Intercompany reconciliation: the complete guide to a reliable group close

What is intercompany reconciliation?

Intercompany reconciliation means comparing, for each pair of entities in a group, the reciprocal balances and transactions recorded on both sides, then explaining and resolving differences before consolidation. A €50,000 receivable in company A from company B must be matched by a €50,000 payable in company B to company A; a recharge income line in A must match an expense of the same amount in B.

This step is not optional. On consolidation, intragroup balances and transactions are eliminated in full: IFRS 10 requires it (paragraph B86), and so do local GAAP frameworks such as French ANC regulation 2020-01. If the two sides do not agree, the elimination leaves a residual: either it distorts the consolidated accounts, or it sits in a suspense account that has to be justified.

More flows are in scope than teams often expect:

• sales and purchases of goods or services between subsidiaries;
• cost recharges: management fees, head-office costs, IT services, shared-cost allocations;
• intragroup loans, borrowings and current accounts, plus the related interest;
• dividends paid by a subsidiary to its parent;
• cash pooling and netting arrangements.

Reconciliation and elimination are not the same thing. Reconciliation checks that both sides agree and explains the differences; elimination then removes these transactions from the consolidated accounts. A weak reconciliation always resurfaces at elimination time.

Why it is so hard in practice

On paper, you compare two numbers. In a group of five to twenty-five entities, several factors add up:

• different ERPs and charts of accounts from one subsidiary to the next, with unharmonised descriptions;
• a missing or wrong trading-partner code on part of the entries, so the counterparty cannot be identified;
• close calendars and cut-off dates that do not line up;
• several currencies, with exchange rates applied differently across entities;
• email chasers and spreadsheets passed from version to version, with no record of who approved what;
• reliance on one or two people who “know” how to explain recurring differences.

The result: differences are handled in a rush at the end of the close, some are forced through as consolidation adjustments without solid explanations, and the same questions come back every month — including from the auditors.

The 7 most common causes of intercompany mismatches

Most intercompany differences come down to a small number of causes. Tagging them from a closed list is the first step to resolving them quickly and spotting the ones that recur.

Worked example: a France → UK cost recharge

Alpha SAS (France, functional currency EUR) recharges head-office costs to its subsidiary Alpha Ltd (UK, functional currency GBP). The €120,000 invoice is issued on 28 September; Alpha Ltd receives and books it on 3 October. The group consolidates in euros and closes monthly.

At the end of September, the €120,000 difference is not an error: it is a cut-off timing difference. It must be identified, documented as in transit and checked the following month. At the end of October, if Alpha Ltd keeps its payable at the historical rate, translating it at the closing rate shows a €1,412 difference. Because the payable is denominated in euros, it is a foreign-currency monetary item: IAS 21 requires Alpha Ltd to remeasure it at the closing rate. Once remeasured, both sides agree.

The £1,200 FX loss booked by Alpha Ltd is not eliminated on consolidation: it reflects a real exposure between two different functional currencies (IAS 21, paragraph 45). Reconciling does not mean making every profit-and-loss difference disappear.

The 7-step method

1. Set the rules before the close: intercompany cut-off date (for example five working days before period end), exchange-rate policy, materiality thresholds per entity pair, mandatory accounts and trading-partner codes.
2. Collect data from both sides: a general-ledger extract of intragroup accounts for each entity, with trading-partner code, transaction currency, invoice reference and date.
3. Build the balance matrix per entity pair (A against B, B against A) in a common currency, to see at a glance where differences concentrate.
4. Reconcile at transaction level for pairs that do not agree: by reference, amount and date, with explicit tolerances on amount and number of days.
5. Tag every remaining difference with a reason from a closed list: timing, FX, misposting, dispute, one-sided entry, in transit, tax.
6. Resolve: correct in the local books where possible, otherwise post a documented consolidation adjustment; escalate disputes under a rule everyone knows, for example above an amount or a number of days.
7. Document and learn: keep who approved what, when and on what basis, then analyse recurring causes to fix the process before the next close.

Steps 1 and 7 are the most often skipped, and they are the ones that save time from one close to the next: clear rules prevent part of the differences, and a memory of past decisions avoids re-explaining the same items every month.

Is Excel enough?

For a small group with few flows, a well-structured workbook can be enough. The limits show quickly when several signals combine:

• more than five entities, several ERPs or heterogeneous exports;
• several hundred intercompany lines to review each month;
• the same differences recurring close after close, with the same explanations retyped;
• only one person able to run the file;
• repeated auditor requests about the justification of residual differences.

Excel’s problem is not calculation: it is the lack of an approval trail, fragile formulas and versions, and explanations that do not survive from one month to the next.

What auditors look at

• completeness of identified reciprocal transactions, and consistent trading-partner codes;
• justification of residual differences and how they are treated on consolidation;
• consistent application of the FX policy across entities;
• segregation between preparing and approving reconciliations;
• traceability of consolidation adjustments posted to cover differences.

A reconciliation file that shows, for each significant difference, its reason, its resolution and who approved it, sharply reduces back-and-forth at the end of the audit.

The KPIs to track

• the share of entity pairs reconciled by a given day of the close;
• the amount of unexplained differences, in absolute value;
• the number of recurring differences, broken down by cause;
• the average time to resolve a difference;
• the share of corrections made in local books rather than as consolidation adjustments.

Tracked month after month, these indicators show whether the process is genuinely improving or the team is simply absorbing more manual work.

Tooling the process

Four families of tools cover intercompany reconciliation, with very different scopes:

• native ERP intercompany features, effective when the whole group runs on the same system;
• intercompany modules in consolidation software, a fit when consolidation is already tooled;
• close and reconciliation platforms, which cover a wider scope than intercompany;
• dedicated intercompany tools, focused on general-ledger lines and resolving differences.

Ninon belongs to the last category: a workspace dedicated to intercompany reconciliation from general-ledger lines (CSV import or ERP connectors), with explained match proposals, systematic human approval and a memory of decisions from one close to the next. It replaces neither the ERP nor the consolidation tool: it produces an approved reconciliation file those tools can then use.

Frequently asked questions