You can find the first part of this article here.
Inclusion in IC voting
Intercompany reconciliation (receivables/liabilities, expenses/income, etc.) is the process in which the accounting-related transactions between the group companies are checked for consistency. Reconciliation is carried out at general ledger and subledger level and ideally takes place before the preparation of the consolidated financial statements.
Inconsistencies between the companies can arise due to incorrect bookings, currency differences (transaction-related => inclusion of the transaction currency) or period deviations due to different periods.
The intercompany coordination takes place before the final preparation of the individual financial statements and contributes to their accuracy. In addition, intercompany coordination is also important for the consolidated financial statements because they are derived by consolidating the individual financial statements of the group companies. Since consolidation requires, among other things, expense and income consolidation and debt consolidation, intercompany coordination with any corrections that may need to be made ensures that the consolidation steps run smoothly and avoids delays.
Some ERP systems include intercompany reconciliation functionality. Most of these systems require that a homogeneous and centralized IT landscape exists across the group. Smaller companies with their own accounting system are invited.
If this is not the case, intercompany coordination is mainly carried out using self-developed solutions or forms and/or spreadsheets (especially Microsoft Excel) and emails, which can, however, be very time-consuming.
It makes sense to carry out intercompany coordination as early as possible, ideally at the origin of the bookings in the ERP system. This means that any deviations can be responded to in the best possible way.
New legal requirements
The integration for companies that have their financial statements available outside, in a separate ERP system, often presents major challenges.
There is also the inclusion of data for ESG reporting. Those companies that are already required to report in accordance with the CSR Directive Implementation Act (CSR-RUG) are already affected here for the 2024 financial year. These reporting processes are mostly handled outside of data reporting for consolidated reporting, although synergies could be exploited.
This constellation occurs with smaller (sales) companies, acquisitions that are not yet integrated into the parent company's IT systems or with financial holding companies where the parent company invests in various business models of the investments, but on the IT side the local deals are usually in their own ERP systems are carried out.
Central accounting system
The transfer of the final values of group companies from the central accounting structure to a consolidation system depends, among other things, on which platform and system (software) the individual companies are located. The ideal case would be for all companies to be on a uniform, harmonized accounting system; keywords here include S/4HANA, Central Finance, etc. If the periodicity, scope of reporting, accounting, company form(s), etc. also match, this would be the case Ideally, optimize.
The introduction of a holistic, modern financial management software as a central accounting system not only creates efficient processes, but also any legally compliant reporting. More functionality also means more ease of use, including in the technical transitions of the local accounting structures (mapping). With an integrated system, the mapping rules can be stored, i.e. which account is mapped to which group position. However, depending on the integration, this may also have to be implemented using other solutions such as Excel.
Content transitions, for example from local GAAP to IFRS
The reporting process for, for example, IFRS consolidated financial statements (can also be HGB) still poses major challenges for many companies. The conditions are particularly difficult for small subsidiaries that are distant from the parent company.
Normally, responsibility for transitioning content lies with the daughter. This makes the necessary adjustments from local GAAP to IFRS and is responsible for mapping the local accounts to the group positions and other account assignment-relevant characteristics.
If this is not possible for organizational reasons, another route can be chosen. As a rule, the company data from the individual financial statements is then technically processed and transferred to the accounting structures of the parent company's reporting system in the ERP system. Thereafter, an adjustment is made from the group's perspective to the group's GAAP, which is carried out by Corporate Accounting.
Fully automatic, harmonized and integrated solutions for a transition usually do not exist, although this would be technically possible. Software solutions offer the possibility of mapping transitions based on the local structures for each subsidiary without the need for complex master data maintenance in the consolidation system.
Acquired companies/mergers
Transactions such as acquisitions of companies or mergers present additional challenges. Acquired companies often experience a time and procedural bottleneck. This is usually determined by the so-called signing and closing date. For newly acquired companies, the first step is often to work with a less detailed scope of reporting, as the reporting process and cooperation must first be established. Only in step 2 is the reporting depth and detail adjusted to the mother's standard.
When it comes to mergers, it is important to ensure that these can already be mapped in the ERP system and that the content can ultimately be clearly transferred to the consolidation system in the context. Since the majority of mergers are reflected retroactively, it is important to ensure that the balance sheet and income statement must be derecognised from the merging company as of the merger date and transferred to the absorbing company. This must be reflected accordingly in the data reported by the participating companies to the parent company.
They find out here more about financial consolidation.
