The Nikon Group is establishing the basic policy in internal control system as well as improving and enhancing its internal control system - in areas including the compliance framework, the internal audits, the information management, and the risk management - in order to ensure effective and efficient operations, reliable financial reporting, and preservation of assets, in addition to compliance with relevant laws and regulations.
Measures to Enhance the Internal Control System
- Strengthened System for Deliberation, Resolution, Communication and Reporting
- In 2005, Nikon further overhauled the structure of the management committees engaged in the deliberation, resolution, communication and reporting of business matters and revised rules related to the delegation of authority in divisions in order to further enhance the Group's internal controls.
- Internal Auditing
- The Internal Audit Department operates independently of other operations departments and is under the direct control of the president of Nikon Corporation. Based on annual auditing plans, it audits the operations of each department in the Nikon Group to see if they are being appropriately controlled in compliance with laws, company rules, and other regulations, and makes recommendations for improvement.
In the year ended March 31, 2009, in addition to conducting audits on the themes listed in its audit plan, the Internal Audit Department evaluated both the company-level and process-level internal controls of Nikon Corporation and Group companies under the J-SOX Law, as an independent evaluation department.
Moreover, in order to enhance internal controls in overseas Group companies, an internal audit section was established within Nikon Holdings Europe B.V. in September 2008. This section is to conduct internal audits on Group companies in the Europe region.
- Information Resources Management
- Information management is being further strengthened. Based on the Information Security Improvement Plan, access control and security pertaining to the Group's internal network was further tightened as of April 2007. Also, based on Guidelines for Confidentiality Classifications instituted in February 2006, efforts to increase the effectiveness of Nikon's information management have been continued.
The conventional Information Management Regulations were replaced with new Nikon Group Information Management Rules in April 2008. This was a revision aimed to control information management of the entire Nikon Group. The new regulations are applicable to all Nikon Group companies. They set the Nikon president as a chief executive of Nikon Group information management. They also rule that the top person of each Nikon Group company should have executive and supervisory responsibilities for information management of his company.
- J-SOX compliance
- The so-called J-SOX Law came into force in April 2008. To ensure compliance with this law, the Nikon Group has been implementing measures to build an internal control system mainly though its J-SOX Establishment Project Team founded in January 2007.
In the year ended March 31, 2009, Nikon Corporation presented to consolidated Group companies the internal control improvement criteria to be met by Group companies by the end of the term, and subsequently checked the progress made by each of the companies.
Nikon Corporation and major domestic and overseas Group companies have been making efforts to build and improve process-level internal controls, including those for sales, procurement, production, accounting, and IT processes, since the foundation of the aforementioned project team. In the first year of the enforcement of the J-SOX Law, these companies evaluated their own progress with regard to the process-level internal controls as well as operation of the internal controls.
In the year ending March 31, 2010, we will make further progress in internal controls based on the results of internal control evaluations for the previous fiscal year. We will move forward to establish a sustainable internal control structure by implementing measures to stabilize the quality of internal controls over financial reporting and major business processes and to reduce the time and cost required for internal controls.
* J-SOX Law: Informal name given to the Japanese version of the U.S. Sarbanes-Oxley Act (SOX). The importance of internal controls had been highlighted following a series of fraudulent financial reports and other incidents of corporate misconduct in recent years. In order to secure reliability in financial reporting by companies, the Financial Instruments and Exchange Act was enacted in June 2006 in Japan, requiring the evaluation and audit of internal controls over financial reporting. Known as J-SOX, this legislation came into force in April 2008.
