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Multinational Corporations Need Intercompany Financial Management

Ventana Research defines intercompany financial management (IFM) as a discipline for structuring and handling transactions within a corporation and between its legal entities that is designed to maximize staff efficiency and accounting accuracy while also optimizing tax exposure, minimizing tax leakage, and ensuring consistent tax and regulatory compliance. Better execution of IFM can have a meaningful impact on the bottom line, improve financial control, and reduce reputational and other risks. Yet few senior executives are aware that common but unobserved gaps in financial systems, communications and coordination within their organization pose challenges to IFM. Through our efforts to call attention to the issue, Ventana Research asserts that by 2025, one-half of organizations with 10,000 or more employees will have implemented IFM to achieve tax, risk management and financial close benefits.

IFM issues arise because individual business units in larger corporations often buy and sell goods and services to each other. The accounting processes that match, reconcile and eliminate these transactions are steps to produce a consolidated set of financial statements, but are often complicated because, according to our Benchmark Research, 69% of corporations with 1,000 or more employees have ERP systems from multiple vendors. Furthermore, when transactions span multiple tax jurisdictions, involve trade regulation or require internal cost allocations, financial software packages for consolidation and reconciliations can handle only part of the process.

 
 

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About the Author

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Robert Kugel

SVP and Research Director
Ventana Research

Robert Kugel is responsible for the Office of Finance and business research, focusing on the intersection of information technology with the finance organization and business. His research agenda includes the application of IT to finance and business process optimization, looking particularly at ERP and continuous accounting, financial performance management, predictive planning, price and revenue management, revenue and lease accounting and robotic finance.