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How to tackle the 5 biggest intercompany accounting challenges


By Sabine Vollmer

Businesses of any size can encounter intercompany accounting challenges. Additional challenges arise during global expansions, as the supply chain becomes more complex, or when the entity has gone through a merger or acquisition.

Intercompany accounting can be difficult because it deals with money that flows across multiple legal entities of a company. A 2016 Deloitte poll of more than 3,800 accounting and finance professionals suggests that disparate software systems in the different legal entities pose the biggest problem (21.4% of respondents), followed by intercompany settlement (16.8%), complex intercompany agreements (16.7%), transfer-pricing compliance (13.3%), and foreign exchange exposure (9.4%).

Growth through acquisition is a key strategy at TrueBlue, an on-demand staffing and professional recruitment company based in Tacoma, Washington. In the past two years, the publicly traded company has increased annual revenue 61.5% to about $2.7 billion through acquisitions that expanded its business geographically and added services, according to filings with the US Securities and Exchange Commission.

Consolidation is underway, but for now the rapid growth has left in its wake multiple subdivisions using different enterprise resource planning (ERP) software and point-of-sale systems, said Shana Kneib, CPA, CGMA, associate accounting manager at TrueBlue. Many of the processes are manual because they haven’t been scaled yet.

“Disparate software systems are definitely a challenge,” Kneib said. “If you have a lot of manual processes, then you run the risk that things don’t get recorded properly.”

To avoid problems, communication in any form – email, teleconferences, meetings, and phone calls – is key, she said. During the week TrueBlue goes through the monthly close, and each day, finance staff at corporate headquarters assembles for a 15-minute standup to discuss issues and holds a teleconference with colleagues in Chicago, who manage part of the business.

“If you don’t have consistent systems, you have to communicate really well to understand and meet deadlines,” Kneib said.

Deloitte suggested that collaboration among accounting, tax, and treasury can also make it easier to tackle the challenges, especially when the legal entities involved in intercompany accounting follow a framework of standardised global policies that govern critical areas across the business.

A minority of the participants in the Deloitte survey said their companies follow such a holistic approach. More than two-thirds of respondents said an intercompany accounting framework was a goal they were working towards, but only 9.2% said it was in place. Accounting, tax, and treasury had combined efforts to manage intercompany accounting at the businesses of about one-quarter of respondents. The majority of respondents (55.7%) said accounting had taken the lead.

To tackle intercompany accounting challenges, Deloitte recommended these best practices:

  • Standardise global policies that govern critical areas across the organisation. Critical areas that standardised global policies should address include data management, transfer pricing, foreign exchange and currency, and netting and settlement.
  • Establish a centre of excellence. Cross-functional involvement of tax, finance, IT, and treasury experts is key.
  • Set up a master data management programme to execute standardised global policies. Integration of multiple ERP systems ensures that new and acquired accounts are set up in alignment with policies and that intercompany transactions are processed in a standardised way.
  • Define a cash management strategy to net and settle transactions. Having a cash management strategy in place reduces bank fees and the amount of cash sitting in accounts not bearing interest, and it provides information that allows the company to hedge currencies.
  • Use a third-party reconcilliation software tool that matches transactions. To reconcile transactions across multiple ERP systems, companies should use software that can match transactions from one legal entity to another and can identify a single transaction when a problem pops up.

Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.