Case Study - Intercompany Transactions in Consolidated Reports
Executive Summary
This case study addresses one of the most common NetSuite OneWorld issues with Consolidated Reports where the root cause was more complex than expected. We will look into the issue, conduct a root cause analysis, provide solutions and any potential recommendations that can be applied to most OneWorld Accounts.
Problem Statement
Our client has a NetSuite OneWorld Instance with multiple subsidiaries, operating in multiple countries with different currencies. When running consolidated reports, one can see the Intercompany Balances. Users are running the Intercompany Elimination process every month but balances are still showing a significant amount. Checking on the transactions, the balance is comprised mostly of Currency Revaluations.
Case Background / Context
Currency Revaluation and Intercompany Eliminations are being ran every month end.
Intercompany Receivables and Payables accounts are marked for currency revaluation.
There are historical transactions using old Intercompany Accounts as Intercompany Receivables and Payables but with the Account Type of Current Asset/Current Liability.
There are some historical transactions that are non-Intercompany in nature that are posted directly to these Intercompany Accounts.
Most Intercompany transactions are Journal Entries and Advanced Intercompany Journal Entries (AICJE). Most of these Journals do not have an Entity (Intercompany Customer/Vendor) specified.
Analysis
Since most intercompany transactions are Journal Entries, transactions that do not offset each other are considered Open transactions. This means that these transactions will always be picked up in monthly Currency Revaluations, thus, the balances usually comprise of Currency Revaluations.
There are some past periods where Intercompany transactions were posted after the Elimination process was run so the balances remain in the Consolidated level without being eliminated.
There are Journal entries used with these Intercompany accounts where the eliminate checkbox were not checked so these balances were not included in any Elimination runs so this will remain in consolidated reports.
Solution / Strategy
The solution requires a cleanup of balances and transfer to correct Intercompany accounts with the correct account configuration. It is necessary to review historical transactions to ensure that the nature of transactions posted will still be covered during the process of transfer of balances.
Create Representing Entities - this is to identify Due to and Due From properly
Identify Historical I/C Accounts to Eliminate and transfer balances to
Identify all Open Transactions
Customize Journal Entry form to show "To Subsidiary" field
Transfer Balance of Historical Intercompany Account to new Intercompany Account using the same rate in transaction:
a. Identify To Subsidiary and Representing Entity for mapping of All Lines
b. Transfer to correct representing Entity
c. Transfer to corresponding Intercompany Account.
d. Follow Eliminate checkbox for Old Account Lines and correct I/C accounts checked.
Import Journal Entries
Update Old Accounts > Revaluation checkbox = F
Run Elimination process
Results / Outcomes
Completing the solution would result in having more accurate Consolidated Reporting as Intercompany balances will be eliminated. Balances that are identified as open would have been transferred to the correct Intercompany accounts and will still be revalued at month end but will also be eliminated during the elimination process.
Historical transactions will remain reverse and will not be included in both Consolidated Reports and Subsidiary specific reports moving forward.
Conclusion
The typical reason for Intercompany accounts not being eliminated is either the configuration of the Intercompany accounts or missed Month end processing. It is important to fully understand and implement the correct process of creating Intercompany transactions to ensure accurate reports.
Recommendations
Leverage the use of the Auto Balance feature in Intercompany Journal Entries to ensure that the correct accounts are used to account for Due to/from subsidiaries.
The feature Intercompany Netting is very useful for settling open balances of due to/from subsidiaries.
Ensure that all transactions are posted before proceeding to Currency Revaluation and Elimination during Period End Closing.
Download our FREE eBook ‘Maximizing NetSuite's Intercompany Capabilities - Best Practices Guide’ for more info.
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