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CORPORATE NEWS [latest news list] April 30, 2009
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Results of Investigation Related to Inappropriate Accounting



Upon discovery of inappropriate accounting practices that were performed from a period beginning in fiscal year 1999 and extending to the third-quarter of the fiscal year ending 2008 and announced in "Discovery of Inappropriate Accounting in the Past Years" dated April 10, 2009, we established an Investigation Committee that included specialists from outside the company. This committee painstakingly worked to verify the actual facts of the matter, ascertain the amount of discrepancy, clarify those parties responsible, and investigate measures to prevent any further reoccurrence in the future. The results of this investigation by the Investigation Committee were reported today to the Daikin Board of Directors, and we wish to state the measures being adopted by this company in light of this investigation report.

We would also like to express our deep regret for this incident and apologize once again to all of our shareholders, investors, customers, and other stakeholders for any inconvenience or concern this incident may have caused.


Description
Section 1 Details of This Investigation
  In the middle of March 2009, an anonymous letter outlining inappropriate accounting practices that had been performed in the settlement of accounts over a long period of time at the Daikin After Sales Service Division, (hereinafter referred to as the "After Sales Service Division") was delivered to the corporate officer in charge of After Sales Service. This prompted us to immediately begin an internal company investigation that revealed inappropriate accounting practices had been performed at the After Sales Service Division.

After learning of the inappropriate accounting practices, Daikin formed an Investigation Committee on April 10, 2009. The Investigation Committee was comprised of a specialized outside attorney who served as committee chairperson, a certified public accountant, and Daikin President and COO Yukiyoshi Okano. The objective of the committee was to (1)verify the relationship of actual facts relating to the inappropriate accounting practices, (2)ascertain the amount of discrepancy in the company's settlement of accounts, (3)clarify the parties responsible, (4)identify the reason for failing to detect the inappropriate accounting practices occurring over many years, and (5)propose measures to prevent any further reoccurrence. From this date, the Investigation Committee questioned the related parties on the circumstances surrounding the events and performed an investigation (hereinafter referred to as "this Investigation") in such areas as accounting entries and vouchers. The final results of that investigation were reported to the Daikin Board of Directors on April 30, 2009.

Investigation Committee:
    Chairperson     Katsumasa Suzuki, attorney-at-law and partner of Mori Hamada & Matsumoto
    Member     Takuei Maruyama, certified public accountant and partner at PricewaterhouseCoopers Aarata
    Member     Yukiyoshi Okano, President and COO of Daikin Industries, Ltd.

Section 2 Facts Determined by This Investigation
1. Organization of the After Sales Service Division

The After Sales Service Division at Daikin had primarily served to support improvement in the quality of installation, maintenance, and servicing. However, in 1995 the division was reorganized to become a division with a budget having numerical targets for sales and profit. In addition to the After Sales Service Division Planning Department (hereinafter referred to as "the Planning Department") in the home office, other departments were established within the After Sales Service Division as organizations to align with this as an organization to unite each region. These departments were the East Japan Service Department, the West Japan Service Department, the Central Japan Service Department, and the Kyushu Service Department (newly established in 2002) (hereinafter referred generally as "the Regional Service Departments"). A total of 54 service stations (hereinafter abbreviated to "SS") were established within the Regional Service Departments.

In the After Sales Service Division, decision details and performance management concerning the division budget that is approved by the Daikin Board of Directors for After Sales Service Division and the settlement drafts for the Regional Service Departments are performed in the Planning Department. Responsibility for this rests mainly on the general manager of the division and the planning department manager, both of whom serve under the corporate officer in charge of the After Sales Service Division. The budgets of the affiliated SS officees are managed by the respective Regional Service Departments with responsibility centering on the department manager, the planning group manager, and the planning group leader.

