AR2017

86/90

Basic Framework of Internal Control over Financial ReportingHiroyuki Nishio, Representative Director, President, CEO and COO of LINTEC Corporation, and Hitoshi Asai, Director, Vice President Executive Officer & Chief Financial Officer of LINTEC Corporation, are responsible for designing and operating adequate internal control over financial reporting for consolidated financial statements of LINTEC Corporation and consolidated subsidiaries (the “Company”) in accordance with the basic framework set forth in “Standards and Practice Standards for Management Assessment and Audit concerning Internal Control Over Financial Reporting” issued by Business Accounting Council.Internal control achieves its objectives to a reasonable extent given that all individual components of internal control are integrated and function as a whole. Internal control over financial reporting for consolidated financial statements may not completely prevent or detect misstatements in financial reporting.Scope of Assessment, Assessment Date and Assessment ProcedureWe assessed the effectiveness of the Company’s internal control over financial reporting for the accompanying consolidated financial statements as of March 31, 2017 in accordance with the standards for assessment of internal control over financial reporting generally accepted in Japan. For this assessment, we first evaluated the company-level controls which would have a material impact on the reliability of overall financial reporting on a consolidated basis. We then selected the process-level controls to be assessed based on the results of the company-level control assessment. For the process-level control assessment, we evaluated the effectiveness of internal control by analyzing processes in scope, identifying key controls that would have a material impact on the reliability of the financial reporting, and assessing the design and operation of such key controls.We determined the scope of assessment by selecting consolidated subsidiaries based on their materiality of impact on the reliability of financial reporting. We determined their materiality of impact by considering both quantitative and qualitative aspects. The scope of our process-level control assessment was determined based on the results of our assessment of company-level controls, which included its 16 consolidated subsidiaries. We excluded 19 consolidated subsidiaries from the scope of the company-level control assessment since their quantitative and qualitative impacts were deemed insignificant.For the purpose of determining the scope of process-level controls assessment, we selected 2 consolidated subsidiaries as “Significant Business Locations,” which contributed approximately two thirds of the Company’s net sales on a consolidated basis for the fiscal year ended March 31, 2016. For the Significant Business Locations, we primarily included business processes related to sales, accounts receivable, and inventory in the scope of assessment as the aforementioned accounts were closely associated with the Company’s business objectives. In addition, we included certain business processes in the scope of assessment not only from “Significant Business Locations” but also from all subsidiaries and affiliates, which were related to significant accounts involving estimates and management’s judgment or include high-risk operations and/or transactions, as “business processes with a material impact on financial reporting.”We did not include the evaluation of internal control over financial reporting of MACtac Americas, LLC and its consolidated subsidiaries (“MACtac”) which became our wholly-owned subsidiaries on December 1, 2016 by the acquisition of membership interests in exchange for cash, in its assessment of and conclusion on the effectiveness of our internal control over financial reporting as of March 31, 2017. Because we judged that the acquisition of membership interests was performed in the second half of this fiscal year and constituted an unavoidable circumstance under which the sufficient assessment procedures for a certain part of the internal control over financial reporting could not be performed.Assessment ResultBased on the results of our assessment mentioned scope in above, we concluded that the Company’s internal control over financial reporting for the accompanying consolidated financial statements as of March 31, 2017 was effective although we could not perform the sufficient assessment procedures for a certain part of the internal control over financial reporting in an unavoidable circumstance because the acquisition of membership interests of MACtac, which became our wholly-owned subsidiaries on December 1, 2016, was performed in the second half of this fiscal year.Management’s Report on Internal Control over Financial ReportingLINTEC ANNUAL REPORT 201784FINANCIAL SECTION