What is the Intercompany Transaction Process?
Intercompany transactions are financial transactions between entities within the same corporate group—such as a parent company and its subsidiaries. They matter because they can distort group results if they aren’t recorded consistently, reconciled, and eliminated correctly during consolidation.
- Intercompany includes internal trading, recharges, loans, and asset transfers.
- Differences in timing, currency, or coding create mismatches and delays at close.
- Consolidation typically eliminates intercompany balances and internal income/expense.
Common intercompany transaction types
Typical intercompany activity includes:
- Sales and purchases of goods/services within the group
- Management fees and shared service recharges
- Intercompany loans, interest, and repayments
- Cost allocations (rent, IT, payroll recharges)
- Asset transfers between group entities
- Intercompany dividends (in many consolidation contexts)
Why intercompany causes complexity
Intercompany issues arise when the two sides of a transaction don’t match. Common causes include:
- Cut-off timing differences (posted in different periods)
- Currency differences and FX rates
- Different account mappings or dimension usage
- VAT/tax treatment differences by jurisdiction
- Missing postings on one side
Even when the amounts are small, unresolved intercompany differences can delay group close and increase audit effort.
How intercompany is treated in consolidated accounts
Group financial statements aim to present the group as a single economic entity. That generally means:
- Removing intercompany receivables and payables (internal balances)
- Removing intercompany income and expenses (internal trading shouldn’t inflate group revenue)
- Adjusting for unrealised profit on inventory still held within the group (where applicable)
Best practices for managing intercompany
- Use consistent intercompany account structures and entity coding
- Agree pricing and recharge policies with documentation
- Reconcile intercompany balances regularly (weekly/monthly), not just at year-end
- Track disputes centrally with owners and resolution dates
- Standardise FX treatment and cut-off rules
Why do we eliminate intercompany?
Because group accounts should reflect external activity only.
How do intercompany mismatches happen?
Different timing, FX rates, mapping, or missing entries are the most common causes.
What’s the biggest close blocker?
Unreconciled intercompany balances across multiple entities and currencies.
Find out how you can simplify intercompany accounts with AccountsIQ.
