Internal Control System
Epson's Management Philosophy outlines the vital business principles to which the global Epson Group is committed, while Epson's Principles of Corporate Behavior describes the conduct required to live up to these principles. Epson takes actions to steadily improve internal control across the entire Epson Group.
The Epson Group is managed based on the concept: global consolidated responsibility of product-based divisions; and global responsibility of the Head Office supervisory functions. The head of the business operations divisions take the responsibility for the business execution systems of subsidiaries, and the head of Head Office supervisory sections take the responsibility for Group-level corporate functions. With this system, Epson strives to streamline operations throughout the Epson Group, including subsidiaries.
Compliance and Risk Management
Seiko Epson has transitioned to a company with an Audit & Supervisory Committee after receiving approval for the move at its June 2016 general shareholders'meeting. The company revised the composition of its Compliance Committee and the role of its Chief Compliance Officer (CCO) in conjunction with this change.
Under the current organization, the Compliance Committee, which acts as an advisory body to the Board of Directors and is chaired by a Full-Time Audit & Supervisory Committee Member, discusses important compliance activities, reports and proposes compliance affairs to the Board of Directors, and supervises business affairs. The CCO supervises and monitors the execution of all compliance operations, and periodically reports the state of compliance affairs to the Compliance Committee. In addition, a compliance control department and a risk management department 1) monitor compliance in general, making corrections and adjustments as necessary, and 2) take action to mitigate risks by regularly monitoring risks and overseeing risk management activities.
Meanwhile, the Corporate Strategy Council, an advisory body to the president, strives to ensure the effectiveness of compliance and risk management by deliberating important matters related to compliance and risk management from various angles. When major risks become apparent, the president leads the entire company in mounting a swift initial response in line with the Company's prescribed crisis management program. The president periodically reports the state of compliance affairs and important risk management affairs to the Board of Directors and, when needed, takes measures to respond to issues.
Epson is committed to maintaining effective whistleblower systems and has installed internal and external compliance hotlines and other advisory and support services to facilitate the reporting of potential compliance issues. We have also provided reporting channels for use by our business partners, to quickly catch any potential compliance problems that could go undetected internally.
Epson's internal audit departments audit a total of 103 business units around the world, including operations divisions in Japan, 56 overseas subsidiaries, and 14 domestic subsidiaries. Audits are used to check compliance and the effectiveness and efficiency of their risk management, internal controls, and management methods. If issues are found, the Audit Office helps minimize business risks by conducting a follow-up audit to check the status of improvements. To ensure effective Group governance, the Office also centrally oversees internal audits conducted by auditors at regional headquarters in Europe, the Americas, China, and Southeast Asia.
Business units come up for audit once every three years based on the Audit Office's mid-range audit plan. In the 2017 fiscal year, the Audit Office performed 33 operational audits and 26 information system audits of Epson business units, and provided them with advice on correcting 187 items that required improvements.
Internal Controls over Financial Reporting
Every year, we audit internal controls to ensure the reliability of financial reporting (J-SOX). The Epson Group uses an autonomous distributed implementation system in which operations divisions and subsidiaries subject to external audits conduct a self-assessment on the design and operation of their internal controls, while the J-SOX Compliance Department ensures the validity of the assessment results. Operations divisions, subsidiaries, and affiliates not subject to external audits are required to independently assess their internal controls and make such improvements as are necessary.