Internal Control

Internal Control

Fiscal 2020 Objectives Fiscal 2020 Achievements Self-Evaluation
  • Implement comprehensive design and operation of measures based on Basic Policy for Internal Control; complete those measures as initially scheduled
  • Design, improve, and assess internal controls according to key system changes
  • A subsidiary was found to be using inappropriate accounting procedures, and Sharp determined that this constituted a material deficiency that should be disclosed. As a result, three of the measures based on the Basic Policy for Internal Control could not be completed by the end of the fiscal year.
  • Documented and worked on improving issues in each internal control area, carried out internal control assessments, and submitted Internal Control Report in June 2021
Priority Objectives for Fiscal 2021
  • Implement 55 measures based on Basic Policy for Internal Control, including the three unattained measures of FY2020; assess and confirm the effectiveness of internal controls and take corrective action
  • Re-design internal control across the Sharp Group, including the subsidiary found to have used inappropriate accounting procedures; confirm operation of the Sharp Group’s internal controls, and complete corrective actions
  • Self-evaluation: ★★★ Achieved more than targeted / ★★ Achieved as targeted / ★ Achieved to some extent

As one way to ensure that its corporate governance is functioning effectively, Sharp is developing and maintaining its internal control system to ensure the properness of business activities of the entire Sharp Group based on the provisions of Japan’s Companies Act and of the Internal Control Report System falling under the Financial Instruments and Exchange Act.

In response to the enforcement of the Companies Act in 2006, the Board of Directors passed a resolution to adopt a basic policy related to the development of the systems for ensuring the properness of business activities (internal control system). Sharp is working to properly design and operate those systems. In accordance with this policy, Sharp also established the Internal Control Committee to serve as an advisory panel to the Board of Directors. The Internal Control Committee discusses various policy measures related to the internal control system, while also affirming their design and operation.

Sharp also thoroughly affirms the design and operation of various measures in line with the Basic Policy for Internal Control, and it makes sure the measures are established across the company. In addition, in response to the Financial Instruments and Exchange Act, Sharp has been assessing the effectiveness of its internal control over financial reporting. It has also taken steps to reduce various business risks and increase the effectiveness of its internal control system.

In fiscal 2020 as well, Sharp implemented various measures to boost the control functions of each internal control area as well as the efficiency of assessments. Sharp also mounted intensive efforts to resolve material issues (problems) discovered in the assessments and it submitted an Internal Control Report in June 2021.

For fiscal 2021, Sharp will continue to respond rapidly and flexibly to accelerated structural reforms (e.g., spinning off and/or adding subsidiaries) including those at affiliated companies in Japan and overseas, document and work on improving issues in each internal control area, and conduct assessments of internal control over financial reporting.

Internal Control System (As of June 2021)

Inappropriate Accounting by Subsidiaries

Background

Inappropriate accounting practices, such as recording sales that did not meet sales accounting criteria, were identified at Sharp’s consolidated subsidiary, Kantatsu Co., Ltd., and its subsidiaries. In response, in March 2021, Sharp corrected its financial statements by removing these sales from its accounting records, amending loss from inventory revaluation and impairment for fixed assets, and making other necessary adjustments to its consolidated financial statements. Also, as a result of this situation, Sharp concluded that its financial reporting-related internal control for fiscal 2018 and 2019 was ineffective and has made revisions accordingly to its Internal Control Report. It has further been concluded that the company’s internal control for fiscal 2020 is also ineffective.

Sharp deeply regrets the inconvenience and uncertainty that this situation has created for its shareholders, investors, and other concerned parties, and it is enacting the following measures to prevent a reoccurrence and to win back trust.

Reoccurrence Prevention Measures

The following improvement measures are being implemented based on the conclusions of the investigation committee’s report and the results of causal analysis carried out by Sharp.

  • Raise compliance-related awareness, particularly accounting standards-related compliance, and strengthen accounting-related expertise
  • Promote more robust checks and balances; ensure thorough procedural compliance; strengthen auditing and monitoring
  • Strengthen the systematic management, monitoring, and auditing of subsidiaries by Sharp