Load ICO
Load ICO is applicable only if the “Include Inter Company Module” field in the Create Projects page is selected as “Yes”.
This page will enable the user to load intercompany transactions within the entities.
The entities will be able to define the ICO transactions on click of “Upload ICO” button in the Projects Overview page.
This module has 4 modules.
ICO Transactions
ICO Differences
Group Differences
ICO Elimination Entries
Functionality of ICO:
Any intercompany transactions are recorded in ICO
If an entity records a transaction with another entity, then the other entity should also record a transaction with this entity.
For ex: If H records a transaction with A, then A should also record a transaction with H.
These transactions are matched based on the transaction type (ex: Purchase of goods – Sale of goods) which is entered in the ICO setup page (refer page no: 6 in this document) in the create projects page.
This match in transaction will result in entity pairs.
To form an entity pair, there are 3 checks between the transactions.
The entity should be matched with the counter entity.
For ex: If H records a transaction with A, then A should also record a transaction with H
Each transaction and its counter transaction should have same transaction currency
Each transaction and its counter transaction should have opposite roles (Seller – Buyer or Receiver - Payer)
For ex: If H records a transaction as a seller with A, then A should have recorded a transaction with H as a buyer.
If any of the check points did not match, then the entity pair cannot be formed and will be in “non-reconcile” state.
For ex: If H records a transaction with A as seller and A also records a transaction with H as seller, then the entity pair “H-A” will not be formed. Instead, these transactions will be moved to ICO Differences as 2 different transactions as follows:
H – ___
___- H
If the entity pair is matched and if the difference of amount in the reporting currency is less than or equal to the materiality amount, which is defined in the ICO setup page (refer to page no: 6 for more details in this document), then these transactions will be moved to ICO Elimination Entry page and a journal entry is posted for this transaction.
If the entity pair is matched and if the difference of amount in the reporting currency is greater than the materiality amount, which is defined in the ICO setup page (refer to page no: 6 for more details in this document), then these transactions will be moved to ICO Difference page.
The seller or buyer will correct the amount to bring it to below materiality.
If both the seller and buyer did not correct their amounts, then the project owner has a facility to “Override” these transactions and a journal entry is posted for these transactions.
The status of the entity pairs in “View ICO Summary Details” page are as follows:
If the difference amount is less than the materiality, then the status will be “Below Materiality”.
If the difference amount is greater than the materiality, then the status will be “Above Materiality”
If the entity pair does not match, then the status will be “Not reconcile”
If the transactions in the entity pair is overridden by the project owner, then the status will change from “Above Materiality” to “Override”.
If the seller or buyer/Receiver or payer has changed the amount to bring the same to below materiality in the ICO Differences page, then the status will move from “Above materiality” to “Below Materiality”.
For any non-reconciled transaction, the user has to delete the transaction in order to post the correct entry.
For any entity pair, if a journal entry is posted, then the user will not be able to make any further changes or will not be able to delete the transaction. These transactions will be frozen.
The entity pair will also be formed as
Seller – Buyer
Receiver - Payer
ICO Transactions:
All the intercompany transactions are recorded on the ICO transactions page.
For ex: If H has an intercompany transaction with A and B, then these transactions are recorded in the ICO transactions.
The transactions have to be recorded by both the parties.
That is, if H has recorded a transaction with A, then the counter transaction should also be recorded. So, A should also record a transaction with H
These transactions are matched based on the transaction type (ex: Purchase of goods – Sale of goods) which is entered in the ICO setup page in the create projects page.
The inventory field will be entered only by the buyer and other role users like seller, receiver and payer will not be allowed to enter inventory amount.
The field structure of this page is as follows:
Transaction with – Drop down – The user will select the entities with which the entity had transactions.
For ex: If H is filling his ICO transactions, and if H had transactions with C1 and C11, then H will enter C1 and C11 as separate line items in the ICO transactions page.
Currency – Dropdown – Selects the currency in which the entity enters the amount in.
Transaction Type – Drop down – The list contains Buyer, Seller, Receiver or Payer. This field is selected with respect to the parent.
L3 Classification – Drop down – The values will be populated from COA.
L4 Classification – Drop down – The values will be populated from COA.
Amount in transaction currency – Text box – Decimal – Entered by the user.
Inventory as on closing date – Text box – Decimal – Entered only by the user whose role is buyer.
ICO Differences:
ICO differences are generated if the transactions did not match or if the difference between the transactions exceed the materiality value.
ICO differences are calculated as below:
If an entity records its transactions with another entity as seller, buyer, receiver or payer, then the other entities will also record its transaction with the counter entity as the seller, buyer, receiver or payer.
For ex: If H records a transaction with C1, the transaction will be recorded in the ICO transactions as follows:
Transaction With – C1
Currency – INR (considering H is an Indian company)
Transaction type – Seller (This is with respect to H)
L3 Classification
L4 Classification
Amount in transaction currency – 1000
Inventory on closing date – Not Applicable
Likewise, C1 will also go and fill its ICO transactions with H1 as below:
Transaction With – H
Currency – INR (considering H is an Indian company)
Transaction type – Buyer (This is with respect to C1)
L3 Classification
L4 Classification
Amount in transaction currency – 10000
Inventory on closing date – 75
Consider the materiality as 2000 CAD, this transaction will be moved to ICO Differences page as the difference in the amount is more than 2000 CAD.
