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How to Conquer the Intercompany Accounting Monster

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Deloitte calls it the “mess under the bed.” But for many companies, intercompany accounting (ICA) is no longer just a mess. It’s a monster.

Exponentially increasing transaction data volume, the frenetic pace of business, and rapidly changing tax regulations have transformed intercompany accounting from a messy, uncomfortable process to one that exposes companies to a terrifying level of risk and restatement. (Intercompany issues are the fifth highest reason for restatement.)

Yet the long-term consequences include more than restatement. Companies that don’t have a handle on ICA processes also run the risk of eroding shareholder confidence and missing key marketplace opportunities.

Inefficient, error-prone, time-consuming ICA practices drain operational budgets, and lead to Accounting, Tax, and Treasury teams spending more time aggregating data, fixing errors, reconciling data, and manually managing complex reporting requirements.

Deloitte and BlackLine held a workshop where attendees were largely aligned with the main challenges they’re facing today:

  • A lack of, or poor application of, governance and policy relating to intercompany transactions. This was thought to likely be due to a lack of understanding of the complexity of intercompany processes.

  • Little understanding of intercompany balances and limited visibility of counterparty transaction details due to disparate systems or off-system activity.

  • A struggle to properly meet regulatory requirements, such as the new 385 regulations, BEPS, and other regulations that affect both operations and reporting.

  • Increased operational costs as colleagues struggle to keep up with increasing amounts of data and documentation requirements while also needing to identify and rectify discrepancies.

For many companies, ICA isn’t just complex, but rather a complicated, convoluted, under-invested and misunderstood process entailing manual workarounds, forced reconciliations, and after-the-fact corrections. In Deloitte’s Intercompany Accounting and Process Management Survey, 54% of respondents still rely on manual intercompany processing, 47% had only ad hoc netting capabilities, and 30% reported significant out-of-balance positions.[i] Our workshop attendees agreed with these findings.

ICA processes have long been complex, misunderstood, and under-invested, resulting in inefficiencies and a lack of transparency. However, with increasing regulatory considerations and the explosion of data volumes, a spotlight has been shone on this often overlooked process that is ripe for transformation.

This data challenge is real for many, if not most, organizations. Intercompany data is rarely the garden-variety, straightforward stuff found in the average spreadsheet. Instead, it’s highly complex data generated in different currencies, from multiple ERPs, from countries with varying regulations and is handled offline by colleagues around the globe and in different functions.

Some companies are now formalizing their approach to ICA governance, ensuring they consider the people, process, and technology enablers across end-to-end process. BlackLine Intercompany Hub is one of the solutions that can help provide the required visibility and control over ICA to unravel this process and lay the monster to rest.

Read this blog for five ways to improve your intercompany reconciliation.