2. Pressure to achieve budget in the After Sales Service Division

The general manager of the After Sales Service Division (hereinafter called "Responsible Party A") was newly appointed in June 1998 (and assumed the duties of corporate officer in charge of After Sales Service Division in July 2004). He had extensive sales experience in after sales service and his persistence for sales and achieving profit in the budget was particularly acute. If the budget could not be achieved, Responsible Party A would repeatedly berate the responsible person unmercifully, either in private or in meetings. A policy of absolute achievement of the budget was given the highest priority in the After Sales Service Division, and there was no one to raise an objection to this intense pressure applied by Responsible Party A. From 1999, budget management of sales and profit was strictly enforced at the Regional Service Departments, and the person responsible for the budget for each of the Regional Service Departments was identified. In this way, excessive pressure to achieve budget targets was applied to the responsible people at the Planning Department and each one of the Regional Service Departments, as well as to each SS manager.

3. Start and expansion of inappropriate accounting at the Regional Service Departments

In this way, strong pressure was applied to the people in charge at each of the Regional Service Departments as well as to the SS managers to achieve budget targets. Because the company was particularly in dire straits to achieve the budget at the end of fiscal year 1999, the West Japan Service Department made accounting entries that recorded installations as being completed at the end of fiscal year 1999 for work that was scheduled to be either fully or partially performed in the following fiscal year of 2000 (refer to Section 4 for detailed procedures).

Responsible Party A, who remained extremely persistent in his commitment to absolute budget achievement, and the planning manager (hereinafter referred to as "Responsible Party B") of the Planning Department made a demand in the latter part of March 2001 to the department manager (hereinafter referred to as "Responsible Party C") of the East Japan Service Department, which had relatively favorable sales results, to help make up for a part of the shortfall incurred from the failure of the West Japan Service Department to achieve its targets. Attempts were made to comply with the demand through such measures as postponement of parts orders and work process improvements, but the desired operating profit could not be achieved solely by these methods. After the group manager in charge of planning and the group leader consulted with the group managers in charge of planning at other Regional Service Departments, there was a proposal to increase operating profit by recording accounting entries to show work-in-progress installations as being completed for orders received at the end of March 2001 (refer to Section 4 for detailed procedures), and it was also approved by Responsible Party C. This results in installations that should have been recorded in accounting entries at the East Japan Service Department in fiscal year 2001 to be recorded to fiscal year 2000. This front-loading of sales and work-in-progress installations at the East Japan Service Department in fiscal year 2001 continued by using the same method until the third-quarter of fiscal year 2008. Because of the intense pressure to achieve budget targets, sales also became front-loaded from fiscal year 2001.

Additionally, because the West Japan Service Department was seen as largely not achieving budget targets starting from fiscal year 2001, the manager of this department (hereinafter referred to as the "Responsible Party D") gave instructions to the manager in charge of field service and each SS manager to front-load sales, and this continued until the third-quarter of fiscal year 2008 using the same method as was used to front-load work-in-progress installations. Also, in the same year, Responsible Party D, the group manager in charge of planning, consulted with the group leader, and the inappropriate processing of making accounting entries front-loading work-in-progress installations began in the same method as written above for the East Japan Service Department. Specifically, for the West Japan Service Department, the method of making accounting entries to front-load sales began in fiscal year 1999 and the method to front-load work-in-progress installations began in fiscal year 2001. These inappropriate accounting practices continued until the third-quarter of 2008.

In other regions, such as at the Central Japan Service Department, inappropriate accounting practices were performed under instructions of the same department manager that applied pressure to achieve budget targets and was accomplished using the method of front-loading sales that should have been recorded in the fiscal year 2002 and recording them in accounting entries for 2001. Also, inappropriate accounting practices by method of front-loading work-in-progress installations in accounting entries began at the latest from fiscal year 2002 and continued until the third-quarter of fiscal year 2008.

Also at the Kyushu Service Department, transactions that determined there was a high possibility of inappropriate accounting practices from the method of front-loading work-in-progress installations were confirmed by examining accounting entries and vouchers from fiscal year 2004 to fiscal year 2006.

The manager of the Planning Department Responsible Party B, who was the planning manager of the Planning Department, recognized the possibility that inappropriate accounting practices existed, but did not press the people in charge at the Regional Service Departments, and he did not perform the proper procedures such as ordering changes in the accounting practices.

