Introduction

Intercompany Accounting, the process for recording the transfer of goods and services between legal entities, is a great challenge for many companies, even though all parties to the transaction are part of the same company, which would suggest complete automation should not only be possible, but it should also be the norm.

Company Experiences

A Peercast discussion in Peeriosity’s General Accounting (R2R) research area featured a global company with $20B in annual revenue discussing the digital transformation of the global Intercompany Accounting Process, with their Director RTR Digital Transformation and GPO RTR leading the discussion.  The scope includes accounting for all Intercompany goods and services with specific responsibility for formal invoicing (including sourced cost, mark-up per transfer pricing rules, allocations for equitable cost sharing per arm’s length requirement, and indirect taxes), GL posting of AP and AR to applicable ledgers, Intercompany balancing, setting global Intercompany policy, and ensuring compliance with Intercompany contracts between parties.

Prior to a one-year project to implement advanced software including Blackline’s Intercompany Hub, there was a three-year effort to create defined standards and rules for Intercompany transactions that could be rigorously applied, with transaction limit thresholds created as appropriate.  This effort required close coordination between many impacted process owners including Finance, Tax, Treasury, and Legal.  Once the processes were defined to a very detailed level, Senior management sponsorship was critical to achieving compliance between legal entities.  The rollout required significant training, but because of strong sponsorship, there were no debates or discussions regarding what approach would be followed or how specific transactions would be handled.  This steady state with no second-guessing for how transactions would be recorded was critical to the successful implementation of new technologies.

Before the implementation of Blackline, the company did have a purchased solution that met many of their business requirements, but unfortunately, the solution was not able to be upgraded to SAP S4 HANA.  Key benefits from the implementation of the Blackline Intercompany Hub included:

• Reduced audit fees by using a single tool
• Increased productivity in accounting by leveraging the Blackline suite of tools
• Spreading the workload over the month to avoid a large amount of activity at month-end
• Close to real-time view of all Intercompany activity and balances
• A complete hub including all service, trade, and financial transactions

For details, Peeriosity members are encouraged to sign into the members’ area to view the complete presentation and listen to the recorded Peercast.

Closing Summary

The concept of Intercompany accounting seems simple enough – booking all Payables and all Receivables transactions between different legal entities of the same company.  For those that have expertise in Intercompany, you know it’s not this simple.  In the world of Intercompany accounting, the range of complexities that exist is significant, where large Intercompany out-of-balances and unresolved discrepancies that require significant manual effort by many departments are the norms, with the idea of a clean and efficient process difficult to imagine, much less create a roadmap to achieve, a seemingly insurmountable challenge.  Fortunately, fixing the Intercompany Accounting process for a growing number of companies has in fact happened; it is not a fantasy.  Achieving this objective requires rigorous adherence to defined processes with top management support.  Once the process is defined, there are multiple software tools that can create additional benefits, including related tools from Blackline.

How close is your company to fixing the Intercompany accounting process?  Are out-of-balances resolved without issues?  What process design efforts have been pursued and what technology tools are being leveraged?

Who are your peers and how are you collaborating with them?

________________________________________________________________________

“Peercasts” are private, professionally facilitated webcasts that feature leading member company experiences on specific topics as a catalyst for broader discussion.  Access is available exclusively to Peeriosity member company employees, with consultants or vendors prohibited from attending or accessing discussion content.  Members can see who is registered to attend in advance, with discussion recordings, supporting polls, and presentation materials online and available whenever convenient for the member.  Using Peeriosity’s integrated email system, Peer Mail, attendees can easily communicate at any time with other attending peers by selecting them from the list of registered attendees.

Peeriosity members are invited to log into www.peeriosity.com to join the discussion and connect with Peers.   Membership is for practitioners only, with no consultants or vendors permitted.  To learn more about Peeriosity, click here.