Typical issues of Intercompany Eliminations

In a business world where growth is one of the key goals of most organizations and corporate acquisitions are being made on a daily basis, companies end up with multiple internal processes and transactions that can generate many headaches at closing time. One of the main ones we hear more often are issues of Intercompany Eliminations.

When a corporation holds many subsidiaries, you will find transactions going in different directions, it could go from the main company to its subsidiary (i.e. a building owned by the parent is being leased to a subsidiary), the other way around (i.e. IT services provided by a subsidiary to its parent) or between different subsidiaries (i.e. one subsidiary sales raw materials to the manufacturing subsidiary).

At the moment of generating the financial statements for the parent company, all these internal processes need to be processed and reconciled in order to provide the overall view of the organization. That is where Intercompany Eliminations as well as some related issues start to arise.

Issues of Intercompany Eliminations:

• Manual Effort: when manual labor is required to perform the Intercompany Eliminations, the process becomes very challenging and time consuming.
• Lack of documentation: notes and documents can be a roadblock in Intercompany Eliminations when they are not well managed and available. Sometimes this issue appears because there is no technology available or no policies in place to monitor the process.
• Currency and format conversions: when operating in different countries, there are many issues related to Intercompany Eliminations when bills, dates, amounts, etc. are handled in different formats, currencies, rates, etc. This can be extremely time consuming if not managed correctly, even with the help of technology.
• Managing Settlements: these can be quite complex and also involve manual activities. Managing settlements can add a considerable amount of time to the closing activities.

Some examples of Intercompany eliminations can be found in the presentation from the California State University Long Beach in this presentation

Most of these issues with Intercompany Eliminations are recurrent and, in many cases, exactly the same every time. This means they can be solved by data automation. Having the technology in place to handle these processes and their exceptions can be key to reducing the time it takes to close.

Our customers have been able to reduce the time and effort drastically by applying the right technology to handle all these issues of Intercompany Eliminations.