When was the last time you looked at the structure of your intercompany process? If you’re like most organizations, the intercompany accounting process is generally a difficult and disorganized process due to an inherent lack of visibility. Fortunately, to date, most finance departments have adapted to its complexities and developed at least some way of dealing with its challenges, and historically, this has allowed you to at least complete the process.
However, due to the global growth in complex organizational structures and country-specific regulations and tax policies, companies are now handling this increasingly intricate process with outdated or manual solutions, such as spreadsheets and email, that are no longer acceptable.
To help companies establish a sound intercompany process, PwC published an article detailing five important things to consider when it comes to timely, accurate and transparent intercompany transactions. To break it down, the five things are:
- Pick reconciliation over balance. The question shouldn’t be whether the books balance, but whether the transactions reconcile.
- Don’t assume everything will consolidate away. Certain types of errors, such as the tax mistake referred to in the article, won’t be detected by controls in the consolidation process.
- Remember automation. There are many ways your ERP could support intercompany, but most often fails to. Because of this, manual processes are the dominant means to execute intercompany instead of automation, but it doesn’t have to be that way.
- Figure out who’s doing what. The design of your intercompany process is just as important as its execution. For example, tax professionals are trained to interpret vague policies and conflicting data and make judgement calls independently, controllership teams are not. Misalignment of your resources can cause loss of a significant sum of money.
- Don’t neglect statutory accounts. Compliance is just as important as performing your 10K but tends to fall on the backburner for local controllership teams to manage, often without the proper tools.
According to PwC, the root cause of the intercompany problem is a lack of organization. We need to start seeing the intercompany processes as a unified whole with functional groups, instead of separate parts that eventually become one.
Transitioning your intercompany reconciliations from a disorganized system to an organized process can be tricky. The best way to achieve this goal is to focus on all the components that make up intercompany accounting and automate.
Our eBook is the perfect tool to help you begin cleaning up your intercompany process and identify your company’s biggest challenges.
Written by: Ashton Mathai & Caleb Walter