4. Method of inappropriate accounting at the Regional Service Departments

The recording of front-loaded sales and work-in-progress installations at Regional Service Departments in accounting entries is as follows.

Sales and the installations scheduled to be either partially or fully performed in the following fiscal year were processed in accounting entries as being installations that were fully completed in the concerned fiscal years with the process being performed at the SS offices under instructions by the Regional Service Departments.

Also, installations scheduled to be either partially or fully performed in the following fiscal year were front-loaded and recorded as installations (inventory assets) at the end of each fiscal year, and this compressed the cost of sales for the corresponding fiscal year. Only the department managers of the Regional Service Departments and the group managers in charge of planning could have performed this process.

These inappropriate accounting practices were performed in business areas of the After Sales Service Division (repair service, maintenance contracts, overhauls, and sales of spare parts). Overhauls encompass comprehensive inspection of equipment based on contracts with customers, cleaning operation for heat exchangers, replacement of consumable parts, disassembly inspection adjustment, and equipment replacements. The period for installation is generally long (lasting about one to four weeks) with the unit cost of each work order being high (from around 500,000 yen and upwards). Because the work is performed in the service industry, it is considerably more difficult to confirm the period for recording sales compared to transactions for physical items such as spare parts, and it was appropriate to estimate sales and gross profit of sales for the following year as a means to ease project management and accounting practices to make the work process simple.

Because the evaluation to determine degree of reaching the budget up to fiscal year 2007 was performed for each half of the year and performed from fiscal year 2008 on a quarterly basis, the inappropriate accounting practices were performed as written above in the each first half until fiscal year 2007 and each quarter in 2008. (The same accounting practices are noted in item 5 "Inappropriate accounting practices in the After Sales Service Division" written below.)

5. Inappropriate accounting practices in the After Sales Service Division

As written above in item 3, inappropriate accounting practices were being performed by front-loading the recording of sales in each department of the Regional Services Departments and work-in-progress installations from fiscal year 1999 and later, but the manager of the Planning Department became suspicious of the large number of irregularities appearing for sales and installations at the After Sales Service Division in March of fiscal year 2004, and the results of a investigation performed of each department of the Regional Service Departments discovered the fact that sales valued at 1.3 billion yen and installations valued at 0.8 billion yen were inappropriately recorded in fiscal year 2003.

The previously mentioned planning department manager reported to Responsible Party B. Responsible Party B subsequently consulted with Responsible Party A around October 2004, Responsible Party B and the manager of the Planning Department instructed the department managers at each one of the Regional Service Departments to stop performing all future inappropriate accounting practices at the Regional Service Departments level and informed them of a policy to correct inappropriate accounting practices by achieving profits above budget. Recognizing that it would take several years to achieve this policy, the front-loading of work-in-progress installations was recorded at the outset in the Planning Department until a sufficient amount of profit had accumulated.

Following this policy, the Responsible Party B and the manager of the Planning Department performed a review for each fiscal year of the After Sales Service Division to see where the results stood for each financial year of the After Sales Service Division and determine the proper amounts needed to reach the overall budget of the After Sales Service Division. With the approval of the general manager, they front-loaded installations of relevant amount concerning received orders and proposed items of uncompleted installations. The corporate officer in charge of the After Sales Service Division (Responsible Party A) made achieving the budget a matter of the highest priority and permitted inappropriate accounting practices.

Furthermore, even after instructions were given in October 2004 to the department managers at each one of the Regional Service Department by the general manager of the Planning Department (Responsible Party B) and the responsible personnel at each one of the Regional Service Departments front-loaded sales and installations by the method written above in item 4 because of the pressure to achieve budget was at the same level as in the past.

6. Inappropriate Accounting Practices at Subsidiaries

The results of the Investigation revealed that inappropriate accounting practices occurred within subsidiaries of this company at Daikin Facilities Co., Ltd. (hereinafter referred to as "DAT") as well as Daikin Air Technology Co., Ltd. (hereinafter referred to as "DAT").

