What is a requirement for setting up intercompany allocations?

The requirement for setting up intercompany allocations is that allocation rules must be predefined before transactions occur. This is essential because allocation rules dictate how costs and revenues will be distributed among the involved entities, ensuring that allocations are done consistently and according to established guidelines. Having these rules predefined helps maintain accuracy in the financial reporting process, as organizations can clearly delineate how intercompany transactions are managed, which ultimately facilitates compliance and transparency within financial operations.

By determining allocation rules in advance, organizations can automate the allocation process to some extent, making it more efficient and reducing the potential for errors that might arise from manual calculations. This approach also supports better planning and forecasting since entities can anticipate their intercompany charges and income based on predefined rules.