Year End Audit: Integrated Companies

Tim - I will interpret your request to help you get started and understand how to consolidate statements literally and suggest the following …

We can assume the merged general ledger(s) will be used to crate your financial statements . But, in the new merged environment, you also will need to consider how/if the general ledger will support production of operating statements and related business metrics.

Once you fully define the ‘products’ of your general ledger system, your next challenge will be harmonizing the general ledgers and the charts of accounts of the merged entities. This will need to be done on an account-by-account basis and, will need to recognize new internal or external reporting requirements presented by the newly merged entities.

During the process of designing the new chart of accounts you will identify the number and define the operation of intercompany accounts. Intercompany accounts facilitate transactions between related entities and are designed to be eliminated in consolidation. You may also need to design transactions and controls around settling intercompany transactions as well.

Once you get to this point, then I agree with Yoav’s suggestion to engage your auditors. Your auditors can inspect the design of your intercompany consolidating process to ensure it ‘works’ properly (e.g., eliminates any intercompany profits, all intercompany accounts balance, etc.) and do the testing needed to certify your overall controls environment is ‘SOX-ready’. They can also observe and comment, as needed on the intercompany settlement process to ensure proper cash management between parent and its new subsidiaries.