Chasing Nidec: What Audit Disclaimers and Special Alert Status Really Mean

In the previous article, we detailed the accounting irregularities at Nidec, the auditor's Disclaimer of Opinion, and the company's designation as a "Security on Special Alert." This article examines what these developments mean in practice and their potential implications for Nidec.

Third in a Four-part Series

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What Is a 'Disclaimer of Opinion'?

On September 26, 2025, Nidec's auditor, PricewaterhouseCoopers Japan LLC (PwC), issued an audit report containing a Disclaimer of Opinion on Nidec's securities report for the fiscal year ending March 2025. PwC subsequently issued an interim review report on November 14, 2025, also disclaiming a conclusion on Nidec's semiannual report.

There are four types of audit opinions in an audit report:

Unqualified Opinion

An opinion that the financial statements are presented fairly in all material respects.

Qualified Opinion

A qualified opinion is issued if part of a financial statement is inappropriate, but not to the extent that the statements as a whole are materially misstated.

Adverse Opinion

An opinion that the financial statements as a whole contain material misstatements.

Disclaimer of Opinion

An opinion issued when the auditor was unable to perform important audit procedures and therefore could not obtain a sufficient basis to express an opinion on the financial statements.

Similarly, interim review reports contain four types of conclusions: "unqualified conclusion," "qualified conclusion," "negative conclusion," and "disclaimer of conclusion."

These correspond, respectively, to an unqualified opinion, a qualified opinion, an adverse opinion, and a disclaimer of opinion in a full audit.

According to guidance from the Japanese Institute of Certified Public Accountants (JICPA), a disclaimer of opinion is issued only in limited circumstances. It applies when accounting records are so inadequate or audit evidence so difficult to obtain that the auditor cannot form a basis for expressing any opinion on the financial statements.

In effect, it is reserved for situations in which the auditor cannot obtain even the minimum foundation needed to assess whether the statements are fairly presented.

Impact of Receiving a Disclaimer of Opinion

When a listed company receives an audit report or an interim review report containing a disclaimer of opinion or a disclaimer of conclusion, it signifies more than the auditor's inability to express a view on the financial statements. Such a finding may cause the company to be in violation of listing criteria, exposing it to the risk of delisting from the exchange.

Specifically, if the Tokyo Stock Exchange (TSE) determines that market order cannot be maintained without immediate action, it may delist the company upon receipt of such a report.

*Nidec President Mitsuya Kishida speaks at the company's press conference regarding allegations of improper accounting, in Tokyo, on November 14, 2025. (©Sankei by Ikue Mio)*

Moreover, where a disclaimer of opinion is issued and the TSE determines that substantial improvements are required in a company's internal controls or management systems, further action may follow. In such cases, the exchange may designate the shares as Securities on Special Alert.

The TSE placed Nidec shares under this designation on October 28, 2025, following its annual securities report containing a Disclaimer of Opinion, and the TSE determined that internal control reforms were urgently needed.

What Is a 'Security on Special Alert'?

A company designated as a Security on Special Alert must, after one year, submit a Written Confirmation of Internal Management System outlining the state of its internal management system. The Tokyo Stock Exchange then reviews the submission and determines the appropriate course of action.

De-designation

When the TSE finds that the company's internal management system is adequately developed and implemented.

Extension of Designation

This occurs when the TSE finds that the company’s internal management system is adequately developed but does not find that it is adequately implemented (and it is likely that the company’s internal management system will be adequately implemented).

Delisting

When the TSE finds that the company's internal management system is not adequately developed or no longer finds it likely that the company’s internal management system will be adequately implemented.

In cases where the designation is continued, the company is required to resubmit a Written Confirmation of Internal Management System. This must be done within three months from the end of the relevant fiscal year, or from the end of the following fiscal year if fewer than three months remain in the current one.

Should the subsequent review again find that internal management systems are inadequately established or improperly operating, the company will be delisted.

Possibility of Delisting?

As discussed above, Nidec currently faces two independent delisting risks — those associated with the issuance of Disclaimers of Opinion and Conclusion, and those arising from its designation as a Security on Special Alert.

Regarding the Security on Special Alert designation, the applicable review period is, in principle, one year. However, as of early January 2026, more than two months after the designation, no report has yet been released by the third-party committee investigating the alleged accounting irregularities. As a result, the underlying facts and causes remain unknown.

Without clarifying the nature of the irregularities and identifying their root causes, Nidec will be unable to properly establish or reform its internal control systems. The longer the third-party committee takes to issue its findings, the more difficult it will become for the company to avert delisting.

Should Nidec ultimately be delisted, its shares would, in principle, no longer be tradable on public markets, exposing shareholders to substantial losses due to such loss of liquidity.

In the next article, we will introduce past cases in Japan involving false statements in securities reports and related disclosures.

Watch for the next part of the series.