Internal Audits/Internal Controls

Internal Audits

As a matter of basic policy, the Internal Audit Department conducts internal audits that contribute to management and the departments being audited. Internal auditors monitor the business activities of each department as a group directly reporting to the President that is independent from any other department.
The Internal Audit Department carries the dual responsibilities of conducting internal audits and evaluating internal controls.
During internal audits, the business activities of each department and Group company are audited. These audits are generally performed on-site every year, and the results are summarized in an internal audit report and distributed to both management and the departments under audit. In 2023, these audits were instead conducted through a combination of virtual and in-person visits at 74 offices and departments.
During evaluations of internal controls, internal controls related to financial reporting are evaluated based on the Financial Instruments and Exchange Act. With the release of internal control reports, management evaluates the effectiveness of internal controls and undergoes an audit by accounting auditors on an annual basis. In 2023, the overall internal controls were evaluated at 22 locations, and the internal controls related to business processes were evaluated at 12 locations.

Internal Controls

Basic Policy for Internal Controls

In accordance with the Companies Act and the Ordinance for Enforcement of the Companies Act, the corporate group that is composed of THK and its subsidiaries (hereinafter referred to as the "THK Group") maintains controls as outlined below to ensure the appropriateness of its business (hereinafter referred to as "Internal Controls").

1. Controls to ensure that the execution of duties among THK Group directors and employees conform to laws and the articles of incorporation
In order for THK Group executives and staff to execute their duties in accordance with laws, the articles of incorporation, and healthy social norms, we formulate and disseminate the THK Corporate Basic Policies and THK Group Action Charter. Through the CEO's efforts to continuously impress the spirit of these policies upon THK Group executives and staff, we ensure that all corporate activities are predicated on legal compliance. In order to make legal compliance and corporate ethics the basis for our corporate activities, we establish a Compliance Committee and Risk Management Committee chaired by the CEO. We establish compliance subcommittees that are subordinate to the Compliance Committee and comprise members representing each business division. In addition to including outside directors and experts as observers, the Compliance Committee and Risk Management Committee maintain compliance and risk management structures across the THK Group, and they identify problems and issue directions for improvement. We establish and utilize the THK Group Helpline as a means for executives and staff at Group companies in Japan to anonymously or non-anonymously provide information about legally questionable acts directly to the relevant internal department or external expert.

2. Matters concerning the storage and management of information related to the execution of director duties
We record and save physical documents or electronic media (hereinafter referred to as "Documents") containing information related to the execution of director duties in accordance with rules regarding document control and confidentiality. Our directors are able to view these Documents at all times. In order to use and manage information appropriately, we establish an Information Security Committee chaired by the CEO.

3. Regulations and other controls concerning the risk of loss for the THK Group
For risks concerning matters such as compliance, the environment, disasters, quality, information security, export control, and novel influenzas, the relevant departments formulate rules and guidelines, conduct training, and create and distribute manuals. In addition, we establish the Risk Management Department to monitor and respond to risks throughout the company. For new risks that arise, the Board of Directors promptly appoints a director or executive officer as the person responsible for the response. In addition, the THK Group formulates a business continuity plan (BCP) and disseminates its contents to executives and staff in order to continue operations in the event of a major earthquake. Furthermore, the Internal Audit Department performs audits on the risk management structure at each company in the THK Group. We establish a Risk Management Committee chaired by the CEO, which maintains the risk management structure across the THK Group based on the risk management regulations specified by the Board of Directors. The Risk Management Department regularly collects and identifies risks related to the THK Group, analyzes and evaluates their likelihood and impact, and reports the results to the Risk Management Committee.

4. Controls to ensure the efficient execution of duties among THK Group directors
The Board of Directors specifies medium- to long-term, company-wide management targets and management plans shared among THK Group directors, executive officers, and employees. The THK Group directors, executive officers, and others responsible for management participate in a Global Management Strategy Meeting, which they utilize for managing and supervising the progress of these goals. In addition, by establishing and introducing an executive officer system in accordance with the articles of incorporation, we have endeavored to accelerate decision-making and operational execution; improve the management oversight function of the Board of Directors and clarify roles and responsibilities relating to the management of corporate affairs; and determine a system for efficiently executing work, including enacting specific policies and distributing authority within each division. The Board of Directors conducts monthly and quarterly progress reviews and urges improvements to be made as necessary. In this way, we establish a system for improving operational efficiency throughout the company. We also establish the THK Group Basic Financial Policy, which concerns financial management for the entire Group, and we introduce accounting and group finance systems that are shared throughout the Group in order to expedite work related to consolidated statements and make fund management more efficient. In order to ensure the appropriate and efficient execution of duties among THK Group directors, each THK Group company maintains internal regulations related to the division of administrative responsibilities and authorities to clarify the authority and responsibility of each executive and staff member.

