What is the exact difference between arm’s length and non-arm’s length intercompany inventory transfers in NetSuite? And what are the accounting or functional consequences if we decide to stop using arm’s length transfers and use only non-arm’s length transfers instead?

AI generated answer (using internal Slack threads):

In NetSuite, the difference between arm's length and non-arm's length intercompany inventory transfers primarily lies in the accounting needs and the complexity of the transactions. Arm's length intercompany transactions involve a more complex process where Purchase Orders (PO) and Sales Orders (SO) are required. This method is typically used when there is a need to eliminate profit in intercompany transactions. NetSuite uses several assumptions to perform these calculations, and it ties the transactions to one another to prevent imbalances. This method is beneficial when the automation of calculations is preferred, and there is no need to deal with profit or mismatched timing of good sales. However, it's important to note that if there are specific timing constraints involved, the way NetSuite chooses to do it could be less than optimal. On the other hand, non-arm's length intercompany transactions involve a simpler process where only an Intercompany Item Transfer is required. This method does not eliminate profit if a rate higher than the Average Cost is set. It's typically used when the arm's length accounting process doesn't post the right results or if there's no need for arm's length accounting. The decision to use either method is driven by tax reporting, profit recognition, and accounting requirements. For instance, if there's a need for each entity to issue tax invoices in their jurisdictions, or if one entity wants to show a profit for assembling the items, the arm's length method might be more suitable. If you decide to stop using arm's length transfers and use only non-arm's length transfers instead, it could have several accounting or functional consequences. For one, you would lose the automation of calculations provided by NetSuite in arm's length transactions. This could increase the risk of errors and imbalances in your transactions. Additionally, you would not be able to eliminate profit in intercompany transactions, which could impact your profit recognition and tax reporting. ****** Disclaimer: This response was generated by an artificial intelligence assistant based on previous conversations from multiple Slack channels, and may contain inaccuracies or mistakes. ******