Intercompany Accounting Best Practices: Reap The Rewards of Agile Accounting
When you acquire another organization, you have to be ready to integrate their accounting into your own while still maintaining them as a separate legal entity within your company.
Due to the rising complexity of multinational value chains, organizations like yours may face unique challenges such as:
- Different ERP systems
- Lack of standardized accounting processes
- Gray areas between entities
These challenges create bottlenecks for reconciliations in addition to an influx of discrepancies that can attract the attention of auditors and regulators. Without streamlined intercompany accounting practices, your organization may face some serious and costly headaches.
By following our intercompany accounting best practices, you can bring some welcome reassurance to your CFO. Dive deeper into building your CFO’s confidence in your organization’s numbers at our Webinar: 5 Best Practices to Simplify Your Financial Close Practices, which you can view here.
Best Practice #1: Standardize Global Accounting Policies
There are three primary corporate functions impacted by intercompany accounting:
- Finance focuses on day-to-day financial accounting and reporting.
- Tax focuses on the financial positioning of your individual legal entities.
- Treasury collects the details of intercompany transactions and manages netting and settlement of intercompany invoices.
In order to operate within consistent guidelines across multiple entities, you need to establish standardized global policies that provide you with the depth and detail to clearly define how intercompany transactions are handled.
This allows your accounting team to maintain certain controls and provide accuracy, reliability, and compliance across finance, tax, and treasury.
Even more, standardized global policies allow you to address foreign exchange and currency while helping you establish rules on netting and settlements.
Best Practice #2: Create a Master Accounting Data Management Program
One of the biggest issues faced by companies with multiple entities operating under their umbrella is the wide variety of reporting practices being used. Between the parent company and the subsidiaries, there’s potential for a lot of grandfathered processes being brought to the table.
As each group categorizes and tags transactions in their own unique way, it creates data discrepancies that your accounting team is forced to resolve.
By establishing a master data management program that overrides all previous processes, you create universal rules that dictate every step of your accounting process, including how to collect, tag, and store transaction data.
This ensures that newly acquired accounts are in line with current processes so intercompany transactions flow across your technology platforms in the same, standardized way.
Best Practice #3: Establish a Center of Accounting Excellence
To create standardized global policies and a master data management program, you need a dedicated team of tax, finance, treasury, and IT experts to form a center of excellence.
Once they’ve established your standardized policies and data management program, they should be given access to any necessary tools they need to enforce and maintain it.
In addition, this cross-functional team should track and review all transactions in the vertical chain of operations while determining the best methods for inputting data into the central database.
Kickstart your cross-functional team by arming them with our top tips for modernizing the reconciliation process in our eBook, which you can download here.
Best Practice #4: Define Accounting Strategies for Netting and Settlement Transactions
Critical for treasury functionality, netting and settlement transactions need the ability to operate within a defined cash management strategy. This requires multilateral settlements that depend on cash transactions versus accounting entries.
By developing an efficient cash management strategy, you not only reduce bank fees and non-interest-bearing accounts, but you provide your company the ability to hedge currencies.
Best Practice #5: Deploy an Efficient Accounting Solution
Regardless of the steps you take to resolve all the challenges to intercompany accounting, matching transactions from one entity to the next remains a difficult task due to the use of multiple accounting solutions. This causes simple accounting functions like reconciliation and elimination to be time-consuming and resource-intensive.
To reconcile transactions across different ERP systems, specialized financial software provides you with quick and efficient intercompany reconciliation and elimination. While investing in new financial close software might seem expensive, it saves your accounting team time and energy in the long run.
How Adra® Can Help Your Financial And Accounting Teams
The Adra Suite by Trintech automates, streamlines, and strengthens your processes to deliver consistency, efficiency, and a proven ROI for your intercompany accounting. Benefits to your financial and accounting teams include:
- Automated multi-way transaction matching
- Seamless balance sheet integration
- Full visibility and control of your financial close
- Tailored reports and dashboard highlights
With the ability to support and integrate all ERP and GL systems, Adra is designed to simplify your month-end close, whether you’re operating locally, nationally, or globally. When you’re ready to streamline and optimize intercompany accounting, reach out and let’s schedule a demo so you can see how Adra can work for you.