Suzuken Co., Ltd. TSE:9987

Suzuken : Independent Auditor’s Report and Consolidated Financial Statements for the Fiscal Year Ended March 31, 2025

Published

Source: MarketScreener

SUZUKEN CO., LTD. andSubs idiaries

Consolidated Financial Statements for the Year Ended March 31, 2025, and Independent Auditor's Report

Deloitte Touche Tohmatsu LLC JP TOWER NAGOYA

1-1-1 Meieki, Nakamura-ku

Nagoya, Aichi 450-8530 Japan

Tel: +81 (52) 565 5511

Fax: +81 (52) 569 1394

https://www.deloitte.com/jp/en

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Shareholders of SUZUKEN CO., LTD.:

Opinion

We have audited the consolidated financial statements of SUZUKEN CO., LTD. and its consolidated subsidiaries (the "Group"), which comprise the consolidated balance sheet as of March 31, 2025, and the consolidated statement of income, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies, all expressed in Japanese yen.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as of March 31, 2025, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Convenience Translation

Our audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in accordance with the basis stated in Note 1 to the consolidated financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

Basis for Opinion

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of the Code of Professional Ethics in Japan, and we have fulfilled our other ethical responsibilities as auditors. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Member of

Deloitte Touche Tohmatsu Limited

Purchase rebates received from pharmaceutical companies

Key Audit Matter Description

How the Key Audit Matter Was Addressed in the Audit

The Group receives purchase rebates from suppliers in the pharmaceutical wholesale business segment.

In the consolidated balance sheet of the Group as of March 31, 2025, ¥17,648 million

($118,443 thousand) was recorded as purchase rebates receivable.

In the pharmaceutical wholesaling industry, purchase rebates are customarily divided into two main types: refunds and sales incentives.

Regarding refunds, the Group obtains the right to receive the applicable purchase rebates according to the rebate table provided by the supplier on a regular basis and based on financial related information, such as purchases and payments.

Regarding sales incentives, the Group obtains the right to receive the applicable purchase rebates based on the contract agreed upon with the supplier and various indicators related to business activities, including, but not limited to, financial related information. Additions or changes to the contract may be made during the year as a result of renegotiations with suppliers.

The operating income recorded in the consolidated statement of income for the fiscal year ended March 31, 2025, was ¥37,125 million ($249,161 thousand) of which the purchase rebates described above accounted for a significant amount.

The Group believes that the accuracy of the aggregated amount is deemed imperative for the consolidated financial statements. As such, the Group recognizes purchase rebates receivables by aggregating the amounts for such rebates during each quarter-end close and has implemented multiple internal controls over the aggregation process.

Furthermore, a large number of purchase rebates exists for each supplier, and the conditions for obtaining sales incentives are usually complex due to the impact of non-financial indicators. Therefore, we identified the accurate accounting of purchase rebates receivables as a key audit matter.

Our audit procedures related to the purchase rebates receivable included the following, among others:

  • We tested the design and operating effectiveness of the Group's internal controls over the following processes: (1) the accuracy and completeness of the list of accounts receivable for purchase rebates by validating it to the notification of the suppliers, and

    (2) journal entry review control over purchase rebates receivable.

  • We tested the design and operating effectiveness of the Group's internal controls over the process in which management evaluates the accuracy and completeness of the purchase rebates by performing an analysis of the difference between the estimated amounts and the actual amounts.

  • With the assistance of our IT specialists, we tested the design and operating effectiveness of general IT controls, such as program development, change management and security management, over the IT systems. In addition, we obtained an understanding of the accounting system and tested that the journal entries recording refunds were correctly posted to the general ledger based on the applicable rebate agreement and the purchase amount.

  • For sales incentives, we performed a gross profit analysis and a period analysis by supplier to identify transactions that were inconsistent with changes in financial indicators. We made a sample selection of purchase rebates receivables and transactions identified through the aforementioned analyses and performed the following:

—Compared the transaction amounts to the purchase rebate notices sent from the supplier at the time of settlement.

—Evaluated whether the purchase rebates were in accordance with the conditions of the respective suppliers' agreements.

Accounting estimates for provision for loss related to the Antimonopoly Act

Key Audit Matter Description

How the Key Audit Matter Was Addressed in the Audit

A subsidiary, Shoyaku CO., LTD., is sentenced by the Japan Fair Trade Commission to pay surcharge and cease and desist from entering in new bids, due to violations of the Antimonopoly Act regarding bids for pharmaceutical procurement ordered by Japan Community Health Care Organization and by National Hospital Organization.

To provide for the losses that may arise in the future regarding these matters, the Group recorded a provision for loss related to the Antimonopoly Act totaling ¥3,090 million ($20,738 thousand) as of March 31, 2025. The details of the accounting policies used by the Group are stated in the following notes to the consolidated financial statements: "2. SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES; (q) Provision for Loss related to the Antimonopoly Act." Additional information that may assist the users of the financial statements in understanding the content of accounting estimates is presented in the

"3. SIGNIFICANT ACCOUNTING ESTIMATE"

section.

Future expenditures subject to provision for loss related to the Antimonopoly Act primarily relate to penalty for breach of contract. Based on the opinion of its external legal counsel, the Group evaluates each event that is deemed probable to occur in the future and develops a reasonable estimated allowance depending on the nature of the expenditures.

However, there are relatively high uncertainties regarding the probability of expenditures and the determination of the estimated amount involves significant judgment made by management and impact of claims of the contractors. Accordingly, we identified the valuation of the provision for loss related to the Antimonopoly Act and the allocation of the related losses as a key audit matter.

Our audit procedures related to the appropriateness of valuation in the provision for loss related to the Antimonopoly Act and allocation in the related losses included the following, among others:

  • We tested the design and operating effectiveness of the internal controls over the processes in which the Accounting department evaluates the information obtained from the Compliance department that is utilized in determining the accounting estimates for completeness and accuracy.

  • Based on our understanding of the relevant laws and systems, we tested the completeness and reasonableness of the factors and events considered by management in determining accounting estimates, using information obtained from the Group.

  • Confirmation letters were obtained from external legal counsel regarding the factual and legal basis underlying the forward-looking statements, and an understanding of the nature of expenditures and an assessment of their likelihood of occurrence were made.

Other Information

Other information comprises the information included in the Group's disclosure documents accompanying the audited consolidated financial statements, but does not include the consolidated financial statements and our auditor's report thereon.

We determined that no such information existed and therefore, we did not perform any work thereon.

Responsibilities of Management and the Audit and Supervisory Committee for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern in accordance with accounting principles generally accepted in Japan and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

The Audit and Supervisory Committee is responsible for overseeing the Directors' execution of duties relating to the design and operating effectiveness of the controls over the Group's financial reporting process.

Auditor's Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in Japan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

  • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks. The procedures selected depend on the auditor's judgment. In addition, we obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  • Obtain, when performing risk assessment procedures, an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control.

  • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

  • Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.

  • Evaluate whether the overall presentation and disclosures of the consolidated financial statements are in accordance with accounting principles generally accepted in Japan, as well as the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

  • Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Group as a basis for forming an opinion on the group financial statements. We are responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Audit and Supervisory Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.