Reiwa Accounting Holdings Co., Ltd.

Management of clients' confidential information and personal data is critically important to the business. In the event of an unforeseen information leak, loss of social trust could have a material impact on the Group's financial position and operating results. The Group continuously strengthens its information management system, including access restrictions and the establishment of security systems to prevent external intrusion.

The Group's business foundation relies on personnel who possess both accounting expertise and soft skills. If the Group fails to secure necessary personnel or experiences a mass departure of key professionals, this could have a material impact on business expansion and future growth prospects. The Group recognizes personnel acquisition, training, and retention as ongoing key management issues and is working to strengthen its organizational capabilities.

Regardless of whether any laws or regulations have been violated, the Group or related parties may become subject to litigation for various reasons arising in the course of business operations. Depending on the filing and outcome of such litigation, loss of credibility could affect the Group's financial position and operating results. The Group has established a system for routine prior consultation with lawyers and seeks to reduce risk by promptly consulting specialists when litigation arises.

Services provided under staffing/placement contracts are subject to regulation under the Worker Dispatching Act and the Employment Security Act, while the auditing and tax services of the Vietnamese subsidiary are subject to Vietnam's independent auditing law and tax administration law. Future enactment or amendment of laws related to the Consulting Business, as well as amendments to the Companies Act, the Financial Instruments and Exchange Act, tax laws, and other regulations, could change demand for services and affect business performance. The Group addresses this through ongoing monitoring by the Business Administration Department, risk discussions at management meetings, internal audits, and regular communication with its retained legal counsel.

The subsidiary Miracle Keiri Co., Ltd. is developing software and systems that contribute to accounting DX, which requires investment of human and financial resources over the medium to long term. If changes in market conditions during the development period lead to discontinuation of development or revision of profit plans, this could affect the Group's financial position and operating results; the potential timing of such occurrence is recognized as being within the next few years. The Group works to reduce this risk by identifying risks at the planning stage and thoroughly implementing continuous countermeasures.

The systems and software developed by Miracle Keiri Co., Ltd. support the core accounting operations of clients. If system failures, defects, extended outages, data leaks, or similar issues occur, this could significantly impact clients' business operations and damage social trust, thereby materially affecting business performance. The potential timing of such occurrence is recognized as being within the next few years, and the Group addresses this through thorough quality control systems and continuous strengthening of maintenance and operational support.

HSK VIETNAM AUDIT COMPANY LIMITED, which operates in Vietnam, is inherently exposed to country risks such as unexpected legal changes, shifts in the political and economic situation, exchange rate fluctuations, infrastructure disruptions, and difficulty securing local personnel. If these risks materialize and adversely affect local business activities, this could impact the Group's business performance. An executive officer of the Company serves as chairman of the subsidiary, and the Group strives for early information gathering through strengthened information-sharing with local government authorities, lawyers, and other parties.

Consulting Services (Short) may be affected by declining orders due to economic downturns, while Consulting Services (Long) tends to involve long-term continuing engagements and, since accounting operations are essential infrastructure for economic activity, is structured to minimize the impact of economic downturns. As a result, the Group as a whole has a business structure in which economic fluctuation risk is diversified.

Business operations may temporarily involve long working hours, which could affect business performance through excessive workloads, employee health issues, related litigation, and reduced productivity. In addition to daily attendance checks by supervisors, the Group has established a labor management system in which the Human Resources Department, among others, confirms weekly and monthly working hour conditions and anticipated overtime.

The Group evaluates the recoverability of deferred tax assets based on estimates of future taxable income. If it is determined that a decline in profitability will prevent sufficient future taxable income from being secured, deferred tax assets would be written down and tax expenses recorded, which could affect the Group's financial position and operating results. The Group works to reduce this risk by continuously maintaining and improving profitability.