Learn in the textbookCorporate Governance and Administrative / Environmental Laws
DefinitionThe internal control reporting system (内部統制報告制度) requires management of listed companies to assess whether the financial-reporting part of their in-house mechanisms for running operations properly (internal control) works effectively, and to disclose the result as an internal control report.
ExplanationIn Japan it began in fiscal 2008 under the Financial Instruments and Exchange Act, and because it was modeled on the US SOX Act it is also called J-SOX. The report is audited by a certified public accountant or audit firm, so management's self-assessment is checked by outside eyes. The aim is to prevent false financial information from window dressing and the like and to keep capital markets sound.
AnalogyIt is like a store manager checking that the shop's cash-handling procedures are followed, then having an outside inspector with no stake in the shop confirm that the check was right.
Memory hookThe J in J-SOX stands for Japan. Remembering it as the Japanese version of the US SOX Act also reminds you that its legal basis is a securities market law.