When Accounting Depends on a Key Person: 5 Risks for Japanese Subsidiaries

Many Japanese subsidiaries rely on a single accounting managert, or with one administrative employee responsible for  accounting, HR, and general administration. This lean setup can be efficient. However, problems can arise if only one person knows how certain transactions are processed or can answer questions from headquarters. In that case, a resignation or extended leave may halt the monthly close, payments, and reporting to headquarters.

Key person risk in accounting is not simply a matter of having few staff. It refers to a situation in which procedures, decision criteria, and knowledge of where data is kept are concentrated in one person. When that person is absent, no one else can continue the work.

This article explains five risks of keyperson risk in accounting at a Japanese subsidiary, and what to put in place before your accountant decides to leave.

1. A One-Person Accounting Function Is Not the Same as KeyPerson Risk

Having only one accountant does not necessarily mean the function depends on that person. A one-person team can still maintain a reasonable level of continuity if workflows and month-end procedures are documented, access to accounting data and supporting documents is properly managed, and another staff member or outside professional can take over when needed.

Conversely, even a larger accounting team can face this risk if some tasks can only be handled by one person. The question to ask is not how many people you have, but whether the work could continue if your accountant were absent for an extended period starting tomorrow.

2. Five Risks of KeyPerson Risks at Japanese Subsidiaries

(1) Monthly Operations Can Stop When the Accountant Leaves

The most obvious risk is that work stops when the accountant resigns or takes extended leave. Accounting involves many tasks that must be completed on a fixed cycle, including invoicing, cash application, accounts payable, expense reimbursement, payments, journal entries, bank reconciliations, and the monthly close.

The real issue tends to be company-specific rules rather than the procedures themselves. Examples include "payments to this vendor require headquarters approval" or "this expense is charged to a specific cost center." If such rules exist only in the accountant's head, a successor who can operate the accounting system may still be unable to reproduce the work. Writing manuals only after a resignation notice may leave too little time, because daily operations, recruiting, and the handover all have to happen at once.

(2) Reporting to Headquarters Can Be Delayed

At a Japanese subsidiary, reporting to headquarters is just as prone to keyperson risk as local accounting. Tasks such as filling in the group's reporting package, mapping local accounts to the group chart of accounts, and reconciling intercompany transactions are sometimes managed in spreadsheets the accountant built personally.
When communication with the group finance team is in English, there may be only one person who both understands the accounting and can explain it in English. If that person is unavailable, the local books may still be completed, but the monthly report to headquarters may not. Rather than treating local accounting and group reporting as separate tasks, make the entire closing process, end to end, something that can be handed over.

(3) Weaker Checks Can Make Errors Harder to Catch

When work is concentrated in one accountant, the same person may end up both preparing and reviewing it. In a one-person team, a single individual may handle everything from journal entries and bank reconciliations to payment data and the monthly close. However much you trust that person, errors and omissions may go undetected for a long time without a second check. From an internal control perspective, separating key duties, such as preparing and approving payments, can also help prevent improper transactions.

There is no need to duplicate every task. Based on materiality and risk, it can be effective to add review steps for areas such as payment approvals, bank reconciliations, month-end balances, and materials submitted to headquarters. When outsourcing, confirm not only who will enter the data but also who will review it.

(4) The Reasoning Behind Accounting and Tax Decisions Can Be Lost

Keyperson risk can affect not only procedures but also the reasoning behind them, turning decisions into a black box. For example, when a successor asks why a recurring journal entry is recorded a certain way, the only answer may be "because that is how my predecessor did it."

Japanese subsidiaries may need to reconcile group accounting policies with Japanese accounting and tax treatment. Without a record of the reasoning, explaining items to headquarters or reviewing them during the year-end close and tax filing may take much longer. For significant transactions, it is good practice to keep not only the journal entry method but also the purpose, supporting documents, related contracts, and any instructions from headquarters.

Bookkeeping and other accounting work can be performed by providers without a Certified Public Tax Accountant (zeirishi) qualification. However, under Japan's Certified Public Tax Accountant Act, tax representation, preparation of tax documents, and tax consultation are, in principle, reserved for tax accountants and tax accountant corporations. Unqualified persons may not provide these services, even free of charge. When outsourcing accounting, check whether the provider can properly consult a tax accountant when tax judgments are needed, such as the consumption tax classification of transactions.

(5) Hiring a Successor May Not Complete the Handover

You might think that if your accountant leaves, you can simply hire a new one. But hiring and handover are separate issues. Even an experienced successor is unlikely to know your company's payment workflows, accounting systems, headquarters reporting, approval authorities, or how to work with your tax accountant and banks.

For Japanese subsidiaries, the role often calls for Japanese accounting knowledge, English skills, familiarity with group systems, and the ability to work with overseas headquarters. Finding someone who meets all of these requirements can take time. Rather than relying on hiring alone as your business continuity plan (BCP), build a structure that keeps essential operations running even before a successor is in place.

3. What to Put in Place Before Your Accountant Leaves

Reducing keyperson risk does not require turning every task into a detailed manual. It is usually more efficient to start with the tasks that would have the greatest impact if they stopped.

Watch out for manuals that exist but cannot actually be used. Rather than relying only on procedures written by the accountant, have someone else try to perform the work using those documents. This can make it easier to find missing information.

4. Accounting Outsourcing Can Solve More Than a Staffing Shortage

Accounting outsourcing is often seen as a fallback when a company cannot hire in-house staff. To reduce this dependency, however, there is no need to move the entire function outside. You can outsource just part of the work, for example:

• Keep day-to-day accounting in-house and handle the monthly close jointly with an outside provider
• Get support only with the reporting package
• Set up a backup arrangement to cover your accountant's absences

The key is not choosing between full-time staff and outsourcing, but designing a structure that reduces the number of tasks that stop when one particular person is away.

5. Summary

The real concern for accounting at a Japanese subsidiary is not having a one-person team in itself. It is having operational knowledge, authority, and communication with headquarters concentrated in one person. If you wait until your accountant resigns, you may have to recruit, write manuals, and manage the handover while keeping daily operations running. As a first step toward accounting business continuity, identify the tasks with the greatest business impact, such as the monthly close, payments, and headquarters reporting. Then document procedures, set up reviews, and assign backup staff.

RSM Shiodome Partners provides Japanese subsidiaries of foreign companies with accounting outsourcing, including bookkeeping, monthly and annual closing, and reporting to overseas headquarters, as well as back-office support covering tax and HR/labor management. If you have only one accountant and are concerned about continuity, want to check whether your operations are ready for a handover, or want to review your accounting setup, including headquarters reporting, it can be helpful to review your current processes and backup arrangements before a departure becomes imminent.

Contact us

Complete this form and an RSM Shiodome Partners representative will be in touch.