Intercompany Account Reconciliations
Anyone who works for an international Company with multiple operations (or audits them) will have suffered the frustrations of trying to prepare monthly consolidations, only to find that the intercompany account balances do not eliminate! This is not only extra work to reconcile and correct, but it can contribute to significant delay in the monthly reporting close in cases of international operations where time differences, language and culture issues make it slow to secure explanations and agree on correcting entries. Of course having a world wide integrated accounting system may make it difficult to create differences, however for those suffering this problem, here are a few guidelines based on my experience. Of course the problems and required solutions may vary depending on whether the intercompany transaction pattern is radial from HQ, or includes multiple company to company transactions.I would appreciate any additional input that might be of value to our Proformative group members.
At month end the billing Company is always right, even if it is wrong. The receiving Company is required to resolve or fudge its balance to agree, and resolve the following month.
Agree on a universal stated source of FX rates, or publish the rates so everyone is using the same data.
Have companies submit intercompany statements electronically to HQ three days prior to month end to enable identification and resolution of differences before month end.
Set standards of content for intercompany invoices that provide full and clear justification for the charge.
Establish a responsible person in each company to approve every outgoing invoice prior to transmission and make them responsible for ensuring their month end intercompany balances are in agreement.
Publish clearly defined policies relating to intercompany transactions including treatment and recognition of costs, mark ups, overheads and become aware of reactions and concerns from any companies that have problem with the policy statement due to alleged "local rules or practices" and discuss, explain, and resolve.
