The Hidden Risk Of Inter-Company Accounting

There is another threat to corporations involving their accounting processes, and it comes from within the enterprise.

New research from Deloitte says that, on top of accounting risks from firms doing business with third parties, like customers and suppliers, inter-company accounting can also bring additional levels of friction to the corporation.

In an announcement on Monday (Aug. 15), Deloitte said that only 9.2 percent of companies surveyed said their businesses have an adequate inter-company accounting framework, despite the fact that this kind of accounting — which involves transactions across a company’s legal entities — leads to risks of inaccuracies if automated, holistic solutions aren’t in place.

“While a lot of accounting, tax, treasury and other corporate leaders are focused on money flowing into and out of their organizations, inter-company accounting — or the money flowing across an organization’s legal entities — can become a real challenge to those experiencing global growth, M&A and supply chain integration,” warned Advisory Partner at Deloitte & Touche LLP Kyle Cheney.

Inter-company accounting can be a challenge for major corporations with branches in multiple locations, leading to a lack of visibility across these different units under the same corporate umbrella when it comes to reconciliation.

“For companies of nearly any size, internal transactions incorporating products and services, fee sharing, cost allocations, royalties and financing activities can create inefficiency, financial exposures and reporting risk,” he added.

The businesses surveyed by Deloitte pointed to siloed software platforms as their top barrier to implementing adequate inter-company accounting systems, though the issue of inter-company settlement was also a top challenge.

Deloitte added that inter-company agreements and transfer pricing compliance were also leading issues.

“We’re seeing leading companies tackle inter-company accounting as a team effort across accounting, tax and treasury functions,” Cheney added in a statement. “But less than one-quarter of our respondents reported their organizations taking a combined approach.”

Instead, the majority of companies (55.7 percent) said that the accounting team takes the lead on inter-company accounting, as opposed to tax or treasury teams.