What Is Intercompany Process

In a field as complex as business-to-business accounting, process optimization and digital transformation are key to meeting companies` regulatory requirements while improving operational efficiency. Increasingly complex multinational value chains, in part due to industry consolidation or globalization, and increasing oversight by auditors and regulators mean that more and more companies are facing serious and costly problems with corporate accounting. The SAP Business One Inter-Company add-on enables companies that are already running SAP Business One to easily and efficiently manage business-to-business transactions between multiple entities. Two main processes are sales and inventory control. Consolidating accounting is one of the biggest challenges in business-to-business accounting. Although it is often complex, it is mandatory for groups or companies of a certain size and requires attention to detail and optimization if it is to provide an accurate picture of a group`s financial situation. Business accounting faces additional challenges as it deals with money that passes through multiple legal entities of a company, often around the world. A 2016 Deloitte survey of more than 3,800 accounting and finance professionals suggests that different software systems are the biggest problem in different legal entities (21.4% of respondents), followed by intercompany settlement (16.8%), complex intercompany agreements (16.7%), transfer pricing compliance (13.3%) and foreign exchange risk (9.4%). This article discusses the different stages of intercompany accounting, from accounting consolidation and the types of transactions that are commonly processed, to the various discrepancies that can occur when matching accounts. The global spread of accounting and tax regulations, accompanied by increasing enforcement, exposes companies to increased risk if they do not effectively manage their intercompany activities. In short, the challenges of executing effective and efficient business-to-business accounting can be significant, and when companies use band-aid tactics to solve the problem, they only postpone the inevitable – and the chaos continues to grow. When it comes to a series of credits in one store that are reflected in the fees on another, the ultimate goal is for one to balance another.

Both companies must enter the transaction and at the consolidated level of the group, any intercompany transaction must be eliminated so that no profit is recognised until it is achieved through a transaction with an external party. Direct integration with ERP systems allows you to extract invoice details to compensate for differences at a detailed level. As soon as the differences have been resolved, adjustments can be recorded directly in erp systems via the intercompany process without having to manually publish the corresponding log entries. Thus, automation effectively transforms the business-to-business process into a “preliminary close” before the normal monthly reporting cycle. Balancing intercompany flows can be tiring and time-consuming. To get it right, accounting professionals from the group`s various subsidiaries need to work closely with their peers, in accordance with a number of predetermined group-wide processes. During the coordination phase, it is important to define: Enter the delivery plant in the material sheets that will be relevant for the sales transaction that will be carried out by the ordering sales organization. Develop material sheets in the supplier factory: enter the delivery plant in the relevant material sheets for the sales processes carried out by the ordering sales organization. One critical area that standardized global policies should address is data management. In this way, intercompany transactions can be easily identified and processed across all platforms with common charts of accounts. Built-in reporting capabilities that meet tax, regulatory, and financial requirements must support the integrated transaction flow.

This, along with dashboard visibility, shows custom performance metrics that require minimal manual intervention. In order to isolate intercompany transactions for disposal and reporting, the data of trading partners should be clearly identified and monitored. Ultimately, it enables your business to become exceptional at every stage of the business-to-business accounting process while providing finance managers with data-driven insights. The system automatically performs costing according to the costing methodology assigned to the business organization. The intercompany batch (PI01 / PI02) appears as a statistical value on the conditions of the sales order screen – the batch has no influence on the final value of the customer`s order. Intercompany fees are not printed on the client`s documents. “Multinationals need to treat their internal activities with as much rigour and control as their external activities,” said Kyle Cheney, CPA, a partner in Deloitte`s consulting practice that focuses on managing accounting processes and activities. A purchasing organization assigned to the purchase order calendar creates a purchase order that orders goods from a factory assigned to another company code.

The factory in the delivery code delivers the goods to the factory for which the purchasing body ordered the goods. Since both companies balance their accounts independently of each other, the supplier company must invoice the goods to the ordering company. This internal billing transaction is carried out via an intercompany invoicing document. The supplier company will charge the ordering company a price that will allow it to cover its costs. Modernizing your intercompany accounting process leads to greater productivity and detects accounting errors before they lead to devastating financial representations. It allows your teams to perform continuous, real-time analysis of global business-to-business execution and present the CFO and controller with the information they need at any time. A standardized global transfer pricing policy should clearly indicate how a company has met the arm`s length standard, said Todd Izzo, a Deloitte partner specializing in international taxes. Perceived abuses in this area have inspired the recent initiative of the Organisation for Economic Co-operation and Development on Base Erosion and Profit Shifting (BEPS), which has paid more attention to these cross-border pricing rules. As a result, in some cases, the material arm`s length price provision has been changed, and companies are now required to increase their disclosure of intercompany transactions and financial results.

The IRS recently issued final regulations that adopt the BEPS recommendation of country-by-country reporting requirements for multinational corporations with annual revenues greater than $850 million (see T.D. . . .