Intercompany Eliminations
France

IFRS 10 intercompany eliminations in France: French GAAP (Plan Comptable Général, PCG) with CRC Regulation 99-02 for consolidated accounts; IFRS 10 as adopted by the EU for listed entities

French groups prepare consolidated financial statements under either French consolidation rules (CRC Regulation 99-02, now codified under ANC Regulation 2020-01) or EU-adopted IFRS 10. Companies listed on Euronext Paris must use EU-adopted IFRS. Other French groups apply CRC 99-02 (or its ANC successor) for consolidated accounts, while their individual entity accounts follow the Plan Comptable Général (PCG). CRC 99-02 §261 requires elimination of all intragroup balances and transactions. The regulation prescribes specific treatment for the elimination of intragroup profits (§262), intragroup dividends (§263), and the investment-versus-equity elimination (§264-268). The French rules are broadly aligned with IFRS 10.B86 but contain additional prescriptive detail about the sequence and methodology. France's consolidation practice has a distinctive feature: the dual audit requirement. French companies above certain size thresholds must appoint two commissaires aux comptes (statutory auditors). For a group audit, this means two audit firms share the responsibility for the consolidated financial statements, and both must satisfy themselves regarding the intercompany elimination work. The co-commissariat model creates practical questions about how intercompany audit work is divided between the two firms, but both firms sign the audit report and both are liable for the opinion on the consolidated accounts. French groups often include entities operating under different legal forms (SA, SAS, SARL, SNC, SCI) and tax regimes. A common structure for real estate activities uses Sociétés Civiles Immobilières (SCIs), which are tax-transparent entities where profits are taxed at the partner level rather than the entity level. When an SCI is consolidated, its intercompany transactions still require elimination, but the tax treatment creates a different deferred tax position than for a fully taxable subsidiary. For commercial activities, the French intégration fiscale (tax consolidation regime, governed by Articles 223 A to 223 U of the Code Général des Impôts) allows groups to aggregate taxable profits and losses, with the parent company filing a single tax return. Intercompany transactions within the intégration fiscale scope are adjusted for tax purposes through a separate mechanism from the financial reporting elimination.

Regulatory context: Autorité des Marchés Financiers (AMF) for listed entity financial reporting; Haut Conseil du Commissariat aux Comptes (H3C) for auditor oversight and inspections

H3C (which became the Haute Autorité de l'Audit in 2024 under the EU audit reform transposition) inspects commissaires aux comptes of public interest entities. H3C's annual inspection reports identify group audit procedures as a regular focus area. The H3C 2022 inspection findings noted deficiencies in the documentation of group auditors' work on the consolidation process, including insufficient evidence that the auditors tested intercompany balance reconciliations rather than merely reviewing the client's consolidation file. H3C found that some auditors relied on the consolidation software output without verifying the elimination entries against source data from individual entities. The AMF, through its Direction des Émetteurs, reviews the financial statements of listed companies and publishes annual recommendations on financial reporting. The AMF's 2023 recommendations included a specific reminder about the importance of disclosing significant consolidation judgements, including the assessment of control over entities with complex ownership structures. While this relates more to consolidation scope than intercompany elimination, the AMF has noted that errors in scope (including or excluding the wrong entities) directly affect the completeness of intercompany elimination. The Compagnie Nationale des Commissaires aux Comptes (CNCC) provides technical guidance through its notes d'information and practice guides. CNCC Note d'information NI.IX addresses group audit considerations under NEP 600 (the French transposition of ISA 600), including the auditor's responsibilities for evaluating the consolidation process and intercompany elimination.

