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Intercompany accounting activity poses corporate risk

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Staff Writer | August 15, 2016
Insufficient accounting of transactions between various legal entities within an organization can lead to inaccurate financial reporting.
Insufficient accounting
Working with papers   The money flowing across legal entities
Yet just 9.2 percent of respondents to a recent Deloitte poll say their organizations have holistic, efficient and well-communicated intercompany accounting frameworks.

"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, Deloitte Advisory partner, Deloitte & Touche.

"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."

When questioned about the greatest challenge to their organization's implementation of intercompany accounting, the results were mixed with disparate software systems leading (21.4 percent), but closely followed by intercompany settlement (16.8 percent), complex intercompany agreements (16.7 percent) and transfer pricing compliance (13.3 percent).

Cheney continued, "We're seeing leading companies tackle intercompany accounting as a team effort across accounting, tax and treasury functions. But, less than one-quarter of our respondents reported their organizations taking a combined approach."

More than half of respondents (55.7 percent) say accounting manages their organizations' intercompany accounting, 5.5 percent say tax takes the lead and just 2.1 percent say treasury does.

Only 24.4 percent report that a combination of tax, treasury and accounting professionals manage intercompany accounting together.

More than 3,800 professionals participated in a Deloitte Dbriefs webcast, "Cleaning up intercompany accounting: Driving efficiency while managing risk," on May 26, 2016. Poll respondents were largely in accounting (47.2 percent) and finance (22.9 percent) roles.