DFC is centered in the Kanto area of Japan and is a wholly owned Daikin subsidiary that is primarily concerned with the servicing and maintenance of Daikin products. DFC is also under the authority of the After Sales Service Division at the home office and was exposed to pressure to achieve difficult budget targets. The person in charge involved in inappropriate accounting practices related in Regional Service Departments was assigned to that director and inappropriate accounting practices were performed by the method of recording entries of front-loaded sales and work-in-progress installations from 2002 to 2006, under the instructions of a DFC corporate officer.

DAT is a wholly owned Daikin subsidiary that is primarily concerned with sales and installation of air conditioning equipment and is under the management of Daikin's Air Conditioning Division. It was formed from a merger in April 2008 of seven companies that cover all areas of Japan. It has been confirmed that inappropriate accounting practices was confirmed occurring at two of the former companies, Daikin Airconditioning and Technology Kanto Co., Ltd. (hereinafter referred to "Air Techno Kanto") and Daikin Airconditioning and Technology Tokyo Co., Ltd. (hereinafter referred to as "Air Techno Tokyo.")

Specifically, sales for the installation schedule with the process to be either fully or partially performed in the following fiscal year were front-loaded and recorded as being completed in the preceding fiscal year at Air Techno Kanto from fiscal year 2005 to fiscal year 2007 and Air Techno Tokyo from fiscal year 2004 to 2007. Air Techno Kanto and Air Techno Tokyo were not under the control of the After Sales Service Division of the Group organization yet performed business in the same manner as the After Sales Service Division. Inappropriate accounting practices by the method of recording front-loaded sales were easily proposed to the companies Air Techno Kanto and Air Techno Tokyo and widely accepted.

Section 3 Amounts Affected by the Inappropriate Accounting and Correction of Past Fiscal Year Settlements
1. Amounts affected by the inappropriate accounting

The amounts affected from the inappropriate accounting practices written above in Section 2 are described below. Incidentally, the affected amounts listed below are the amounts for sales and work-in-process installations recorded at the end of each fiscal year for the After Sales Service Division, DFC, and DAT. Because a partial amount of sales were front-loaded, there was a shortfall in the following year, and the work-in-progress installations that had been front-loaded were recorded as cost of sales. Because the total amount of front-loading recorded for each fiscal year does not accumulate as the affected amount, the amount that was front-loaded is recorded as the net total at the beginning of fiscal year 2008.

The amount that is related to this Investigation process at the Daikin After Sales Service Division, DFC and DAT.

(Unit: million yen)
  Front-loaded Sales
Entries
Installation Adjustment Total Amount
Fiscal Year 1999 47 - 47
Fiscal Year 2000 62 Undetermined Undetermined
Fiscal Year 2001 139 Undetermined Undetermined
Fiscal Year 2002 429 273 702
Fiscal Year 2003 1,069 684 1,754
Fiscal Year 2004 387 2,094 2,481
Fiscal Year 2005 439 2,822 3,262
Fiscal Year 2006 904 2,608 3,512
Fiscal Year 2007 720 3,295 4,015
Fiscal Year 2008
(Total amount for the 3rd quarter of the fiscal year)
64 1,619 1,683
Total Amount 720 3,295 4,015


(Note 1) Within the range that could be confirmed from verifying accounting entries and vouchers, the recording of front-loaded sales was performed starting from fiscal year 1999.
(Note 2) We were able to establish that installation adjustment were performed from year 2000 from analysis of amount of installations recorded and investigation of related material, but because of insufficient installation data we cannot determine the specific amount since there is no installation data for 2000 and 2001. For this reason, these areas are undetermined.
(Note 3) Sales and installations that should have been recorded in the second half of the year or the following quarter were front-loaded and recording in each first half until fiscal year 2007 and the 1st, 2nd, and 3rd quarter of fiscal year 2008 but the amount for inappropriate accounting practices that were performed at the end of each financial year was stated without including the amount that was front-loaded and recorded in each relevant quarter or each first half of the year for the amount stated in the table above.
(Note 4) At DFC, accounting practices that postponed work-in-progress installations to the following year were also performed, but the totals that deducted amounts relating to this processing were stated in the Installation Adjustments column in the above table.
(Note 5) We are aware of the existence of transactions that have been determined to have high probably of being inappropriate accounting practices even at the Kyushu Service Department , but in the table above the amount in question was calculated and stated.

