Key Person Risk Starts With the Depreciation Schedule Spreadsheet
- Apr 9
- 4 min read
Updated: Apr 12
In most accounting practices, and in most finance teams, there is a person who knows.
They know which client's depreciation schedule lives in which spreadsheet. They know which version is current. They know what the formula in column K does, and why the FY21 numbers in tab three don't reconcile to the tax return.
They've been doing it for years. They're indispensable.
And the day they leave is the day the problem becomes visible.
The Structural Fragility of Expertise-Dependent Systems
Depreciation is not a simple calculation. It requires understanding of effective life determinations, the applicable Division of the ITAA 1997, SBE eligibility tests, instant asset write-off thresholds as they apply in the relevant year of income, the correct treatment of improvements versus repairs, the method selected at acquisition, and the correct balancing adjustment on disposal.
For most businesses, this knowledge exists in the head of one person. They have built a system, usually a spreadsheet, that encodes their understanding. The system works because they work. The moment they are absent or no longer with the organisation, the system becomes opaque.
This is not a people problem. It is a systems problem. The expertise is real and valuable. The fragility arises because that expertise has not been embedded into a system that can operate without its creator.
What Happens When the Person Leaves?
The consequences play out predictably:
Their replacement cannot read the spreadsheet with confidence. Formulas are undocumented. Column headings are abbreviated. There are hardcoded values with no explanation.
The first year-end without them takes significantly longer than expected. Errors are introduced as the new team member makes conservative guesses about methodology.
Asset disposals during the transition period are handled incorrectly. Nobody knows which assets were written off early, which are in the SBE pool, which are on prime cost versus diminishing value.
The practice or business spends time and money reconstructing records that should never have been person-dependent in the first place.
In the worst cases, errors are lodged in tax returns that require amendment. This puts stress on client relationships, increases professional risk, and all the cost falls on the practice.
The Scalability Cost in Accounting Practices
For accounting practices, the one-person depreciation problem creates a specific scaling constraint. If the senior accountant is the only person who can handle depreciation work accurately, that work cannot be delegated.
This has direct margin implications. Work that could be handled at a lower cost-to-service rate is instead held at the senior level. The senior's time is consumed by execution when it should be spent on review and advice.
Expertise-dependent model | Systems-dependent model |
Senior accountant does the work, junior reviews | Junior does the work, senior reviews |
Senior's time is execution time | Senior's time is review and advisory time |
Client relationship tied to one individual | Client relationship tied to the practice |
Knowledge walks out the door with the individual | Knowledge is embedded in the system |
Not scalable without senior headcount | Scalable with any headcount mix |
High key-person risk | Low key-person risk |
The Client Retention Risk
There is also a client retention dimension. Clients whose depreciation work is handled by a specific individual often feel a personal relationship with that person. When the person leaves, they are at risk of following.
The practice that has embedded depreciation methodology into a system that is consistent, documented, and accessible to any competent team member retains the client relationship at the practice level, not the individual level.
What a System-Dependent Approach Looks Like
Moving from expertise-dependence to systems-dependence requires three things:
A platform that encodes the rules, not just the outcomes. When the software applies Division 40 correctly by design and not by the user's memory of what Division 40 requires, the outcome is correct regardless of who is operating it.
A process any trained team member can follow. The workflow should be documented and accessible, not tribal knowledge.
A review function that is separate from the execution function. The senior's role is to check the work, not do it.
Trusted advisors don't adapt to their clients' systems. They lead clients to better ones. The same principle applies internally: leading practices don't adapt to their best accountant's spreadsheet. They build systems that produce confident outcomes regardless of who is in the seat.
For Practice Partners: The Questions to Ask
Who in this practice currently handles the majority of depreciation work?
If that person left tomorrow, could another team member accurately pick up their clients' registers?
Is the depreciation methodology documented anywhere other than in that person's head?
Can junior staff or bookkeepers participate in the workflow, or is it gatekept at the senior level?
Are the outputs we produce for clients consistent enough that any team member's work would be indistinguishable from any other's?
If the honest answer to most of these questions is uncomfortable, the structural fragility is already present. The question is whether it becomes visible on your terms or on the client's?
If this sounds familiar, you're not alone. The fix is easier than rebuilding spreadsheets.
Dwindle is built for the whole team, not just the expert. Any team member can execute the work. The rules engine handles the complexity.
Also in this series: Division 328-D SBE Pooling: The Simplification That Creates Complexity | Why Accounting Depreciation Should Never Equal Tax Depreciation
This article is general in nature and does not constitute financial, tax, investment, or legal advice. Readers should consult a registered tax agent or accountant for advice specific to their circumstances.
