Avoid your own shipwreck: The importance of timely, accurate and transparent intercompany transactions

Intercompany transactions: five key considerations

With three quarters (or more) of all business-to-business transactions globally taking place between parties that are related to or affiliated with one another (i.e., think one subsidiary sells a product to another or a parent company provides services to a subsidiary), you’d think that getting those transactions structured and carried out (i.e., designed and executed) timely, accurately, and transparently would be at the top of every company’s priority list. Unfortunately, more often than not, that’s not the case.

However, it isn’t just limited to multinational enterprises, and it isn’t a new problem. Take for example a shipwreck in 17th-century Sweden. Eager to demonstrate his country’s burgeoning influence, King Gustavus Adolphus commissioned the construction of a new, heavily ornamented gunship named Vasa. On its maiden voyage, the ship didn’t even make it out of the harbour. In front of thousands of bystanders, the ship heeled to port and sank. Why? The vessel was constructed with a fundamental asymmetry: half of the measuring devices used by the shipwrights were based on an Amsterdam foot (11 inches) and half on the Swedish one (12 inches).

Here are five important things companies need to think about when it comes to intercompany execution:

1. The illusion of balance: Do your intercompany transactions reconcile?
2. Not everything consolidates away: Does the control environment focus only on whether pre-tax intercompany transactions eliminate on consolidation?
3. Last in line at the ERP and transformation buffet: Manual and spreadsheet-based compensate for lack of ERP integration.
4. Who’s doing what? Do the design of the end-to-end processes address the respective responsibilities of the tax, controllership, and shared services functions?
5. Statutory accounts really do matter: Intercompany transactions are an organizational issue that require a unified approach that cascades down into functional groups.