2. Method for amending settlements

(1) Recording of front-loaded sales
Front-loaded transactions were extracted and carefully examined. Sales, cost of sales, and accounts receivable that had been front-loaded were cancelled. Sales and cost of sales that were determined to have been completed in the calendar year based on objective resources were recorded again to the corresponding fiscal year. Following this, work-in-progress installations occurred at the end of each business fiscal year, and this was revised by recording the proper amount for costs concerning installations recognized as being partially generated in the actual performance of work.

(2) Recording of front-loaded work-in-progress installations
Transactions that were front-loaded were extracted and carefully examined. Sales and installations determined not to have occurred at the end of the fiscal year were removed.

(3) Financial statements subject to revision
Revisions (hereinafter referred to collectively as "this Amendment") were performed for each of the items (1) and (2) written above concerning financial statements including publicly released corporate announcements.

    · Financial statement brief relating to fiscal years between 2003 and 2007 (spanning terms)
    · Interim financial statement brief relating to fiscal years between 2005 and 2007
    · Quarterly financial statement brief relating to the first, second, and third quarters of fiscal year 2008

This Amendment is to be performed even for financial statements and similar documentation such as securities reports based on the Financial Commercial Product Transaction Law, and there is a plan to present at the earliest possible junction revised securities reports and similar documentation prior to filing a securities report relating to fiscal year 2009.

Section 4 Reasons for Inappropriate Accounting Practices Being Undetected for Many Years

According to the this Investigation, the primary factors for failing to detect these inappropriate accounting practices occurring over many years are as follows.

   (1) The principal people in charge (Responsible Parties A,B,C, and D) who should have been monitoring the settlement of accounts and financial reports at the After Sales Service Division actively participated in the inappropriate account practices.
   (2) It was possible to provide figures and dates to the accounting system that differed from verifying accounting entries and vouchers.
   (3) Compared to transactions involving objects such as the sales of parts, it is more difficult to confirm the reporting period of sales and installations for overhauls since confirmation requires visiting the work site.
   (4) A completed work order receipt cannot always be received in a timely fashion from the customer. Even when non-conformity with collaborating documentation is detected in the process of internal and external audits, the absence of verifying accounting entries and vouchers can be explained with a false statement.
   (5) Since the recording of front-loaded of sales and installations was largely at the same level from fiscal years 2000 to 2002, it was difficult to detect irregularities in the figures.
   (6) From the time Responsible Party A was assigned at the head office as general manager of the After Sales Service Division in June 1998, achievement of the budget was given the highest priority, and there was no one to raise an objection to the intense pressure.
   (7) Normal awareness for appropriate accounting practices and disclosures had deteriorated in the After Sales Service Division, and there were even instances where customer invoices had been issued within the current fiscal year for work-in-progress installations.
   (8) There was no verification of appropriate accounting entries and vouchers in the past DAT subsidiaries, but there was no detection in the draft process of settlements and financial reports prior to fiscal year 2007 such as a possibility that record sales and work-in-progress installations.
   (9) A part of that director took the lead in inappropriate accounting procedures in both subsidiaries that used to be DAT (Air Techno Kanto and Air Techno Tokyo)

Section 5 No Determination of Systematic Involvement in Inappropriate Accounting Practices

As stated in Section 2, this Investigation was able to establish involvement by the corporate officer in charge of the After Sales Service Division at the time and multiple personnel with authority below the corporate officer; however, this Investigation was not able to find any involvement of company-wide involvement by other corporate directors.

However, concerning the improper processing at DAT, pressure to achieve budget targets was not a cause for improper processing at DAT. The directors at Air Techno Tokyo and Air Techno Kanto did take part but there is no indication of a company-wide participation by Daikin directors.

