Which statement best describes intercompany pricing policies?

• A. They only apply to parent companies
• B. They control pricing transactions between subsidiaries
• C. They are only relevant for external sales
• D. They are unnecessary for internal audits

Answer: (B)

The choice that best describes intercompany pricing policies is that they control pricing transactions between subsidiaries. Intercompany pricing policies are essential for ensuring that transactions between different entities within the same organization—such as various subsidiaries—are conducted at appropriate and compliant pricing levels. These policies help maintain consistent pricing frameworks that adhere to regulations and financial standards, facilitating accurate financial reporting and tax compliance across different jurisdictions where the subsidiaries operate.

In implementing intercompany pricing policies, companies can effectively manage transfer pricing issues, which is crucial for regulatory compliance, particularly in multinational operations. This approach allows companies to avoid potential tax penalties or issues related to pricing discrepancies among subsidiaries.

Pricing policies are not confined to parent companies, as they significantly impact how subsidiaries transact with each other. Additionally, they are not limited to external sales, since their primary focus is on internal transactions between entities within the same corporate structure. They also play a role in internal audits to ensure that the pricing aligns with predefined benchmarks and standards, making them quite relevant for internal financial accuracy and compliance assessments.