Under 10% of nearly 4,000 mostly accounting and finance professionals say their organizations coordinate how their internal transactions are accounted for, according to to a recent Deloitte poll, indicating a lack of holistic, efficient, and well-communicated intercompany accounting frameworks at many multinationals.
“While a lot of accounting, tax, treasury, and other corporate leaders are focused on money flowing into and out of their organizations, intercompany accounting — or the money flowing across an organization’s legal entities — can become a real challenge to those experiencing global growth, M&A, and supply chain integration,” said Kyle Cheney, an advisory partner with Deloitte & Touche, in a press release issued by the firm.
The firm defines “intercompany accounting” as “processing and accounting for internal financial activities and events that impact multiple legal entities within a company,” according to an intercompany accounting Deloitte analysis. Often, it involves transactions that cross international borders and currencies.
Such accounting “can include sales of products and services, fee sharing, cost allocations, royalties, and financing activities,” according to the firm’s analysis.
Asked what the greatest challenges are to their organization’s implementation of intercompany accounting, the survey respondents’ results were mixed among disparate software systems (21.4 %); intercompany settlement (16.8 %), complex intercompany agreements (16.7 %); and transfer pricing compliance (13.3 %).
“For companies of nearly any size, internal transactions incorporating products and services, fee sharing, cost allocations, royalties, and financing activities can create inefficiency, financial exposures, and reporting risk,” Cheney added in the release.
About 56% of the respondents said that the accounting department manages their organizations’ intercompany accounting, 6% said the tax unit does, and 2.1% said treasury does. About 24% said that a combination of tax, treasury, and accounting professionals manage intercompany accounting.