Intercompany reconciliation software: yes, but above all a process!


When it comes to intercompany reconciliation, two wrong ideas circulate:

1. Most of the time, intercompany reconciliation is considered as something that needs to be carried out by the consolidation team.

2. It is assumed that the purpose is to “get to zero”, meaning to eliminate all differences.

Auditors require more and more that groups optimize their reconciliation process in order to improve the reliability of the financial information.

How can groups achieve this?

Auditors recommend their clients to implement a software to optimize the process. In our opinion, this is not enough: it is the whole process that needs to be reviewed to get optimal results.

Bringing the issue of intercompany reconciliation to the level of local accounting

We recommend to see intercompany reconciliation as a way to improve local accounting and closing processes with a view on fast close. According to us, it is essential to opt for a software that reconciles at transaction level (and not at balance level, a process that makes you lose track of the nature of the differences and consequently form a risk for the reliability of the acquired financial information).

In an efficient intercompany reconciliation process, the goal is not to come to zero and to eliminate all differences because forced situations would occur, for example a partner that reviews his figures in order to stay in line with his counterparty. What about the quality of the financial information in this case? The process obviously needs to reconcile everything that can be reconciled, but more importantly it needs to be able to explain and justify the differences: currency differences, temporary differences, accounting differences between P&L and balance sheet, … This way, the consolidator will be able to make the necessary adjustments.

When we talk about intercompany reconciliation, two aspects need to be highlighted:

1. As discussed above, the issue comes from the use and the expectations of the software. People assume that the implementation of the tool will make sure that as much as possible transactions will be eliminated, but the implementation of an intercompany reconciliation software is just the tip of the iceberg.

2. It concerns above all an issue of internal procedures and efficient processes: until which date are the entities of the group allowed to invoice their intercompany transactions (setting cut-off data)? How is the invoice being registered in the accounting software (partner code, invoice code, …)?

Above all, it concerns a process of internal organization within the group.

The implementation of an efficient reconciliation process is only a part of the fast-close project. The requirement to implement a tool crystalizes this issue and allows you to launch a project. Next to that, the tool will help you to measure and concretize the progress. But implementing the best tools without reviewing the organizational processes, is like buying a car without fuel!