Nichiryoku said its internal controls over financial reporting were not effective as of March 31, describing a problem that went beyond a technical accounting slip. The company said material weaknesses remained in its closing and reporting process after prior-period corrections tied to lease-deposit estimates, and after a stretched finance team failed to get the repair job over the line.
The immediate trigger was a review of lease-deposit valuations during the latest closing process. After the auditor raised questions about the estimate, Nichiryoku re-examined the item internally and found errors reaching back into prior periods, forcing it to correct earlier accounts. The company said the weakness lay in the process as much as the number: it had not adequately gathered the information behind the estimate, sufficiently examined the valuation method or properly tested whether the result made sense against overall numerical consistency and trends. As a result, an insufficient allowance for doubtful accounts linked to the valuation difference was not prevented or detected in time.
Nichiryoku also said the issue sat on top of staff shortages in accounting. In the previous year, resignations among finance staff left it without the necessary headcount to prepare financial reporting properly. Internal checks were inadequate, complementary controls over accounting estimates were not being operated, and closing work plus submissions of audit materials were significantly delayed, the company said. It added that material deficiencies in the closing and financial-reporting process remained in place for a second straight year.
That helps explain why remediation did not stick. Nichiryoku said it took corrective measures during the latest year, but the clean-up itself became part of the problem: correcting prior periods created more work than expected, more employees left, and the use of outside specialists remained limited, so controls could not be improved sufficiently by March 31. The company said necessary corrections have been reflected in the financial statements, but the upgraded controls need a period of operating history before effectiveness can be confirmed.
Management's answer is a familiar accounting house-cleaning list: clearer calculation and approval procedures for key estimates, stronger checks on closing and disclosure materials, training and monitoring for finance staff, broader use of external experts, and more frequent consultations with the auditor on important accounting issues. In practical terms, Nichiryoku finished the year without an effective-control conclusion, and with remediation work continuing after March 31.