intercompany reconciliations can slow the close process

If You Want a Faster Close, Look to Your Intercompany Reconciliations

In a world where businesses are growing rapidly through a near record-level number of mergers and acquisitions, the complexity of the organizational structure grows and the likelihood that subsidiaries conduct business with one another increases. Assimilation of these new entities into the organization is difficult from an operations, personnel, and technology standpoint, but these can typically happen at their own pace. However, the accounting and financial reporting departments must still report the company’s financials in a timely manner, including processing intercompany reconciliations. One aspect that falls on the accounting teams is learning to work together to ensure that any transactions that take place between related parties are properly eliminated in the consolidated financial statements.

This same need for faster intercompany reconciliations exists even for organizations who haven’t been growing via mergers or acquisitions, but are even mildly complex. It’s accounting, after all, so the same rules apply to a business with just two legal entities as to a company with thousands.

In the age of information and the need for speed, companies are looking for ways to close their books in a quicker manner and get their results announced to the Street, or to simply have more time for analysis and forecasting. As my colleague Kevin Nierle points out in a recent blog, one barrier to a faster close process is the reconciliation of intercompany balances.

What Makes Intercompany Reconciliations So Difficult?

The most likely reason intercompany balances are tough to reconcile is that the subsidiaries are on different ERP or general ledger systems, some of which may not be well-suited to capture the necessary details of intercompany transactions. This makes it impossible for the accountants of these subsidiaries to see one another’s balances in a system and, therefore, they must find some other way to reconcile.

Even if the subsidiaries are on the same ERP or general ledger system, oftentimes the security profile of each accountant prevents them from viewing the activity for the other entity. There could be timing differences, as well, if subsidiaries have different year-ends.

To get around these roadblocks, what typically happens is that once the books are closed by subsidiaries, the results are submitted to ‘corporate,’ who then compiles the consolidated results. It’s while performing this compilation that any out-of-balance condition is identified by corporate, who then notifies the subsidiaries that they have an issue. This usually becomes an iterative process of going back and forth between corporate and the subsidiary accountants and can be quite cumbersome, especially if there are a number of subsidiaries.

How Can You Alleviate The Pain?

According to the Journal of Accountancy, one of the top five best practices for intercompany accounting is to implement an intercompany reconciliation tool. SAP has several tools which enable companies to reconcile their intercompany transactions. These include functionality in the ERP system (S/4HANA), a stand-alone intercompany solution, and many companies utilize SAP BusinessObjects Planning and Consolidation for intercompany matching as well as for performing the consolidation. Each tool has its own merits and capabilities – you just need to choose the solution that best fits the needs of your organization.

Getting to the Faster Close

View our on-demand webcast that discusses accelerating your close process by speeding up your intercompany reconciliations to see how you can benefit from an intercompany reconciliation solution from SAP.

This short video also shows how SAP BusinessObjects Planning and Consolidation keeps you right on track.

NTT DATA Business Solutions
NTT DATA Business Solutions

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