Optimizing Intercompany Accounting: It’s harder than you think

In this episode of the Business Excelleration^® Podcast, a discussion of the hidden complexities, potential pitfalls and proven best practices around intercompany accounting with The Hackett Group European Account to Report Advisory Practice Leader Stephen Ferguson and Account to Report Global Program Leader Bill Marchionni.

Welcome to The Hackett Group’s Business Excelleration Podcast, where – week after week – we hear from experts on how to avoid obstacles, manage detours, and celebrate milestones on the journey to world-class performance. This episode is hosted by Gary Baker, Group Global Communications Director at The Hackett Group. Today’s episode will discuss the hidden complexities, potential pitfalls and proven methods of practices around intercompany accounting. His guests are Stephen Ferguson, European Accountant Report Advisory Practice Leader, and Bill Marchionni, Accountant Report Global Program Leader.

To begin, Stephen explains why companies are focusing on intercompany accounting. On the one hand, there isn’t enough scrutiny and on the other. In a world where tax authorities are hungry for revenue and developing their own powerful analytics capabilities, there is a latent tax risk here which is all too often forgotten about. There needs to be more appreciation that intercompany accounting has the ability to drive huge values, often even across borders. Now is a really bad time not to be in control of this process.

In practice, Bill explains, this is a lot more challenging and complex than you might think. First, there is a high volume of transactions to process when looking at intercompany. They also face inherent challenges of dealing in multiple currencies, exchanges and statutory requirements. Hackett has identified 4 different types of transactions within the intercompany portfolio, each with different characteristics and pressures. These include intercompany training, recharges, allocations and financing. Other challenges of the service delivery model construct include the different ERP systems, timing issues, absence of a dedicated intercompany accounting tool, the recurrence of disputed items and inconsistent materiality levels. All of these things often lead to a process which, in most organizations, is not well managed. Operationally, intercompany accounting gives the CFO more lead way to devote more attention to the most important things they need to do. In a best practice environment, there would be an intercompany process that properly tags and maps data and maintains seamless integration between trading partners. There is a risk to the successful and timely completion of the closed consolidation process.

In their survey, Hackett found that there are only a small subset of companies out there who are maximizing all potentials of intercompany accounting. The poll ran for the second half of 2022 and attracted a wide range of participants. The small subsect of companies aforementioned are better at driving automation of invoices at a rate of 75%. They are also better at settling on time and have a higher degree of reconciliation. They are also very good at securing funding to apply change and continuous improvement. They do not see intercompany as a simple fix, but rather as an entire lifestyle and learning lesson.

Before wrapping up, Bill offers his best advice for companies looking to kickstart their own intercompany journey. First, it is important to have an agile process that can respond to changes as they inevitably arise. Companies need to appoint a dedicated intercompany global process owner and provide them with the necessary means and support to drive transformation. They also need to reassure the importance of the intercompany process as it relates to some of the most important numbers in the income balance sheet. We also need to portray the inherent risks involved in the process. There are many platforms currently available to help companies along their journey. Securing funding involved the risk posed towards the organizations through auditing. So, companies should commit to that center of excellence model, execute the process and encourage a continued focus on continuous improvement. Lastly, it is about effectively engaging stakeholders with a focus on driving comprehensive transformation. Finally, Stephen shares the many ways The Hackett Group can assist a company along this journey.

Timestamps:

• 0:49 – Welcome to this episode, hosted by Gary Baker.
• 1:11 – Why companies care about intercompany accounting.
• 3:43 – The complexities of intercompany accounting.
• 4:50 – The core types of transactions.
• 7:22 – Intercompany accounting from an operational standpoint.
• 10:09 – Hackett’s survey results.
• 14:12 – Advice for organizations who want to begin their own intercompany journey.
• 19:07 – Where Hackett fits into this transformation equation.