The Critical Role of Intercompany Matching
Intercompany matching plays a pivotal role in maintaining financial integrity and ensuring the accuracy of financial reporting. However, overlooking this crucial process can have far-reaching consequences, jeopardizing not only the company’s financial standing but also its reputation and compliance with regulatory requirements.
At the heart of intercompany matching lies the correct reconciliation of financial transactions between related entities. This process ensures that all intercompany transactions are accurately accounted for and reflected in the financial statements.
Yet, as companies grow and expand, intercompany transactions become increasingly complex, demanding robust methodologies and sophisticated tools to handle the volume and diversity of data.
In short: Too many organizations still rely on manual processes, have limited visibility into their intercompany transactions across the value chain, and deal with unreliable financial statements and reporting.
Neglecting intercompany matching can expose organizations to a multitude of financial and operational risks.
Top 5 Intercompany Matching issues that create financial risk
- Unreliable financial reporting:
Inaccurate intercompany matching can lead to discrepancies in financial statements, misstating revenue, costs, and balances. This can mislead stakeholders, including shareholders, regulators, and auditors, as well as potentially result in regulatory penalties and legal action. - Misallocation of resources:
Incorrect intercompany matching can lead to misguided decision-making, as it uses inaccurate information to allocate resources and make strategic investments. This can hinder operational efficiency and profitability. - Loss of revenue and profit:
Error prone intercompany matching can hinder the company’s ability to fully capitalize on opportunities or incur additional costs due to discrepancies in pricing or exchange rates. This can lead to missed revenue and reduced profit margins. - Compliance issues:
Failure to adhere to intercompany matching standards can result in non-compliance with accounting and tax regulations. This can expose the company to fines, penalties, and reputational damage.
- Reputational damage:
Misrepresenting financial performance through inaccurate intercompany matching can erode investor confidence and tarnish the company’s reputation. This can hinder future growth and market opportunity’s.
To address these critical challenges, organizations must adopt robust intercompany matching practices.
Here are the top six Intercompany issues to address:
- Incorrect Account Coding:
Intercompany matching typically involves matching transactions between two or more companies. If the transactions are incorrectly coded or categorized, it can be difficult or impossible to match them. This can lead to discrepancies in the financial records, which can create serious problems.A variety of factors may cause errors, including incorrect coding in one of the companies’ accounting systems, incorrect or outdated exchange rates, or discrepancies in the way transactions are recorded across different companies. Additionally, human error, such as incorrect entry of data or misunderstanding of the system, can also cause inaccurate coding or categorization - Lack of Standardization:
It can be difficult to perform intercompany matching if the two companies do not use the same coding system or have different accounting standards. This can lead to errors and inaccuracies in the matching process. Companies who deal with lots of M&A typically encounter these issues - Complex Transactions:
Intercompany matching can be especially challenging for complex transactions, such as those involving multiple entities, subsidiaries, or foreign currencies. If the transactions are not properly tracked and matched, they can lead to discrepancies between the two companies - Manual Processes:
Manual processes are time-consuming and are prone to errors.- Reconciling intercompany balances:
Compare the balances for each intercompany account at both companies and determine any discrepancies - Resolving discrepancies:
Investigate and resolve any discrepancies between the two companies - Validating and approving:
Validate the accuracy of the intercompany transactions and approve them for payment - Monitoring accounts:
Monitor the intercompany accounts to ensure that all transactions are accounted for correctly - Reconciling payments:
Reconcile payments between the two companies to ensure that all transactions are correctly settled
- Reconciling intercompany balances:
- Challenges during annual close:
Intercompany matching can be a challenge during the annual close because of the complexity of the process and the amount of data that needs to undergo reconciliation. It requires a great deal of time and resources to ensure accuracy and completeness.Additionally, any discrepancies must be identified and properly resolved.The large number of stakeholders involved can make communication and coordination more difficult - Difficulty of reconciling data:
Reconciling can be challenging because of the lack of standardization in the way different companies are organized and the data they store.
Legacy software systems are often unable to keep up with the complexity of the different systems that need connection and the data transformations that need application.Tools like Oracle HFM and SAP BPC 10 also often lack the flexibility to easily accommodate changes in data formats, data sources, and data structures. Additionally, legacy software may not be able to easily access data from modern cloud-based systems, making it difficult to reconcile data between different companies.
The benefits of improving Intercompany Matching
- Improved accuracy of financial reporting
Accurate intercompany matching plays a pivotal role in ensuring the accuracy and comprehensiveness of financial reporting, providing organizations with valuable insights into their financial performance. This heightened visibility empowers management to make informed decisions regarding financial management and investments, fostering effective decision-making and stakeholder trust - Reduced risk of fraud
The type of fraud involves misappropriation of funds between two or more companies, where the transactions are not properly matched or monitored. This type of fraud can result in incorrect financial statements, overstated profits, and understated liabilities. The impacts of this fraud can be significant, costing the company money, damaging its reputation, and leading to legal action.The value of reducing these risks lies in the prevention of financial losses, maintaining the company’s good reputation, and avoiding costly legal action. Companies should take steps to ensure that intercompany matching is properly applied and monitored, such as implementing proper internal controls, conducting regular audits, and conducting training and awareness programs - Increased efficiency
Improve your company’s efficiency by reducing manual processing errors, streamlining the reconciliation process, and improving visibility over intercompany transactions.This is achievable by automating the process of matching and reconciling intercompany accounts, providing one centralized repository to access all intercompany data, and reconciling accounts more quickly. Companies can also save time and money by automating the process of generating reports and eliminating manual processing.
Struggling with Intercompany Matching? OneStream Can Help.
Intercompany reconciliations can be a time-consuming task. AMCO’s Intercompany Matching for OneStream offers a powerful solution that streamlines the process.
Here’s why OneStream is a game-changer for intercompany matching:
- Effortless Setup and Management: Pre-built dimensions and automatic eliminations simplify configuration, while the robust rules engine handles even the most intricate scenarios.
- Seamless Reorganizations: OneStream adapts to your changing business structure with ease. Simply move entities and reconsolidate – no complex adjustments needed.
- Enhanced Visibility and Collaboration: Real-time insights and detailed reports facilitate communication and collaboration between teams, ensuring accurate reconciliations and faster period-end closing.
Ready to see Intercompany Matching for Onestream in action?
- We’ll walk you through the key features of the Intercompany Matching solution.
- We’ll answer all your questions.
- We’ll show you how Onestream can address your specific needs.
Ready to take the next step? Book a meeting with our experts. Fill up the contact form to book a meeting and discover how to transform intercompany matching with Onestream
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