Under the Companies Act, a company with a capital stock of 500 million yen or more or with liabilities of 20 billion yen or more is defined as “Large company (Article 2.6, the Companies Act). A large company is required to appoint an external auditor (Article 328, the Companies Act), and its financial statements and supplemental schedules must be audited to obtain an auditor’s opinion (Article 396, the Companies Act).
If the external auditor is not appointed, a non-penal fine of 1 million yen or less would be imposed on the company (Article 976.22, the Companies Act). It is often said that there would be some companies not appointing external auditors because of the small amount of penalty. However, it clearly means the company violates the regulations of the Companies Act, and it directly leads to non-compliance issues. Considering the recent social trend that strongly demands compliance with relative laws, such a situation is not desirable from the viewpoint of governance. The companies which have not yet appoint external auditor although it is required to do should immediately take actions and retain CPA or audit firm.
Our Advantageous Points
“Large company” under the Companies Act includes consolidated subsidiaries of global companies operating business overseas; however, there would be SMEs with a small amount of sales size like several billion yen.
If the company falls under the former and has a large scale of business in Japan, it should consider appointing Big4 firm as an external auditor affiliated with overseas firms. However, it has no need to retain big audit firms if operating its business on a small scale.
We believe it is possible for such companies to reduce audit fees to a reasonable extent by appointing us as external auditor.
Examples of company who should consider our services
- The company which needs to appoint an external auditor in accordance with Companies Act, however, has no need to ask big firm considering relationship with parent company.
- The company asking statutory audit to Big4 firm currently, however, dissatisfied with their assignment of inexperienced staff members.
- The company which temporarily retain external auditor under Companies Act due to the increase in capital stock, however, scheduled not to be “Large Company” next fiscal year because of capital reduction.
- The company with a relatively simple business model operating a single business, such as a special purpose company (SPC).