5. Controls to ensure the appropriateness of THK Group operations
We establish a Risk Management Department as the department responsible for the Internal Controls of the THK Group, creating a structure that includes systems for efficient consultation, information sharing, and communication of directives and requests related to Internal Controls throughout the THK Group. Each THK director and THK Group company president carries the authority and responsibility to establish and manage Internal Controls in each division. Furthermore, the Internal Audit Department conducts internal audits in the THK Group, reports on those results to THK directors and the president of each THK Group company, and communicates matters involving Internal Controls to the Risk Management Department. Upon receiving a report from the Internal Audit Department, the Risk Management Department gives instructions to each THK Group company as needed and provides support and advice on the execution of measures to improve Internal Controls. In addition, we establish, maintain, and manage regulations for internal control over financial reporting, which apply to the entire THK Group, as a structure to guarantee the reliability of financial reporting.
We regularly convene the Global Management Strategy Meeting, which is attended by THK Group directors, executive officers, and other persons of authority. These individuals report on the state of the business and other important matters. In addition, we establish regulations for managing affiliated companies, which require all THK Group companies to regularly report to THK on their business results, financial situation, and other important matters.

6. Matters related to ensuring the effectiveness of structures relating to employees whose appointment was requested to assist the Audit and Supervisory Committee, the independence of those individuals from directors (excluding directors who are Audit and Supervisory Committee members), and directions issued to those individuals
We establish the Audit and Supervisory Committee Secretariat and appoint employees exclusively to that structure in order to assist the smooth functioning of the Audit and Supervisory Committee.
The employees assigned to the Audit and Supervisory Committee Secretariat are exclusively permitted to perform work related to the Audit and Supervisory Committee, and they do not take instructions or directions from directors who are not Audit and Supervisory Committee members. These individuals follow the instructions and directions of the Audit and Supervisory Committee, and any decisions on personnel transfers and other matters related to human resources must be executed in agreement with the Audit and Supervisory Committee. In this way, we ensure independence from executive bodies and that instructions given by the Audit and Supervisory Committee to employees assigned solely to the Audit and Supervisory Committee are effective.

7. Structure for directors, employees, or individuals receiving a notification from such persons to report to the Audit and Supervisory Committee
THK Group directors (excluding directors who are members of the Audit and Supervisory Committee), executive officers, and employees respond to requests for business reports from the Audit and Supervisory Committee, business surveys, and asset surveys expediently and accurately.
In the event that a THK director (excluding directors who are members of the Audit and Supervisory Committee), executive officer, or employee discovers a legal violation or a fact that could result in great harm to the THK Group, that individual shall immediately report to the Audit and Supervisory Committee. We set the Audit and Supervisory Committee as a point of contact through the THK Group Helpline that THK Group executives and employees in Japan can use to make reports.
In the event that the Audit and Supervisory Committee requests a report, the Internal Audit Department reports on the results of THK Group internal audits and the status of other activities.
In the event that the Audit and Supervisory Committee requests a report, the Risk Management Department submits the contents of reports received through the THK Group Helpline and reports regarding compliance in the THK Group.
In order for this Basic Policy to function effectively, the Internal Audit Department and Risk Management Department regularly report to the Board of Directors on the maintenance and management of the matters provided herein.

8. Controls for ensuring that no one receives unfavorable treatment on the basis of their having made a report to the Audit and Supervisory Committee
We do not treat any THK Group director (excluding directors who are Audit and Supervisory Committee members), executive officer, or employee unfavorably on the basis of their having made a report, directly or otherwise, to the Audit and Supervisory Committee.

9. Matters relating to the policy for advance payment or reimbursement of expenses arising from the execution of duties among directors who are Audit and Supervisory Committee members and the processing of expenses or debts arising from the execution of other such duties
We promptly process the expense or debt when we are invoiced for expenses arising from the execution of duties among directors who are Audit and Supervisory Committee members, excluding when it is determined that the expense was not necessary for the execution of duties for the director in question. In addition, we establish an annual budget of a certain amount for expenses arising from the execution of duties among directors who are Audit and Supervisory Committee members.
We shall bear the expenses when a director who is an Audit and Supervisory Committee member independently requests the use of an external expert for the sake of executing their duties, excluding when such expenses are not necessary for the execution of duties for the director in question.

10. Other controls for ensuring effective auditing by the Audit and Supervisory Committee
We maintain a structure in which the Audit and Supervisory Committee regularly exchanges opinions with the CEO, directors (excluding directors who are Audit and Supervisory Committee members), executive officers, and accounting auditors in order to achieve close collaboration. Furthermore, we maintain a structure in which the Audit and Supervisory Committee regularly holds meetings with auditors at subsidiaries in order to achieve close collaboration with those auditors.