Financial Reporting with Spreadsheets - Avoiding the Traps

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Posted by Jamie Black - 04 November, 2015

Topic(s): Excel, Financial Reporting, Best Practices

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Finance professionals around the world use spreadsheets for nearly every purpose imaginable.

We have seen finance officers use spreadsheets to prepare their year end financial statements, file their FIR, prepare quarterly variance reports and produce their SEC filings. We know auditors who use Excel to do data analysis, gap detection on cheque numbers, and identification of duplicate payments.

Why spreadsheets?

While there are certainly a great variety of causes for the ubiquitous use of spreadsheets, we would suggest 3 major reasons:

  1. Availability - your organization almost certainly owns a spreadsheet program (likely Excel). If not, Google Sheets, OpenOffice and Libre Office all provide free tools. Nothing gets accountants excited like a no-cost solution.
  2. Flexibility & Power- They can be made to do just about anything. We have seen clients with 50 to 100 spreadsheets all daisy-chained together acting as their database. Why? Because they could.
  3. Ease of Use - With very little training on the software, nearly anyone can open Excel and quickly create a very sophisticated tool to solve a burning issue.

So what's the problem?

There are two major issues with Excel and they build off of each other:

  1. Spreadsheets are very susceptible to error: 
    "In general, errors seem to occur in a few percent of all cells, meaning that for large spreadsheets, the issue is how many errors there are, not whether an error exists." What we Know about Spreadsheet Errors - Raymond Panko

    No doubt you have encountered some or all of these mistakes:
    1. someone over-typed a calculation or
    2. created a formula incorrectly (include too many rows in a Sum for example) or
    3. hard-coded a value in a cell that changes often or
    4. forgot to update a value after it had changed or
    5. rows / columns are cut off in print-ready version

  2. Few people perceive how common these errors are:
    "As noted earlier, when Brown and Gould (Brown & Gould, 1987) gave three spreadsheet development tasks to nine highly experienced spreadsheet developers, all made at least one error, and 63% of the spreadsheets overall had errors. Yet when asked about their confidence in the correctness of their spreadsheets, their median score was "very confident." What we Know about Spreadsheet Errors - Raymond Panko
The result all too often is major catastrophe and disaster. If you think I'm exaggerating, consider this article from Fortune.com:

Damn Excel! How the 'most important software application of all time' is ruining the world...The popular Microsoft program has been implicated in the financial crisis, Europe’s growth problems, the U.S.’s weak economic recovery, and pretty much everything else....read more

So no more spreadsheets?

Abolishing all spreadsheets from your organization, while momentarily appealing is just not practical. Just this week in-fact we had a client tell us that unless their requested solution resulted in Excel files, their users would revolt! So if we can't live with 'em and can't live without 'em, what are you to do? 

In this series of articles we will explore a 4 step approach to Optimizing Excel (and other spreadsheets) as your financial reporting tool:

Step 1: Confirm a spreadsheet is the right tool

Step 2: Standardize your spreadsheets

Step 3: Use variabilization, error-checking & data tagging

Step 4: Lock & document your spreadsheets 

 

For more on this topic(s), see: Excel, Financial Reporting, Best Practices

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