Section 6 No Determination of Damages or Losses Occurred by Third Parties Excluding That of Parties Related to Inappropriate Accounting Practices

This Investigation could not establish that any third parties were made to suffer losses or damages related to this incident.

Section 7 Measures for Preventing Reoccurrence

The Investigation Committee proposed the following measures for preventing reoccurrence. Daikin will implement the following preventative measures according to the proposal made by the Investigation Committee.

(1) Corrective measures within the After Sales Service Department
(1) Introduction of double check through daily business operations in the After Sales Service Division
· Personnel are to be assigned in the Contact Center, an organization within the After Sales Service Division unrelated to the management of sales and profit, with the duties as full-time staff to independently monitor activities within the division such as performing checks for irregularities in entered data.
· We will execute appropriately according to standards decided within the company for recording work-in-progress installations that straddle the settlement period. At the same time, we will attempt to strengthen the restraining function concerning the proper management of recording accounting entries by newly assigning the department manager in charge of compliance within the company to plan a monitoring system develop, introduce the procedures for monitoring, and to provide guidance to the specialized team written above. A check of each SS office as well as the Regional Service Department and Planning Department will be executed regularly and at random to confirm settlement circumstances.
(2) Improve verification procedures for settlement data
· To ensure that there is no inclusion of irregularities in the data of inventory asset details regarding settlement, the verification procedures of settlement data in quarterly settlements such as comparative analysis of past settlements and confirmation are to be strengthened and the settlement management structure is to be review.
(3) Review of budget establishment and management process
· A review of budget establishment and management process is to be implemented in the After Sales Service Division since the pressure for increased profits was one cause for the inappropriate accounting practices.
· In deciding the annual budget, there is to be repeated action in adjustments of the budget by each Regional Service Department and After Sales Service Division that is based on a profit plan founded on the actual ability of each of the Regional Service Department to achieve targets and sets numerical figures for the budget that can be obtained. In budget management, the emphasis is not only on achieving numerical targets but also on improving the process such as analyzing the causes at the time of failing to achieve targets and specifying the concerned process in the work operation manual.
(4) Improving IT control of work process
· The system is to be reformed based on reflection of an environment that allowed inappropriate operation of the IT system at the end of the term. Control at the IT level is to be strengthened.
· In particular, we will change the input requirements as well as control the recording of sales that are only enter "quotation costs" by adding highly detailed input fields for the invoice output functions to smoothly implement monitoring by planning departments (department manager in charge of compliance), and comprehensively revise the system to extract and confirm the data in the case of irregularities occurring in the figures.
· A mechanism is to be created where the Business Flow Innovation Department regularly performs a check concerning the appropriateness of the work operation control system beginning with system operation, management conditions, and input information