In the above case, the difference of 8000 should be converted into CAD and if the difference in reporting currency exceeds the materiality, then such transactions will be moved to ICO Differences.
The seller or buyer will be allowed to change the amounts respectively. That is, the seller will be able to edit the seller amount and the buyer will be allowed to edit the buyer amount to move this transaction pair to ICO Elimination Entry.
In the ICO Differences page, the buyer along with the amount, will also be allowed to edit the inventory as well.
To find the ICO differences, the tool must match these transaction pairs “Seller-Buyer” or “Receiver-Payer”.
To match a transaction, the tool must match the counter transactions, currency must be same, match to transaction types should be matched.
For ex: In the above example, if H declares a transaction with C1, then C1 should also declare a transaction with H
The declared currency should be same
If H is a seller, then C1 must be buyer or if H is a receiver, then C1 must be a payer
If a counter transaction is not entered or any of the above-mentioned points did not match, then the tool should throw an error and the error pair should be shown in ICO Differences for both the entities
For ex: If H declares a transaction with C1 and C1 does not declare a counter transaction with H, then the tool should throw the error as shown below.
H - (Seller-Buyer) - In this case, the buyer has not declared the counter transaction.
If C1 declares a transaction and H does not declare the counter transaction, then the error will be shown as below.
-C1(Seller-Buyer) - In this case, the seller has not declared the counter transaction
The error will be shown both in H and C1.
For ex: If H declares a transaction with C1 and C1 does not declare a counter transaction with H, then the tool should throw the error as shown below both in H and C1’s ICO Differences page.
H- (Seller-Buyer) - In this case, the buyer has not declared the counter transaction.
The same is applicable for the Receiver-Payer type as well.
The user will not be able to edit the data that is in a non-reconciled state.
In such case, the user must delete the transaction and post a new transaction entry in order to create an entity pair.
Group Differences:
The group differences are also calculated as same as ICO differences.
Group Differences are visible only to the project owner.
The ICO differences are with respect to the entity, whereas the group differences display the difference of all the entities in the group.
For ex: If H has transaction with C1 as Seller and C1 has transaction with C11 Receiver, then all the transaction pairs of all the entities will be displayed in the group differences. That is, H-C1 and C1-C11 will be displayed in the group differences.
All the entity’s ICO differences consolidation will be displayed in the group differences.
ICO Elimination Entries:
The ICO elimination entries are displayed if the difference of the entity pairs in the “Amount in transaction currency” of the transaction pairs of “Receiver-Payer” or “Seller-Buyer”, when converted to reporting currency, lies within the materiality defined in the ICO Set up page (refer to page no: 6 in this document for more information on materiality), then those transaction pairs will be displayed in the ICO elimination entries tab.
The difference has to be converted from transaction currency to reporting currency before comparing the amount with the materiality.
If the buyer enters inventory and the margin % is defined in the ICO setup page (refer to page no: 6 in this document for more information on margin %), then a journal entry for the margin on inventory will be posted in the ICO Elimination Entries.
If inventory or margin is not entered, then the margin on inventory journal entry will not be posted.
The rules for ICO matching are as follows:
The tool will convert the differences in the transaction currency into the reporting currency of the project owner (H in this case) and any differences would above the materiality will be flagged as differences which needs to be reconciled before the ICO adjustment can be passed
If the difference is less than materiality the difference is adjusted against the (buyer, payer line item) the tool will assume the seller and the receiver are always correct.
Once all differences are sorted then the tool will allow for generation of the JE. Each JE will have a JE Reference Number.
Before the generation the JE in case the inventory value is populated by the buyer and a margin has been setup in the ICO setup project creation page then the tool will ask the user to enter L3-L4 codes for Inventory and Margin
After these codes are entered the JE will be generated
All adjustments below materiality adjusted will be displayed as notes below the entry
As long as transaction pairs match then the JE will get generated as follows
If 1-3 is not complete the user can override and generate JE
Transaction pair
Sale transaction- Debit
Buy transaction- Credit
Payer transaction- Debit
Receiver transaction – Credit
Inventory – Credit
Margin - Debit
Override Db/ Cr depending on diff and user must pick L3-L4 codes to park the difference.
For ex: Considering the above example, the transaction with H-C1 as “Seller-Buyer” and considering the materiality of the parent is 100.
If H records its transaction as follows:
Transaction with – C1
Transaction type - Seller
Amount in transaction currency – 1000
C1 records its transaction as follows:
Transaction with – H
Transaction type – Buyer
Amount in transaction currency – 1050
The difference between H and C1 is 50.
As the materiality of H is 100, this transaction will not be displayed in the ICO elimination entries tab.
Always, the materiality of seller or receiver will only be considered to display the ICO elimination entry.
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