April 1, 2022
Ohwa & Co.
General Representative Partner Masateru Sawada
Introduction.
On March 31, 2017, the “Principles for the Organizational Management of Audit Firms” (hereinafter referred to as the “Governance Code”) was released by the Expert Panel on Governance Codes for Audit Firms. The Principles were formulated with “the organizational management of large audit firms, which are responsible for auditing major listed companies and consist of a large number of members, in mind” and include items that are difficult or inappropriate for small and medium-sized audit firms. Therefore, Ohwa & Co. does not apply the Governance Code as it is. However, Ohwa & Co. has been implementing various measures in line with the purpose of the Governance Code in a manner suitable for our organization since before the Code was published. We believe that understanding the purpose of the Governance Code and implementing measures that will have the same effect as if the Governance Code were adopted will be extremely useful in maintaining and improving the appropriate management of audit firms and the quality of audits. The Company is committed to providing the highest quality products and services to its customers. Below is an explanation of the specific measures taken by Ohwa & Co. in accordance with the contents of the Governance Code.Ohwa & Co’s Approach to the Content of the Governance Code
1.Role to be played by the audit firm
Governance Code Content
Audit firms have a public interest role to contribute to the sound development of the national economy by ensuring the reliability of corporate financial information and protecting capital market participants through accounting audits. In order to fulfill this role, audit firms should encourage free and vigorous discussion and mutual enlightenment by their members, fully demonstrate their abilities, and continuously improve the quality of accounting audits as an organization.
Ohwa & Co’s Approach
- At Ohwa & Co., “Certified Public Accountants, as audit and accounting professionals, are responsible for ensuring the reliability of financial documents and other financial information from an independent standpoint, thereby contributing to the sound development of the national economy by ensuring the sound business activities of companies and other entities and the protection of investors and creditors. We are committed to maintaining and improving the quality of our audits in accordance with the mission of certified public accountants as stipulated in Article 1 of the Certified Public Accountants Act. We believe that this does not mean merely conducting audits rigorously and providing critical guidance, but that we should contribute to the “sound development of the company” by conducting audits with both a “guiding function” and a “critical function”.
- In addition, as an organization with less than 50 members, including 6 partners, we are in an environment where all members are visible to each other, and we take advantage of this advantage to foster a culture where each member communicates closely with each other on a daily basis, respecting but also criticizing each other.
- In accounting audits, we always consider it most important to “properly understand the facts of things. As the economic activities of companies have become more extensive and complex, it has become increasingly important to verify the facts more deeply and carefully. At Ohwa & Co., one of the most important guidelines for the quality of accounting audits is to always “properly understand the facts of things” without being swayed by audit tools, and this guideline is communicated by the top management. We are committed to raising awareness.
- While giving top priority to audit work, we actively perform non-audit work because we believe that deepening the knowledge and experience of our members through non-audit work contributes to the performance of high-quality audit work.
2.organizational structure
Governance Code Content
Audit firms should perform effective management functions to achieve systematic operation of the entire firm for sustainable improvement of accounting and auditing quality.
Ohwa & Co’s Approach
- As mentioned above, Ohwa & Co. has a relatively simple organizational structure and does not require the establishment and operation of a special management body because the size of the firm is such that all members can see each other and there are only six partners. Therefore, the management of the firm is centered on the Representative Partners’ Meeting, which is composed of two representative partners, and is managed by sharing and monitoring the status of business execution at the Partners’ Meeting.
- The representative partner always performs audit work, and frank and in-depth exchanges of opinions are held at the Representative Partner Meeting and the Partner Meeting regarding “contents of external environment analysis” and “internal environment analysis (including performance trends and management issues) obtained through management discussions, etc.” of each audited company (client), as well as discussions and information sharing with other members.
- In addition, important matters in the audit work are “critical review matters” in accordance with the Corporation’s regulations, and the decisions of the audit team are reviewed by the Board of Partners and concluded after a lively discussion.
- Each member individually sets goals for various indicators set by the corporation, meets with a partner once a year to discuss the degree of achievement and future career aspirations, and feeds the results back to the member for his/her own work assignments and the corporation’s overall policies.
- We are constantly examining the effective use of information technology to improve the efficiency of auditing operations and to realize in-depth audits.
- In order to manage the corporation in an organized manner, each partner is not limited to individual audit practice, but feeds back useful information that should be shared to the corporation’s management, keeping in mind appropriate audit corporation management.
3.organizational structure
Governance Code Content
The audit firm should supervise and evaluate the effectiveness of management functions from a standpoint independent of the audit firm’s management, and through this, ensure that the function of the audit firm is to support the effective performance of management.
Ohwa & Co’s Approach
- As mentioned above, Ohwa & Co. has a relatively simple organizational management due to the size of the organization, in which all members are visible to each other, and the number of partners is as few as six.
- However, outside lawyers, accountants, and other experts are appointed as corporate advisors, and a system is in place to receive appropriate advice from them on the effectiveness of management functions as needed.
4.business management
Governance Code Content
The audit firm should develop a work system for effective organizational management. It should also strengthen the development and securing of human resources, and actively exchange opinions and engage in discussions to improve the quality of accounting audits within the firm and with the audited company, etc.
Ohwa & Co’s Approach
- At Ohwa & Co., top management’s ideas are conveyed to all members at regular training sessions and general meetings attended mainly by all members, and discussions are held to promote two-way communication regarding the maintenance and improvement of audit quality. In addition, when executive staff members work together with members in the field, they freely and openly exchange opinions and engage in discussions.
- Each member’s compensation is based on the salary table used at Ohwa & Co., and is determined by taking into account “skills related to the exercise of professional skepticism,” “knowledge related to auditing,” “experience,” and other factors, the details of which are fed back at the annual partner interview.
- The staff member in charge of assigning audit staff is committed to assigning appropriate personnel to appropriate tasks, paying attention to ensuring appropriate audit quality in accordance with the situation of each audited company and to enabling each member of the staff to acquire a wide range of knowledge and experience.
- In addition to formal communication with senior management and auditors of audited companies through management discussions and other means, we also engage in informal communication as needed to exchange candid and in-depth views on audit risks and other issues. We also engage in a thorough exchange of opinions with audited companies at the audit site level as well.
- Because Ohwa & Co. is a flat organization with less than 50 members, we do not have an internal reporting system. However, we encourage cooperation among members through regular training sessions and other informal communication, and if there is any problem, the information is immediately communicated to upper management.
5.Business operations (ensuring transparency)
Governance Code Content
Audit firms should ensure sufficient transparency so that capital market participants and others can appropriately evaluate the application of the Principles. In addition, the audit firm should utilize internal and external evaluations of the firm’s efforts to improve organizational management.
Ohwa & Co’s Approach
- Ohwa & Co. has less than 50 members and does not have as many clients as large audit firms. Therefore, we do not prepare “transparency reports” that are intended to be disclosed to the public.
- However, with regard to efforts to maintain and improve audit quality, we compile the contents of the matters concerning the performance of duties by accounting auditors as stipulated in Article 131 of the Corporate Calculation Regulations and communicate them to corporate auditors and other officers and employees every fiscal year, and actively exchange opinions with them. The company explains the situation in detail. The useful advice and knowledge obtained through these activities are used to improve Ohwa & Co.’s organizational management.
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