Annual Report 2008

ANNUAL REPORT 2008accounts. Accordingly, the corporate auditors examine andmonitor the state of operations and Group assets through anumber of activities. These include attending the meetings ofthe Board of Directors and the Management Committee,examining important documents, holding periodic meetingswith the representative directors, and auditing KHI’s divisionsand subsidiaries. In addition, the two outside corporate auditorson the Board of Auditors, who have no transactions orother relationships that represent a conflict of interest, performtheir surveillance duties as neutral and objective thirdparties. The internal corporate auditors share informationwith the outside corporate auditors and work to enhance theeffectiveness of their management surveillance functions.Please note that the contracts signed between theCompany and the outside corporate auditors, the scope ofwhose authority is based on Article 427-1 of the JapaneseCorporate Law and Article 43 of KHI’s Articles of Incorporation,provide for a limit on compensation to the outside auditors ofthe higher of ¥10 million or the amount stipulated in Article425-1 of the Corporate Law (the equivalent of two years’compensation paid to the corporate auditors).Moreover, KHI has appointed KPMG AZSA & Co. as itsindependent public accounting firm, and this firm conductsaudits of the Company’s financial statements. The corporateauditors and the Board of Auditors receive reports regardingthe accounting audit, including the outline of the audit plansof the independent accounting firm, the items the accountingfirm selects for particular focus, and other matters. In addition,the Board of Auditors explains the Company’s auditingplans to the independent public accounting firm. Reports onthe results of audits by the accounting firm are presentedperiodically (twice annually), and the corporate auditors andthe accounting firm work closely together, exchanging informationand opinions. As deemed necessary, the corporateauditors attend the audits conducted by the independentaccounting firm and receive reports from time to time fromthe accounting firm.Moreover, separately from the auditing activities previouslymentioned, which are based on the Corporate Law, KHI’sAuditing Department, which acts as the internal auditing unit,monitors the overall conduct of management activities withinthe KHI Group and carries out audits on a continuing basis ofwhether operations are being conducted appropriately and incompliance with laws and internal rules as well as other matterswhile endeavoring to upgrade internal control functions.In addition, to raise the level of auditing activities, the corporateauditors and the Auditing Department exchange informationon a monthly basis and share information regarding theresults of their auditing activities and items they have singledout for attention.3. Compliance SystemsAlong with updating and improving internal regulations relatedto ethical matters, in addition to the CSR Committee, KHIhas formed compliance committees in each of its organizationalunits in Japan to take the initiative in promoting the selfassessmentand verification of compliance. In addition, aCompliance Guidebook has been prepared and distributed toemployees, not only of the parent company but also to thoseof virtually all subsidiaries and affiliates in Japan, and measuresare being implemented to conduct various forms of compliancetraining, including “e-learning,” along with concertedefforts to raise the level of awareness of compliance matterswithin the Group. In addition to these initiatives, a ComplianceReporting and Consultation System has been created throughan outside legal office to enable employees to receive advicewithout being concerned about being observed by otheremployees.(3) Compensation Paid to Directorsand Corporate AuditorsDuring the fiscal year under review, the amounts of compensationpaid to the Company’s directors and corporate auditorswere as follows.Amounts Paid (Millions of yen)Directors Corporate Auditors TotalCompensation based on the Articles of Incorporation anddecisions of the General Meeting of Shareholders ¥605 ¥74 ¥679Retirement payments based on decisions of theGeneral Meeting of Shareholders 23 — 23Total ¥628 ¥74 ¥70233