Intercompany reconciliation that benefits the entities and account closing


Intercompany reconciliation is a complex process and many groups are working on automating it. We see that productivity gains, traceability and auditability are the main triggers for the new projects we have been working on lately.

Why is the intercompany reconciliation process so complex?

The intercompany reconciliation process is chiefly collaborative. At the entity level, the process isn’t done when declarations and tallying have been completed, but only after all the partners have finished or when the group “rings the bell”. The goal of implementing a software application to reconcile intragroup accounts is not only to move from a centralised process to a decentralised one, but also to shift from a process managed by the consolidation contacts at the entities to an accounting process led and supervised by the consolidation team at group level.

Intercompany reconciliation software applications normally enable subsidiaries to share their balances in a common database to highlight discrepancies. In the event of discrepancies, and depending on the group, we often see exchanges of Excel files between buyer and seller in an attempt to resolve the differences via the transaction details (of course, I mean groups which haven’t yet fully automated their processes or use reconciliation solutions based on balances).

One of the main criticisms reported by operations is that, while the tools highlight the differences, they don't provide much help in explaining these differences (exchange differences, temporary differences, fixed-asset production, VAT impact, etc.). In addition, they often don’t enable decisions that impact accounting data therefore enabling an iterative approach to correct intercompany differences.

This results in tedious file exchanges which are not particularly well suited to the audit process.

Automation of the interco reconciliation process: an opportunity to review and optimise accounting close processes!

Taking the decision to install a transactional interco reconciliation software application provides considerable benefits during the closing process, benefiting also the audit phase.

These applications are collaborative portals, which sit at the periphery of local accounting applications. They allow for the simple, periodic transfer (via successive iterations) of intragroup transaction details and provide the option to attach supporting documents, exchange comments, etc. The applications have powerful functionality which automate transaction matching and operate based on the configurable materiality thresholds implemented by the group.

This last point guarantees compliance with the rules throughout the process, which isn’t always easy to achieve with file exchanges and with group directives that might have different interpretations. The applications also allow for gradual implementation (balance sheet > balance sheet, balance sheet > transactions, transactions > transactions).

They gradually disseminate a new entry culture throughout the group (implementation of standardised input rules such as, for example, vendor document references, vendor issue dates, etc.). The use of these new rules enables the subsequent optimisation of automatic transaction reconciliation, with significant productivity gains for the subsidiaries. Some of our customers achieve automatic transaction reconciliation levels between 70% and 80%.

Software for intragroup account transaction reconciliation is intended to help entities resolve differences, thereby facilitating later audit work: email discussions with the counterparties in question, document exchange, automatic or manual marking of each transaction. Everything is traceable.

Once the campaign is complete, the application feeds the balances into the consolidation software to avoid re-entries and to ensure the integrity of accounting data throughout the process.

The result is greater quality for the closing process and in the production of consolidated accounts: work is faster, more effective, and easier to audit. Did you say fast close?