How can intercompany reconciliation become part of the fast close process?


One of the main constraints in the implementation of a fast close project still remains the reconciliation of intercompany accounts: it is one of the factors that is slowing down the production of financial statements the most. To make sure that intercompany reconciliation is no longer an obstacle, the reconciliation needs to be a part of the accounting process.

Using a professional tool to automate this process, allows you to gain in productivity, reliability and traceability. Most of the time, tools for intercompany reconciliation work on balance level: if the balance is different, then the transactions are looked at to perform the reconciliation. But the risk here is that transactions are being reconciled artificially between two entities. The quality of the process and of the financial information is in this case not guaranteed.

The above shows the importance of choosing a solution with the opposite approach:

1. Match all closely associated transactions based on a list of predefined criteria (including materiality thresholds, currency variations, etc.);
2. Send the data that couldn’t be matched to the counterparties. The tool also assists the counterparties with the reconciliation;
3. Enable counterparties to use a collaborative platform to process data which can’t be reconciled as is.

The automation of intercompany reconciliation: a funnel


1) Automatic reconciliation

Matching: the tool works first at the transaction level, matching automatically reconciles as many items as possible. Automation is required because a group can quickly be faced with high volumes when working at the transaction level. The rate of automatic reconciliation at our clients is generally about 70% to 80%.

2) Semi-automatic reconciliation

The tool assists counterparties and provides gradual, assisted reconciliation: only transactions that haven’t been reconciled are looked at. This step allows for matching or “marking by type of interco difference”, using increasingly less restrictive criteria.

3) Manual process

This yields only those data that can’t be reconciled as is. The tool includes an interface to review even more detailed information about the transactions (local account, order number, store number, names, etc.) and a collaborative platform to help the entity with its research and, potentially, to attach accounting documents to specific transactions.

The interco reconciliation process becomes part of the accounting process and of the local accounts close, well upstream of account consolidation. Consolidation managers are no longer involved in analyzing differences. This work is left to the accounting teams which have the knowledge and information required to document the reconciliation. Intercompany reconciliation becomes an internal control tool and leads to an improvement in data quality and relevance.

Not all groups are ready to start working at the transaction level right away (heterogeneous accounting systems, etc.), so it’s important that the system enables them to start working with balances.

The application enables data centralization and facilitates analysis. It ensures the exhaustiveness and perfect coherence of reconciled interco balances with those included in the consolidated accounts and, therefore, highlights any anomalies that wouldn’t otherwise have been found.

Groups that opt for this interco reconciliation approach have all the right cards in hands: intercos are reconciled and differences are justified before the closing process starts. The close is done using reliable final data and is much quicker. During the audit phase, auditors are thankful for the time saved on research, discussions with consolidators and with group entities. All the detailed information they need is available, including electronic exchanges with the counterparties in question, document exchanges, automatic or manual transaction marking… Everything is traceable.