An intercompany reconciliation marked “agreed” can still leave important questions open. What is the amount for? When is it due? Can the other company repay it? A matching balance in the two ledgers will not answer those questions.
The year-end work becomes easier when the group deals with those questions during the year. Finance can then concentrate on the balances that need a decision, rather than tracing months of entries as the reporting deadline approaches.
Agree what the balance represents
A counterparty schedule for each legal entity is more useful when it separates trading balances, recharges, cash transfers, loans and interest. The currency, transaction date, settlement terms, agreement and responsible contact should be clear.
This classification matters because different balances raise different questions. A service recharge needs a basis for the charge. A loan needs terms and an assessment of the relevant accounting requirements. An unexplained running balance labelled “group account” conceals those distinctions.
Agree a common cut-off date for confirmations. A balance supplied by one company before its close adjustments cannot be compared reliably with another company’s final ledger without a reconciliation between them.
What is behind the £20,000 difference?
Suppose Company A records £120,000 due from Company B, while Company B records £100,000 payable. The £20,000 difference is a question to investigate, not an instruction to post an adjustment.
Identify the transactions on each side. Was an invoice omitted? Was an item recorded in a different period? Is there a disputed recharge, a currency translation difference or a payment in transit? Obtain the document or explanation that supports the answer.
For every difference, record its cause, the proposed treatment, the entity responsible and the date for resolution. If no adjustment is needed, explain why the accounting remains appropriate.
This avoids an apparently clean reconciliation that simply transfers an unexplained difference into another account.
Reconciliation and measurement are different tasks
Agreed contractual amounts do not require every carrying amount to be identical. For example, an impairment recognised by a lender does not automatically reduce the borrower’s contractual liability.
Different functional currencies can also create differences in reported amounts. Reconcile the underlying transactions and currency amounts, then explain the accounting treatments rather than forcing symmetry.
For material balances, assess repayment expectations, maturity, interest terms and any changes to the arrangement under the applicable accounting framework. Keep the evidence supporting those judgements alongside the reconciliation.
An intention to settle “when the group has cash” needs more explanation if the lending company is relying on repayment.
Consolidation does not resolve the entity-level questions
Intragroup balances and transactions are eliminated on consolidation, but each company still needs appropriate individual financial statements. Recoverability, classification, documentation and legal rights remain relevant at that level.
Nor does eliminating a receivable and payable address every consolidation adjustment. For example, profit included in inventory transferred within the group may need separate attention.
Keep tax and legal questions visible. A reconciliation does not by itself establish that a recharge, loan amendment or waiver is appropriate for transfer pricing, tax or company-law purposes.
Repeated differences deserve a closer look
Ask both sides to confirm material positions during the year. Focus review on old balances, repeated differences, unusual journals and items without clear settlement terms.
Keep a shared list of unresolved items, with someone responsible for each one. If the same “timing difference” appears month after month, ask when it is expected to clear and what evidence supports that answer.
Before year end, the group reporting team should be able to distinguish balances that are agreed, differences awaiting correction and judgements awaiting approval. That distinction makes the remaining work visible without pretending every unresolved item is an error.
What should reach the reviewer?
The reviewer needs the reconciliation and enough evidence to understand the conclusion: relevant agreements, explanations for material differences, measurement and presentation judgements, and consolidation adjustments. Clear evidence of review helps show which questions have already been resolved.
A useful test is whether another member of the finance team could explain the balance from the file alone. If the answer still depends on finding the person who arranged it, the documentation needs more work.
Reviewed 21 October 2026. General guidance for companies and groups. The accounting, tax and legal treatment depends on the arrangement and reporting framework.
Sources and further guidance
FRC: FRS 102 and the Periodic Review 2024 amendments