Intercompany Reconciliation-How to Gain Control

Intercompany Reconciliation-How to Gain Control

For any organization that has ever gone through M&A, expansion, consolidation, reorganization, general ledger conversion, or gone global, intercompany accounting management can seem quite daunting – but it has the potential to become the monster that no one ever wanted to face down. When companies evolve and expand their reach, the volume of intercompany transactions that are generated can spiral out of control. The speed of business coupled with generation of this high volume of data is further made murky by local tax policies, regulators, transfer pricing, currency, and disparate systems that various companies within one single entity may use.

So, where did this monster come from?

Let’s begin by defining what an intercompany transaction is. Simply stated, it involves the identification and removal from all financial statements any transactions that occur between a company’s entities. These transactions can include (but not limited to) cost allocations, sales or services, or fee sharing. while one child company may be the seller, the other child company will be the purchaser. Neither of these are real revenues nor expenses from a consolidated or external view but will show up on the books of two child company financial statements. Upon consolidation, all of these should be matched, and ‘eliminated’ at the top of the house. The challenge is the matching at a transactional level can become an impossible task for any mortal human being. In Deloitte