Nidec Announces Material Weakness About Nidec’s Internal Control Over Its Financial Reporting and Its Corrective Actions Implemented
19 June 2024 - 6:36PM
Business Wire
Nidec Corporation (TOKYO: 6594; OTC US: NJDCY) (the “Company”)
announces today that the Company has stated in the internal control
report for the fiscal year ended March 31, 2024, submitted on June
19, 2024 to the Kanto Local Finance Bureau in accordance with
Article 24-4-4(1) of the Financial Instruments and Exchange Act,
that the Company has identified a material weakness and that the
Company’s internal control over financial reporting is not
effective, as described below. The contents of Section 1, “Details
of the material weakness” below are the same as the amended
internal control report issued on May 24, 2024 for the fiscal year
ended March 31, 2023; however, as the measures have been afterwards
implemented to correct and prevent the recurrence of the material
weakness, the aforementioned measures are described in Section 3,
“Correction policy for the material weakness,” herein.
- Details of the material weakness It became clear that, at Nidec
Drive Technology, a consolidated subsidiary of the Company, the
wrong data was identified for part of the adjustment, such as sales
accompanied by transactions between consolidated subsidiaries of
the Company’s business group in its consolidated account closing
procedure, resulting in sales recorded in an inflated manner. As it
became necessary to cancel the sales amount recorded in an inflated
manner, the Company came to the conclusion that it should correct
the financial results of the fiscal year ended March 31, 2023. The
Company’s rules on internal control over its account closing and
financial reporting processes are that journals prepared by their
issuers must be approved by someone with approval authority.
Nonetheless, this error occurred because of insufficient
communications among concerned organizations, which led to an
insufficient understanding of the proper and comprehensive
information that is necessary when identifying cases that require
adjustments, and also to an insufficient system to monitor book
closing. As a result, the Company was unable to discover this
material misrepresentation. This is how the Company decided that
this error is a material weakness in the internal control over its
account closing and financial reporting processes.
- Reasons as to why corrections could not be made by the end of
the consolidated fiscal year Corrections could not be made by the
end of the consolidated fiscal year because the aforementioned fact
became evident after the end of the consolidated fiscal year ended
March 31, 2024.
- Correction policy for the material weakness The Company
sufficiently understands the importance of internal control over
financial reporting. Therefore, to correct the material weakness,
the Nidec Group decided to promptly design and implement recurrence
prevention measures such as a multiple viewpoints-based
verification of the book-closing process and having the person with
approval authority introduce a stricter approval procedure, to
secure the reliability of its financial reporting. Based on this
policy, during the period from the end of the fiscal year ended
March 31, 2024 to the date of the internal control report, the
Company launched the following recurrence prevention measures to
correct material weaknesses. (1) Thoroughly review consolidated
closing entries included in documents disclosed in past fiscal
years and in corrected consolidated financial statements, to
identify other related issues, and to better process and present
accounts. - The Company conducted a trend analysis of past
consolidated closing entries, and a thorough review of the past and
current fiscal years’ consolidated closing entries, that have
similar features as those with the aforementioned material
weakness. (2) Update the Company’s policy on its consolidated
account closing procedure, enhance the system to understand the
proper and comprehensive information when identifying
adjustment-requiring cases that are related to transactions between
consolidated subsidiaries, and hold lectures focused on the
verification of consolidated book closing and on the approval
process by those with approval authority. - The Company made a
consolidation adjustment manual, and updated its policy for
consolidation procedure. - The Company changed its structure to
establish a system where organizations including those other than
the accounting department gather information comprehensively. - The
Company held lectures on consolidation procedure. (3) Enhance the
comprehensive monitoring function of the Company’s and its
subsidiaries’ accounting and financial managers over the
consolidated account closing procedure, and enhance the reviewing
and approval procedures on the coordination of transactions between
consolidated subsidiaries in account closing and financial
reporting processes. - The Company designed a system to
comprehensively monitor the consolidated account closing procedure
by the Company’s and its subsidiaries’ accounting and financial
managers, and improved its approval procedure.
- Impact of the material weakness on the Company’s consolidated
financial statements All the necessary corrections attributed to
the aforementioned material weakness are reflected in the Company’s
consolidated financial statements.
- Audit opinions in the consolidated financial statements’ audit
report They are unqualified opinions.
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Teruaki Urago General Manager Investor Relations +81-75-935-6140
ir@nidec.com