Excel hell? Finance professionals' devotion to spreadsheets can lead to costly errors. What are the greatest potential pitfalls and how can they be avoided?

Author:Hodge, Neil
Position:Technical notes
 
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All around the world accountants, auditors and financial managers are in love with the electronic spreadsheet - it is the most commonly used piece of equipment in their inventory. Unfortunately, it is also the one that is most prone to significant error. IT experts fear that organisations may be putting themselves at risk as they rely on Excel spreadsheets to report a wider range of financial and management information.

A look through news cuttings will show that there have been some high-profile causalities of problematic spreadsheets, such as C&C, the Irish group that owns Magners cider. A spreadsheet error caused the company's shares to fall by 15 per cent in July 2009 after it admitted that its total revenues in the previous four months had dropped five per cent, not risen three percent as previously reported.

Another example was the [pounds sterling]5.6m fine that Swiss banking group Credit Suisse received from the UK's Financial Services Authority (FSA) in August 2008. The regulator said the booking process that its structured credit business relied on "was complex and overly reliant on large spreadsheets with multiple entries", which "resulted in a lack of transparency and inhibited the effective supervision, risk management and control".

And in November 2005 - thanks to a faulty spreadsheet - US camera and imaging giant Kodak found a hefty US$11m severance error after too many zeros were added to an employee's accrued severance.

Rob Stavrou, director of consultancy at IT consultant Northdoor, says that there is growing awareness within companies that spreadsheets are creating several "versions of the truth" and that, as a consequence, the integrity of the data that they are basing management decisions and business strategies on is not sound enough.

"Regulators want greater assurance about the integrity of the raw data and more transparency about how financial and management information is being crunched to produce the numbers. We have seen in the past couple of years that companies have woken up to the fact that spreadsheets cannot deliver that level of certainty," he says.

Indeed, analyst IDC has found that dependence on spreadsheets is blamed by companies as the second most commonly named challenge in implementing revenue policies and the "timely and accurate generation of revenue numbers".

According to IT experts, the key problem with Excel occurs when inputting data, or trying to change incorrect data entries: people see an...

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