Intercompany Accounting: Top Challenges and How to Solve Them
Intercompany accounting isn’t just something that sounds complex: It genuinely is, and it represents one of the greatest pain points for any organization that has merged with, consolidated, or acquired another entity.
When engaging in intercompany accounting, your organization will likely encounter numerous complex, time-intensive, and laborious challenges, but the good news is that you can overcome these hurdles by systematically identifying the root cause of them and investing in modern, cloud-based technologies.
On that note, join us as we explore the four greatest challenges associated with intercompany accounting and reveal the technological solution that can make all of these management problems a thing of the past.
Intercompany Acccounting Challenges
The top four challenges associated with intercompany accounting include the following:
Foreign Exchange Issues
Foreign exchange issues arise when your organization expands into foreign markets via consolidation, acquisitions, or mergers. Intercompany foreign currency transactions can lead to reporting discrepancies between a foreign entity and the domestic organization. If accounting teams misapply accounting rules for currency translations, visibility will be reduced, and the business will be exposed to undue financial risks.
These problems are especially prevalent when various entities rely on disjointed or disparate financial management tools. The use of disparate tools is quite common, especially in the months immediately following a merger or acquisition.
In order to mitigate the risks associated with foreign exchange issues, business leaders should strive to implement unified enterprise resource planning (ERP) software as soon as possible, which we’ll cover below.
One would think that everyone would be on the same page during intercompany transactions, but this is rarely, if ever, the case. Oftentimes, one accounting department will question the accuracy of an invoice that was issued by another organization within the intercompany network.
These concerns often arise due to exchange rate discrepancies, inconsistent accounting periods, or similar incongruences in financial management practices, and as part of their good faith efforts to resolve intercompany invoicing issues, financial team members will begin exchanging various accounting documents, emails, and other materials that must be tracked for auditing purposes. Unfortunately, this will muddle audit trails and may potentially lead to compliance issues.
In turn, non-compliance can cause the organization to incur fines or other unnecessary expenses due to inadvertent violations of government regulations. Even if an organization manages to avoid fines or serious compliance headaches, resolving intercompany invoicing discrepancies is a tedious and wasteful undertaking.
Complex Regulatory Requirements
Regardless of the industry you operate within, you are undoubtedly subject to at least a handful of stringent government regulations. If you operate in a heavily regulated sector, such as manufacturing or food and beverage, your business might be subject to a host of complex and difficult-to-navigate regulatory requirements.
Keeping a single company compliant with strict regulatory requirements is tough enough on its own, but when engaging in intercompany accounting, you must ensure that your accounting practices adhere to the requirements imposed on multiple industries or sectors.
If your business has lax approval policies, weak controls, or poor auditing practices, you are significantly increasing your risk of violating one or more of these regulations.
Manual Processes and Disparate Systems
The biggest source of intercompany accounting woes is the use of disparate systems and manual processes. Disparate systems are technology applications that do not freely share information with one another and thus create data blind spots that make it difficult to maintain visibility across all entities and business activities.
Aging, disparate platforms also lack effective automation tools. As such, your business must perform numerous intercompany accounting tasks manually. Doing so increases the likelihood of data entry or accounting errors, which can lead to compliance issues and cause your company to incur hefty fines.
The Intercompany Accounting Solution: Acumatica ERP Software
Acumatica ERP software can solve all of the intercompany accounting challenges outlined above and pave the way for optimal organizational productivity. As a robust technology that unifies accounting, financial management, inventory management, and other mission-critical functions, Acumatica will enable your organization to overcome its greatest growth hurdles.
Acumatica ERP technology also facilitates workflow automation, thereby reducing your reliance on manual processes and potentially leading to increased overall efficiency and enabling your accounting team to be far more productive.
Learn more in our article: 5 Best Practices for Intercompany Accounting.
Acumatica Intercompany Accounting lets you automate financial reporting, inventory transfers, vendor, payments, cash management, and inter-company transfers across multiple related companies. To learn more, watch our Acumatica Intercompany Accounting Demo.
If you aren’t sure where to begin when it comes to implementing Acumatica ERP software, that’s where we come in. At Cloud 9 ERP Solutions, we enable organizations like yours to harness the power of Acumatica ERP software by providing end-to-end implementation services.
As a Gold-Certified Acumatica Partner, we have the knowledge and expertise necessary to help you get the most out of your new technology platform. To learn more, connect with Cloud 9 ERP Solutions and schedule an Acumatica ERP software demo.