Practical guidance for France

French consolidation practice under CRC 99-02 distinguishes between three types of elimination more explicitly than IFRS does. Élimination des opérations réciproques (elimination of reciprocal transactions) covers intercompany revenue, expenses, receivables, and payables. Élimination des résultats internes (elimination of internal results) covers unrealised profit on assets transferred between group entities. Élimination des titres et partage des capitaux propres (elimination of investments and equity allocation) covers the parent's investment against the subsidiary's net assets. Each type follows specific rules in CRC 99-02, and the auditor should verify that the client has addressed all three. For French groups with tax-transparent SCIs, the intercompany elimination is standard (eliminate transactions and balances in full), but the tax effect is different. Since the SCI doesn't pay corporate tax, there's no deferred tax on the temporary difference created by eliminating intercompany profit on assets transferred to or from the SCI. The deferred tax arises at the partner level (the entity that holds the SCI interest and is taxed on its share of the SCI's profit). Request the liasse de consolidation (consolidation pack) from each subsidiary and the parent's consolidation workings. French groups typically prepare detailed paliers de consolidation (consolidation tiers), consolidating sub-groups before rolling them into the full group. Verify that intercompany eliminations are processed at each tier correctly and that nothing is lost between tiers. For the intégration fiscale, obtain the convention d'intégration fiscale (the agreement governing how the tax benefit or cost is allocated between group members) and verify that the intercompany flows arising from the convention are eliminated at consolidation.

Audit expectations

H3C inspectors assess whether the commissaires aux comptes performed sufficient work on each of the three elimination types. Inspectors look for evidence that reciprocal balances were reconciled at the entity-pair level, that internal results (unrealised profits) were calculated independently rather than accepting the client's computation, that the investment-equity elimination was recalculated for each subsidiary (particularly where there have been changes in ownership during the year), and that the two co-commissaires coordinated their work on the consolidation to avoid duplication or gaps. A specific H3C expectation is that the audit file contains a clear record of how the consolidation audit work was divided between the two firms, including who took responsibility for which aspects of the intercompany elimination.

France-specific considerations

French transfer pricing rules (Article 57 of the Code Général des Impôts) require arm's length pricing for intercompany transactions with foreign related parties. The documentation requirements (Article L13 AA of the Livre des Procédures Fiscales) apply to companies meeting specific size thresholds. While transfer pricing documentation is a tax matter, it provides useful audit evidence for understanding the pricing of intercompany transactions and the margins that need elimination. The French intégration fiscale creates specific intercompany flows. The parent company (société tête de groupe) is solely liable for the group's corporate income tax, but the convention d'intégration fiscale typically requires subsidiaries to pay the parent an amount equal to the tax they would have paid on a standalone basis. These convention payments are intercompany transactions that must be eliminated at consolidation. The treatment of the tax savings (the difference between the sum of standalone taxes and the consolidated group tax) varies by convention; some allocate the saving to the parent, others distribute it to subsidiaries. Verify the convention terms and ensure the intercompany flows match. French companies sometimes use the mécanisme de l'affacturage inversé (reverse factoring or supply chain financing) for intercompany payables. If a subsidiary factors its intercompany payable to the parent through a bank, the legal form of the transaction changes (the subsidiary now owes the bank, not the parent), but the economic substance remains intercompany. Under IFRS, the classification of the factored payable (trade payable vs. borrowing) depends on the specific terms. For elimination purposes, verify whether the factored intercompany payable still appears in both entities' books or has been derecognised by one party.

Common inspection findings

- H3C found that some commissaires aux comptes didn't adequately document the division of consolidation audit work between the two co-commissariat firms, leaving gaps in the coverage of intercompany elimination procedures.

H3C inspectors identified cases where auditors relied on the output of the client's consolidation software (SAP BPC, Magnitude, or similar) without verifying that the elimination entries matched the intercompany data reported by individual components.

The AMF enforcement reviews found instances where listed groups didn't properly eliminate intercompany transactions arising from convention d'intégration fiscale payments, treating them as external tax payments rather than intragroup allocations.

H3C noted that auditors sometimes failed to recalculate the investment-equity elimination when changes in ownership occurred during the year (step acquisitions or partial disposals), leading to errors in the consolidated equity and NCI balances.

Inspectors found that intercompany profit elimination on assets transferred between French entities and foreign subsidiaries was sometimes calculated at incorrect margin percentages because the auditor used the margin from the selling entity's management accounts rather than verifying it against actual transaction data.