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Intercompany accounting activity poses corporate risk
NEW YORK, Aug 15, 2016—Insufficient accounting of transactions between various legal entities within an organization can lead to inaccurate financial reporting, 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 LLP. “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.
About the online poll
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.
About Deloitte Advisory
Deloitte Advisory helps organizations turn critical and complex business issues into opportunities for growth, resilience, and long-term advantage. Our market-leading teams help our clients manage strategic, financial, operational, technological, and regulatory risk to enhance enterprise value, while our experience in mergers and acquisitions, fraud, litigation, and reorganizations helps clients emerge stronger and more resilient.
As used in this document, “Deloitte” and “Deloitte Advisory” means Deloitte & Touche LLP, which provides audit and enterprise risk services; Deloitte Financial Advisory Services LLP, which provides forensic, dispute, and other consulting services; and its affiliate, Deloitte Transactions and Business Analytics LLP, which provides a wide range of advisory and analytics services. Deloitte Transactions and Business Analytics LLP is not a certified public accounting firm. These entities are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.