Intercompany Eliminations
for General
Match intercompany balances across the group, flag mismatches above PM, run unrealised profit on intra-group inventory, and split the elimination between parent equity and NCI per IFRS 10.B94.
Consolidation eliminations,
journal-ready.
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IFRS 10 intercompany eliminations for General
On group audits we work, intercompany is where the file usually slips. The eliminations themselves are mechanical — IFRS 10.B86 says strip out intragroup balances, transactions, income and cash flows in full. The audit point is one step earlier: did the balances reconcile before you eliminated? Most don't on the first pass. Timing differences from cash-in-transit, FX retranslation on intra-group loans denominated in different functional currencies, disputed management charges that one side recorded and the other never received — these create unreconciled gaps that get netted away by the elimination journal but remain real misstatements until the underlying entries are fixed.
The typical group structure for a non-Big 4 audit client sits between two and fifteen entities. Some are wholly owned, others involve minority shareholders requiring NCI (non-controlling interest) allocation under IFRS 10.B94. Intercompany transactions in these groups tend to cluster around four categories: trading balances (sales and purchases between group members), financing arrangements (intercompany loans, interest charges, cash pooling), management fees or cost recharges, and dividend flows from subsidiaries to the parent. Each category has its own elimination mechanics. Trading balances require matching and full elimination of revenue and cost of sales. Financing arrangements need interest income and expense elimination plus balance sheet netting. Management fees follow the same logic as trading but often lack the documentary trail that trading invoices provide. Dividends paid by subsidiaries to the parent reverse against investment income in the parent's books.
The most common audit finding in group engagements relates to intercompany balance mismatches. The FRC's 2022-23 inspection results flagged group audit procedures (including intercompany work) as deficient in a significant proportion of files reviewed. Mismatches arise from timing differences (one entity records a December transaction, the counterparty books it in January) and foreign currency translation differences on intercompany balances denominated in different functional currencies. Disputed or unreconciled management charges add a further category that is harder to resolve because the underlying amounts are often estimated. Auditors frequently accept client-prepared reconciliations without testing whether the "reconciling items" are genuine timing differences or errors that need correction before elimination.
When applying the tool in practice, start by obtaining a complete intercompany matrix from the client. This matrix should list every entity pair with outstanding balances at the reporting date and cumulative transactions for the period. Run the matching process to identify discrepancies above your posting threshold. For any mismatch exceeding performance materiality, require the client to reconcile before you process the elimination. Calculate unrealised profit on any inventory transferred between group members that remains unsold at year end (IFRS 10.B86(c) read with IAS 2). For part-owned subsidiaries, split the elimination impact between the parent's equity and NCI per IFRS 10.B94. Document which intercompany journals the client posted and which the auditor identified as missing.