Layers Consulting Strengthens "Fraudulent Accounting Risk Reduction and Management Reform Solution" to Address Recent Governance Crises

Layers Consulting Co., Ltd., a comprehensive Japanese consulting firm (Headquartered in Shinagawa-ku, Tokyo; Representative Director CEO: Takashi Sugino; hereinafter "Layers"), announces the strengthening of its "Fraudulent Accounting Risk Reduction and Management Reform Solution." This solution is designed to fundamentally reduce corporate fraudulent accounting risks and to make the supervisory functions of boards of directors, including outside directors, more effective.
This solution is powerfully led by a team of experts, including certified public accountants and tax accountants who are well-versed in the forefront of practical operations and auditing. It aims to structurally reform conventional, ritualistic governance into a "truly functional system."

**Background**
In recent years, a succession of fraudulent accounting incidents have come to light among listed companies, posing a serious problem that shakes market trust. Amidst the current highly uncertain economic conditions, and with increasing pressure from capital markets to achieve performance targets, the reality is that the complexity of business models, the expansion of global supply chains, and the increase in subsidiaries due to M&A have made it easier for "blind spots" to emerge where governance from the head office cannot reach.

Key points for strengthening governance include "institutional and organizational design," "strengthening controls," "enhancing dialogue and information disclosure," and "capital cost management." In particular, the board of directors should ideally function as the last bastion to prevent management runaway, with internal and external directors mutually checking each other. However, a review of recent fraudulent accounting cases in listed companies reveals many instances where this check-and-balance function was not sufficiently exercised. In light of this situation, the strengthening of the board's functions has been clearly positioned as a crucial theme in the proposed revision of the Corporate Governance Code in 2026.

Especially for outside directors, the role of effective supervision and checking of management has become more strongly demanded than ever. However, due to their external position, an unavoidable "information asymmetry" exists, making it difficult to accurately grasp the realities on the ground and the inherent distortions within the organization. As a result, there is a structural risk of overlooking signs that excessive top-down performance pressure is fostering fraudulent activity.

Furthermore, it is important not to perceive the essence of fraudulent accounting as a superficial problem like "deficiencies in business processes." The true cause lies rather in structural distortions embedded within the organization, such as "budget formulation processes that cannot defy the top's intentions," "setting sales targets detached from reality," and "ritualistic internal audits."

In other words, what should be questioned is not "the presence or absence of controls," but "the very structure in which controls do not function."

**Features of the Enhanced "Management Reform Solution"**
This solution goes beyond merely improving operational process controls. It intervenes in institutional design, budget formulation mechanisms, and organizational culture itself, supporting the establishment of sound check-and-balance functions where "fraud cannot occur."

**Layers Consulting's Overall Vision for Governance Strengthening**
1. **Practical Support by Expert Teams Led by Certified Public Accountants and Tax Accountants**
Certified public accountants and tax accountants, well-versed in accounting standards and fraudulent schemes, lead projects. Based on both the strict perspective of auditing and the reality of on-site operations, they achieve both "effective governance" that goes beyond mere system design and "operational processes that reliably function on-site." They promote reforms rooted in practical experience, addressing the very structures that breed fraud.

2. **Approach Strong in Structural Reform of Management Control**
Based on Layers' extensive track record in management control reform, the solution fundamentally reviews budget compilation processes, KPI design, and monitoring mechanisms. It approaches excessive performance pressure and target settings detached from reality, which lie behind fraud, from the structural level. This achieves both feasible planning and early anomaly detection, building a management foundation where fraud is less likely to occur.

3. **Establishment of a Data-Driven "Early Warning" Mechanism**
Starting with the establishment of a data lake, an early warning system leveraging AI and data analytics is introduced. It cross-analyzes financial and non-financial data to quickly visualize unnatural transactions and anomalies. Furthermore, dashboards are built to enable management and boards of directors to grasp risk situations in real-time, achieving proactive rather than reactive risk management.

4. **Creation of a "Culture Where Fraud Cannot Arise" Through Organizational Culture Transformation**
In addition to establishing systems and processes, the solution delves into transforming the organizational culture itself, which can be a hotbed for fraud. It diagnoses the current organizational culture and decision-making realities, visualizes employees' true feelings and voices from the field. Furthermore, through workshops that develop human resources capable of driving change from the ground up, it transforms the organization into one that balances psychological safety with sound checks and balances. This realizes the creation of a foundation that supports a "state where controls continue to function."

**Future Outlook**
Through the provision of this solution, our company aims to empower Japanese companies to pursue proactive management.