(2) Company-wide measures to prevent reoccurrence
(1) Improving the check function by the Accounting and Financial Affairs Division
· We intend to check for irregularities in figures by thoroughly performing the management of sales and gross profit by monthly units as well as the control of important calculation items. Specifically, we will implement a year-on-year comparison for budget analysis by each branch, store, and subsidiary that checks for irregularities that examines more closely at data such by each branch or each subsidiary.
· We will attempt to enhance operations by confirming in on a regular and at random basis in Accounting and Financial Affairs Division whether or not the business function responsible for management (division level) is executing management
(2) Review of the company-wide budget management system and the monthly settlement procedures
· We intend to monitor irregularities in monthly profit and loss and changes in balances for work-in-progress for financial accounting and to perform progress management more effectively. By executing a process for "visualization" in financial statements for greater transparency by strengthening monitoring of calculation subjects by monthly units for sales, net profit management, and other important areas to perform progress management more effectively
(3) Strengthening the monitoring system
a) By restructuring the mechanism in the After Sales Service Division and strengthening the double check system through daily work operations even within other business departments, we aim to improve daily the monitoring system and strengthen the double check system through daily work operations even within other business departments.
b) An analysis of risk is to be implemented in the internal auditing department corresponding to work operation form and organizational structure of each department and not only audit themes shared by all companies, and execute by risk approach including "inappropriate risk." Furthermore, attempt to strengthen audit procedures corresponding to "inappropriate risks" such as confirming actual items, introducing random audits in the execution of internal audits, strengthening the procedures for meetings with department managers and officers in change, and analyzing the financial accounting figures.
(4) Thoroughly executing employee education beginning with accounting
Based on insufficient education in basic accounting, we will work towards implementing a company-wide education training program centering on basic education in accounting and return to the starting point in the future by emphasizing specialty training and education in the next several years from an accounting aspect such as the approach of J-SOX.
(5) Enhancing internal control, compliance, education and guidance
An education and guidance program is to be formed by members of Accounting and Financial Affairs Division and the Legal Affairs, Compliance and Intellectual Property Department. This program will aim to reiterate the importance of internal control by working to implement education (internal control and compliance) that is also linked to monitoring information written above in item (3) b) Strengthen the monitoring system.)
(6) Establishment and operation of a system that monitors status of measures to prevent reoccurrence
For the occurrence of these inappropriate accounting practices, we will draft a plan that incorporating the suggestions related to the prevention of a reoccurrence with a recognition that this is serious incident linked to the lowering of our corporate brand image and financial loss and regularly monitor the status of these efforts. We intend to share and promote the status of this issue with members of the Corporate Ethics and Risk Management Committee (held twice a year) as well as the Compliance and Risk Management Leaders Meeting (held monthly) together with the monitoring of the Group Steering Meeting, and Board of Directors.
(7) Improvement of control environment (company-wide control)
· After Sales Service Division
Until now, we have used "promptness," "reliability," and "kindness" as indexes for measuring the quality of after service. For example, we measure quality in terms of whether or not we can complete servicing in a single visit to the customer for "one-time completion." We also measure the time it takes for us to dispatch service personnel to the installation site for "dispatch rate," from receipt of call, or the "response rate" at the Contact Center. We establish a variety of indexes for measuring the quality of including "customer satisfaction index" for important actions occurring in the course of our work to improve quality. However, it appears to us now that we have become too concerned with financial indicators such as sales and profit and have drifted away from the basic foundation on which our indexes are founded on. Above everything else, we intend to right the balance of our ship.
· Company-wide strengthening of accounting function
To respond to the need for an internal control reporting system based on Financial Commercial Product Transaction Law, we have aimed to strengthen our accounting function such as arrangement of person responsible for accounting of all divisions and subsidiaries and enact "Global Accounting Regulations" and "Internal Control Operation Points" and strengthen human resources knowledgeable in accounting. As deeply as we regret the nature of this incident, we intend to use this situation as means to redouble our effort facilitate greater communication and cooperation between the Accounting and Financial Affairs Division and the person responsible for accounting as one step for a stronger accounting function within the Daikin Industries and all our Group companies.

The person responsible for accounting will unquestioningly report not only to the division head but even to the corporate officer in charge of accounting on themes and status of accounting practices of that business division to ensure appropriate accounting practices. In turn, the Accounting and Financial Affairs Division will act as a clearinghouse for those personnel responsible for accounting by providing the latest in laws and company regulations along with trends and innovations in accounting management. In this type of communication exchange, we are aiming for higher standards in skill and ethics within the accounting function at Daikin. Furthermore, the person responsible for accounting shall serve as a bridge to more closely link general managers and the corporate officer in change of accounting in the future. Within this current strengthening of the Accounting and Financial Affairs Division, we wish to accelerate the enhancement of human resources with accounting expertise and at the same time offer human resources opportunities to be well-informed about accounting by strengthen education programs and executing rotation of human resources between divisions and subsidiaries. By taking these steps we wish to construct a suitable structure to report reliable financial information.

Section 8 Action toward concerned company personnel

The company intends to strictly deal with the director of the Daikin subsidiary and the multiple number of employees involved with these inappropriate accounting practices according to company internal regulations based on the facts determined in this Investigation and stated in Section 2 written above.



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     Daikin Industries, Ltd.
 
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