This piece is the third instalment in our series on automating financial consolidation. Links to the previous articles – Group Structure and Chart of Accounts – can be found on our website.
Eliminating intercompany transactions and balances (IC) is a core consolidation step. IFRS 10 requires that all such assets, liabilities, equity, income, expenses and cash-flows be eliminated in full before the consolidated statements are issued. The only strategic question is where the work of resolving breaks happens – inside each subsidiary or centrally at head office.
| Model | How it works | Best for |
| Reconciliation | Subsidiaries send head office finished reports: each entity works with its counterparties until the IC difference hits zero; HO simply uploads the final numbers. | Small groups; few entities; tight local processes. |
| Matching | The consolidation system becomes a shared workspace: HO sees breaks in real time, tracks causes and – if needed – nudges subsidiaries to agree corrections (for large groups this sometimes involves litigation). The IC module therefore needs richer features: counterparty cards, drill-downs and comment threads. | Mid- to large groups; cross-border trades; high audit scrutiny. |
A group picks its model while drafting the consolidation methodology; once chosen, it’s far simpler to embed it directly in the system than to juggle it in spreadsheets.
Create dedicated IC accounts – as many as needed (per entity or sub-group). Modelling accounts in pairs lets you see the total break at a glance: one figure for the balance sheet, another for the profit-or-loss.
The automatic elimination journal zeros those IC accounts. Any temporary difference is parked in a suspense account so that finance can investigate – but that suspense must clear to zero before sign-off.
| Company A | Company B | Auto-adj. in A | Auto-adj. in B | Group total | |
| IC receivable | 100 | — | (100) | — | 0 |
| IC payable | — | (120) | — | 120 | 0 |
| Suspense receivable | — | — | — | (20) | (20) |
| Special offset (consol.) | — | — | 100 | (100) | 0 |
Once subsidiaries agree the correcting journal, the CU 20 suspense is reversed, bringing the group total back to zero.
When you automate IC dividends, make sure the logic doesn’t create unwanted effects on unrealized profits. In practice groups follow one of three approaches:
A centralised IC workflow delivers faster closes and higher data quality by giving the group a single, end-to-end entry point for intercompany operations. For many finance teams that single gain justifies the entire automation project.
July 3 at 12:30 PM
Join our free webinar on "Key Considerations in Automating Financial Consolidation" to explore how to:
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- Structure your group and chart of accounts effectively
- Handle data collection and multi-currency challenges
- Automate intercompany eliminations, adjustments, and cash flow reporting
- Set the right level of analytics and detail in your system
