies
Total

Number ofrecommendations for
improvement(A)
Averageper audit
engagement（A/B）

Numberof auditfirms
thatreceived
qualitycontrolreview
report352(268)

2.1(1.9)69(53)

170(143)

118(93)

69%(65%)101(31)(Note2)

8.4(6.2)

6( 4)

12(5)

12(5)

100%(100%)453(299)

2.5(2.0)75(57)

182(148)130(98)71%(66%)

Individual engagements selected for
quality control review(B)
Of which, number ofengagements provided
with recommendations
for improvement(Note 1) FY2020 figures are in parentheses.
(Note 2) Out of the total recommendations, 14 (7) led to Significant Deficiencies.
(Note 3) Two carried-over audit firms from FY2019 are included in the FY2020 column. One audit firm
received Unqualified conclusion with one recommendation for improvement, and the otheraudit firm received Qualified conclusion with 13 recommendations for two selectedengagements. Likewise, 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 selected engagement.

【Audit firms that received quality control review report in FY2021】
75 audit firms (182 engagements)【Result without significant deficiencies】【Result with Significant Deficiencies】

Result of review

69 audit firms 170 engagements

6 audit firms 12 engagements
8%

Average number ofrecommendations per

Average number ofrecommendations per

Review

engagement

engagement

reports

2.1
Occurrence rate ofrecommendations for improvement

Number ofrecommendations

31%

8.4

75

92%

Occurrence rate of
Number of22%

recommendations for improvement

recommendations
101

352

78%

69％

Total number ofrecommendations foraudit engagements
453

48

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】(Information)This indicates

69 audit firms (170 engagements)that there were 51
engagements with norecommendation and 34

51

60

34

40

Number of

26

engagements with only one

20

20

19

3

4

more

20

engagements

recommendation.

0
0

1

2

than 5
Number of recommendation for selected engagements

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

47 audit firms (146 engagements)

22 audit firms (24 engagements)
1 1

18
11

50

9

Engagements by
number of
15 recommendations

21

1

Engagements by
number ofrecommendations

5
5

31

Number of recommendations

0

2

3

5

Number of recommendations

4

more than 5

0

1

2

3

4

more than 5

Average number of recommendations

Average number of recommendations

per engagement

per engagement

1.9

2.9

49

Major recommendations for improvement (Quality control of individual
engagements)
Among the recommendations related to quality control of individual engagements,“Auditing accounting estimates,” “Journal entry testing,” “Planning and performing
substantive procedures,” “Identifying, assessing and addressing the risk of material
misstatement, including fraud risk (except for journal entry testing)“ increased in FY2021
compared to FY2020.
【Occurrence rate of recommendations for improvement (Quality control of individual
engagements)】40%(注 1)「業務選定数に対する割合」 ＝
35%

2020
「各項目について改善勧告事項が生じた監査業務数」

2021「選定した監査業務数」

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

Identifying,assessing andaddressing thePlanning and

Auditing
accounting
estimate

Journal entry

performing

testing

substantive

risk of material
Audit evidence

misstatement
including fraud

procedures

risk (except forjournal entry
testing)

2020

25%

12%

9%

25%

10%

2021

37%

19%

16%

16%

14%

Number of engagements provided with(Note）”Occurance rate”＝

recommendations for each item
Number of selected engagements50

3. Overview of the Official Rosters(1) Registration on the Official Rosters
For the fiscal year from April 1, 2021, to March 31, 2022, seven audit firms were newly
registered through application reviews and five audit firms were deregistered due totermination of audit engagements with listed companies or for other reasons. Also, there
were no audit firms that were put on the list of deregistered firms during the relevant
period. As a result, there were 142 listed company audit firms as of March 31, 2022.
【Breakdown of the listed company audit firms】（As of March 31, 2022）
Audit Firm
118

CPAs（*）

Total

Registered firms
8
126
Associate registered13
3
16
audit firms
Total
131
11
142
（*）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 sign
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.

51

FY2019

FY2020

FY2021

Audit firms registered on theofficial roster of registered
5
11
3
firms
Audit firms registered on theofficial roster of associate
87
7registered audit firms
Numberofapplication
reviews to be registered as13
1320
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 are two audit
firms whose approval process of becoming registered firms or associate
registered audit firms are in progress as of March 31, 2022.

(2) Measures taken for the Registration on the Official
Rosters
During the period from April 1, 2021 to March 31, 2022, the Quality Control Committee
did not decide to take any measures against audit firms regarding the registration statuson the Official Rosters.

