Intercompany accounting has come under far greater regulatory and audit scrutiny in recent years, partly due to high-profile cases in which errors in intercompany activity forced companies to restate their financial results. Intercompany transactions now represent a significant portion of global trade and remain one of the most common drivers of corporate restatements.
Yet despite its scale and risk, intercompany accounting is often neglected. Many organisations rely on disconnected systems, have limited visibility across business units and operate with inconsistent intercompany rules. Spreadsheets can still be a default tool, making intercompany reconciliation and elimination slow, error-prone and highly manual. With stretched finance teams and weak coordination between entities, resolving intercompany balances is frequently postponed until deadlines force action.
A Three-Step Method for Improving Intercompany Accounting
Strengthening intercompany processes is essential for accurate consolidation, compliance with tax and accounting standards and overall financial governance. For organisations struggling to keep control of intercompany activity, the following approach can materially improve performance.
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Set up policies, standards and procedures
The foundation of effective intercompany accounting is a consistent, organisation-wide framework for identifying, approving and clearing intercompany transactions. While automation is ultimately key, it cannot compensate for inconsistent rules. Attempts to automate without clear standards often stall.
Policies should include:
- Which goods or services can flow between subsidiaries
- Applicable transfer pricing and the level of approval required
- Rules for identifying, recording and settling intercompany activity
- Designated intercompany accounts
- A clear timetable for resolving intercompany balances each month
Well-defined requirements make it far easier to enforce discipline across entities and pave the way for successful automation.
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Automate intercompany processes
Once policies are agreed and being followed, automation becomes the next priority. Managing hundreds – or thousands – of intercompany transactions via spreadsheets is not sustainable and increases the chance of errors. For organisations with multinational operations, factors such as exchange rates, local tax rules and varying accounting standards make manual approaches even more challenging.
It’s also important to recognise that not all accounting systems are built to handle multi-entity activity. Solutions aimed at early-stage businesses frequently lack proper support for intercompany transactions, leaving teams to match entries manually.
Your system should, at a minimum, allow intercompany purchase orders and sales orders to be flagged at the point of creation and automatically linked, removing the need to search through large volumes of ledger entries. Revenue and costs relating to intercompany activity should be automatically removed from consolidated financials during period close. Ideally, your ERP should also include intercompany netting to reduce the volume of invoices and payments required, saving both time and operating cost.
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Centralise ownership
Responsibility for intercompany accounting typically sits with the corporate team, which means reconciliation and elimination are often pushed to month-end. This delays the close, introduces unnecessary pressure and increases the likelihood of mistakes. Without automation, intercompany eliminations alone can add days to the consolidation timeline.
A stronger model is to assign clear ownership – either to a dedicated specialist or for higher-volume groups, a small team overseen by the corporate controller. Although dedicating resources to a process seen as non-strategic may seem difficult to justify, the gains in accuracy, speed and control generally outweigh the cost.
Centralisation requires complete visibility into intercompany activity across all subsidiaries. This is difficult when entities operate on different finance systems. To truly control the process, organisations need to run all entities on a single accounting platform, ensuring consistent data, timely insight and efficient consolidation.
Automating Intercompany Accounting with NetSuite
NetSuite Cloud Accounting Software streamlines intercompany accounting by automating reconciliation and elimination, reducing the risk of human error and significantly improving close efficiency. Intercompany sales orders and purchase requisitions can be tagged at creation and linked instantly, allowing effortless tracking. When invoices are generated, NetSuite automatically identifies lines requiring elimination and posts the necessary journal entries.
Learn how NetSuite’s unified suite for financials, operations and commerce helps organisations gain control over intercompany accounting while supporting scalable growth with a demo today.
