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How to Choose the Right Accounting Firm in Japan

2019年12月13日 Yoshio Yamaguchi

If you're a foreign company seeking an accounting firm in Japan, the following guide will help you make an informed decision.

Tax and English: Like Oil and Water

Although translation software has significantly improved, making everyday communication easier without knowing Japanese, dealing with complex tax issues is a different matter. When a problem arises, or when explaining specialized topics in detail, the ability to communicate in English becomes essential.

Under the Japanese system, there is a distinction between certified public accountants, who are in charge of accounting audits, and licensed tax accountants, who are in charge of tax reporting. While many accounting professionals in Japan, especially in large audit firms, speak English, finding tax professionals fluent in both English and taxation is more challenging. This discrepancy stems from the nature of tax regulations, which are unique to each country. Unlike accounting, where international standards like IFRS apply, tax laws are domestically oriented, making it difficult to find professionals who excel in both taxation and English.

When selecting an accounting firm, ensure that the assigned professional not only speaks English but is also an expert in Japanese tax law.

Labor and English: Even More Challenging

Basic work communication, such as emails, can be handled by translation tools. However, English fluency becomes crucial when explaining Japan's unique labor regulations to foreign headquarters. Labor laws are deeply rooted in each country's history and customs, often making them more localized than tax laws. Explaining payroll, social security, and income tax calculations in English can be daunting, and professionals with such expertise are rare.

Bookkeepers May Not Be Tax Experts

Even if the person handling your bookkeeping isn't a tax specialist, their role in recognizing important tax issues is significant. This includes managing consumption tax, withholding taxes, and determining tax treaty applications, especially for foreign companies.

Check for ERP Compatibility

Foreign companies often use ERP systems like Oracle or SAP at the request of their parent companies. However, it's important to be aware that Japanese accounting professionals may not be familiar with these systems, which can lead to inefficiencies. From experience, I recommend avoiding the use of overseas ERP systems in small to medium-sized Japanese subsidiaries, as this can pose significant challenges.

That said, if using ERP is non-negotiable, ensure that your accounting firm has the expertise to streamline operations by reducing manual input and automating processes through Excel imports.

Verify GAAP Conversion Skills

If your parent company mandates the use of a foreign ERP system, it's crucial to understand that mid-year transactions may need to be recorded in accordance with US GAAP or IFRS. However, at the end of the fiscal year, the financial statements must be converted to Japanese GAAP to comply with local laws.

This conversion task, which requires a deep understanding of the differences between Japanese and international accounting standards, is a necessity for companies using foreign ERP systems.

* Ensure that your accounting firm has the following skills: A thorough understanding of GAAP differences between Japan and the US/IFRS.

* The ability to manage past and current GAAP adjustment data efficiently using Excel.

* Strong English communication skills to coordinate with controllers overseas.

The complexity of this task varies depending on the company's size and its financial statements' intricacies. Some of our clients chose to hire our accounting firm specifically for GAAP conversion services.

Large vs. Small Accounting Firms: Pros and Cons

When choosing an accounting firm in Japan, carefully weigh the trade-offs between large and small firms. The right choice will depend on your specific needs, budget, and the complexity of your operations. Here is a brief summary:

	Pros	Cons
Large Accounting Firms	Access to experts in specialized fields like transfer pricing and M&A tax structuring. Strong IT security measures and personal data protection. High level of trust in service quality. Ability to provide one-stop services, including payroll, social insurance, and legal support.	Consulting on tax matters can be expensive, often charged on an hourly basis. Strict internal approval processes can result in slow or unavailable responses to unusual requests. High employee turnover, leading to frequent changes in your team and inconsistencies in service quality.
Small to Medium-Sized Accounting Firms	More affordable pricing. Flexibility and responsiveness to additional client requests. Consistent service quality, with firm leaders often directly involved in client work.	May lack the expertise to handle complex matters like transfer pricing and M&A tax structuring. Could be behind on IT security, data protection, and information leakage prevention.

Conclusion

Choosing the right accounting firm in Japan is crucial for the success of any foreign company operating in the country. Whether it's ensuring clear communication in English, navigating complex tax and labor regulations, or handling specialized tasks like GAAP conversion and ERP management, the firm you select should meet your specific needs. Large firms offer a wide range of services and expertise but often come with higher costs and less personalized attention. On the other hand, small to medium-sized firms provide flexibility, affordability, and more consistent service, though they may lack resources for complex tax matters.

By carefully evaluating your company's requirements and considering the strengths and limitations of different firms, you can make an informed decision that supports your business operations in Japan.

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