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Report: Intercompany accounting activity poses corporate risk

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Report: Intercompany accounting activity poses corporate risk

Need for cooperation between account, tax and treasury functions cited.

Insufficient accounting of transactions between various legal entities within an organization can lead to inaccurate financial reporting, yet just 9.2% of respondents to a recent poll by professional services firm Deloitte say their organizations have holistic, efficient and well-communicated intercompany accounting frameworks.

Less than one-quarter of our respondents reported their organizations taking a combined approach."

"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%), but closely followed by intercompany settlement (16.8%), complex intercompany agreements (16.7%) and transfer pricing compliance (13.3%).

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%) say accounting manages their organizations' intercompany accounting, 5.5% say tax takes the lead and just 2.1% say treasury does. Only 24.4% report that a combination of tax, treasury and accounting professionals manage intercompany accounting together.

 

 

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