Internal Audit System An Outline of the Group’s Internal Audit System  In addition to the SMFG Auditing Committee, which functions  as a governance committee reporting to the Board of Directors,  we have established the Internal Auditing Committee, which is  a part of the Management Committee, to give a higher profile  to the internal auditing functions and facilitate effective conduct  of internal audits. The Internal Auditing Committee meets every  quarter, and its members discuss important matters related  to internal auditing based on reports prepared by the depart- ments responsible for internal audits. There is also the Audit  Department, which is an internal auditing unit that is indepen- dent of the operational departments of the Group.  The Internal Audit Unit is responsible for auditing compli- ance and risk management at SMBC — its head office depart- ments, domestic and overseas branches — and SMBC Group  companies. Auditing of operations of head office departments  is conducted by assessing the appropriateness of all internal  control systems of each department. In addition, audits of  head office departments focus on material issues that arise in  the management of specific operations and categories of risk.  These auditing activities emphasize the verification of “Targeted  Audit Items” across the whole of the bank’s organization.  The Audit Department conducts internal audits of the opera- tions of all the Group’s units and departments to contribute to  optimal management and ensure the proper conduct of the  Group’s operations and the soundness of its assets. These  audits also have the function of verifying that the Group’s  internal control systems, including compliance and risk man- agement, are operating appropriately and effectively. The Audit  Department is also responsible for the overall supervision of  the internal audit systems of Group companies. It monitors the  appropriateness and effectiveness of the internal audit systems  at Group companies by verifying past data related to internal  auditing and monitoring activities, which include inspections and  other activities based on actual samples, and, when deemed  necessary, by conducting audits. Based on these activities,  the Audit Department provides recommendations and guid- ance to the business units and departments as well as Group  companies.  At SMBC, we have formed auditing departments that are  independent of bank units involved in marketing and other  business activities. Within the Internal Audit Unit of SMBC, we  have formed two departments: the Internal Audit Department  and the Credit Review Department. As at SMFG, SMBC has an  Internal Auditing Committee which is a part of its Management  Committee and responsible for examining and conducting  deliberations on reports on important matters submitted by the  Internal Audit Unit.  * The Institute of Internal Auditors (IIA) was founded in 1941 in the United States as an  organization dedicated to helping raise the level of specialization and professionalism  of internal auditing staff. In addition to conducting theoretical and practical research on  internal auditing, the IIA administers examinations for Certified Internal Auditor (CIA), which  is the internationally recognized qualification in this field. To fulfill effectively its role as the department in overall charge  of internal auditing, the Audit Department is constantly endeavor- ing to advance the professional skills of personnel engaged in  internal auditing. Activities include collecting the latest information  on internal auditing from inside and outside Japan and dis- seminating it to all Group companies. Also, the Audit Department  organizes training courses, led by outside experts, for the staff of  Group companies and encourages them to obtain international  qualifications to enhance their professional knowledge and skills in  internal auditing. To improve further the effectiveness of auditing,  we also take active measures on a Groupwide basis to assess  the quality of our internal auditing in the light of IIA standards. The Audit Department has adopted methods following the stan- dards of the Institute of Internal Auditors (IIA)*, an international  organization. The Audit Department conducts risk-based audits  and works to apply best practices to Group companies.  Initiatives to Enhance the Sophistication and  Efficiency of Internal Auditing Moreover, audits of branches and offices are not limited just  to checking for control and other deficiencies but also include  pointing out compliance and risk management problems and  making recommendations for corrective action. In other Group  companies, internal audit departments have been formed suited  to the respective nature of each company’s lines of business.  SMFG  2011 51 Corporate Auditors/ Board of Corporate Auditors Shareholders’ Meeting Management Committee Board of Directors Business units subject to auditing Nominating  Committee Compensation Committee Risk Management  Committee Auditing Committee SMFG Group Strategy  Committee Office of Corporate Auditors Corporate Auditors/ Board of Corporate Auditors Office of Corporate Auditors Shareholders’ Meeting Board of Directors Head Office/Business Units All Departments SMBC Internal  Audits Audit  Department Auditing Internal  Audits Internal Audit Unit Internal Audit Department Credit Review Department Internal Auditing Committee Business units subject  to auditing Management Committee Internal Auditing Committee Monitoring