(3) Disclosures and Review Requests Related to Listed
Company Audit Firms
During the period from April 1, 2021 to March 31, 2022, 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
No audit firms were disclosed in the Official Rosters for their significant deficiencies

identified as a result of quality control reviews.
②

Disclosures of disciplinary sanctions against listed company audit firms
Two audit firms were disclosed in the Official Rosters for their disciplinary sanctions,which are described below:

52

Audit firms on which the CPAAOB recommended theCommissioner of the Financial Services Agency to1

impose administrative sanctions or other measures
Audit firms that received an order to improve businessby the Financial Services Agency
Audit firms that received disciplinary sanctions by
JICPA
③

－
1

Designation of auditors restricted from re-registration on the Official Rosters
In FY2021, no members were newly designated as auditors restricted from re-registration on the Official Rosters and two accountants were taken off from thedesignation list. As of March 31, 2022, 12 accountants remain to be designated asauditors restricted from re-registration on the Official Rosters.
④

Review requests made to the Review Board for Appropriate Procedures
In FY2021, no audit firms made new review requests to the Review Board forAppropriate Procedures with respect to registration status on the Official Rosters or
measures undertaken for the registration. Although the Listed Company Audit Firm
Registration and Complaint Review Committee (*), the previous review board, hadbeen 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 forAppropriate Procedures from October 1, 2019; however, no conclusions are yet madeas of the end of FY2021.
（*）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.

53

4. Future Action Plan
With an aim to improve the Quality Control Review Systems, JICPA started offering
quality control reviews based on the new system effective July 1, 2020. FY2022 will be
the third fiscal year under the new system.
As a series of amendments are made for international standards on quality
management and ethical requirements as well as “Quality Management Standards for
Audit” in Japan for the purpose of pursing an even more stringent audit, the Quality
Control Committee is determined to take the following actions in order to promote theQuality Control Review System in Japan.
1. Enhancing instruction capability
The Quality Control Committee has been enhancing off-site instructions in addition
to regular on-site reviews. Specifically, review teams are making effort in enhancing
communication through additional visits or calls after regular reviews are completed
to provide instructions to audit firms on developing effective improvement plans andimplementing remedial actions appropriately. More off-site instructions will be given
going forward even during the interval period of regular reviews.
2. Dealing with revisions to theManagement and Code of Ethics

International

Standardsof

Quality

The IAASB finalized “International Standards on Quality Management 1–Quality
Management of Audit Firms (ISQM 1),“ “International Standards on Quality
Management 2–Engagement Quality Reviews (ISQM 2),” and “International Standards
on Auditing 220 (revised)–Quality Management for an Audit of Financial Statements”
in September 2020. Also, the IESBA finalized the revision of the Code of Ethics inDecember 2020. In Japan, the “Quality Management Standards for Audit” was revisedby the Business Accounting Council in November 2021. Also, three exposure drafts,
i.e. the Quality Control Standards Committee Report No. 1 (Revised) “Quality Control
at Audit Firms,” the Audit Standards Committee 220 (Revised) "Quality Control in Audit
Engagement," and the Quality Control Standards Committee Report No. 2"Engagement Quality Reviews”, were released in March 2022.
3. Considering an approach for quality control reviews that aligns with thenature of audit firms
An appropriate quality control system varies depending on the nature of audit firms,
such as the complexity of the organizational structure, characteristic in business54

operations, relationship with network firms, and the nature of audit engagements.
Given the circumstances audit firms are facing as mentioned in the previous paragraph,
JICPA will continue exploring a suitable approach that aligns with the nature of audit
firms in order to provide more effective and efficient quality control reviews.
Specifically, the review team aims to identify risks corresponding to characteristics ofan audit firm and areas to be reviewed to address such risks for each component of
the Quality Control Review System. Also, the review team will develop a review planat an early stage of quality control reviews based on the characteristics of the audit
firm through an understanding of its operation management system.
4. Enhancing off-site monitoring
In principle, regular reviews are conducted every three years for an audit firm, whileboth external and internal environment surrounding the audit firm will change during
the three-year interval period. That said, in order to conduct the next regular review
more effectively and efficiently, it is essential to enhance JICPA’s off-site monitoring
during this interval period and identify major events and other significant changes.
5. Addressing the Discussion Summary of the Advisory Council on the
Systems of Accounting and Auditing
According to the “Discussion Summary of the Advisory Council on the System of
Accounting and Auditing (2021)” issued in November 2021, several issues were puton the table for discussion purposes in the areas of “Ensuring confidence in audit,”“Improving the capacity and capabilities of the CPAs,” and “Improving the environment
for high quality audit.” The Quality Control Committee is committed to secure andenhance confidence in accounting and auditing in response to "Improving the capacity
and capabilities of the CPAs" by taking the following measures: strengthening risk
approach in quality control reviews; fulfilling the responsibility as a self-regulatory bodyof accounting profession; and pursuing an aim to conduct better quality control reviews.

55

56