Spreadsheets: A High-Risk Tool for Data Analysis


When the electronic spreadsheet was first introduced to the business world in the late 1970s and early 1980s, it became an almost immediate success. The usefulness, adaptability and power ofspreadsheets proved to be a strong draw and, arguably, helped launch the broad-based adoption of personal computers in business. Today, electronic spreadsheets are ubiquitous – and for good reason. They have become an indispensable tool for those involved in financial calculations and modeling.

A recent article on AccountingWEB.com, quoting a survey of financial executives, revealed that 92 percent of all public companies use spreadsheets for critical accounting activities. Uses varied from revenue accounting entries to revenue scheduling, allocation and redistribution. The article contends that spreadsheets are widely used because many key revenue recognition and reporting tasks are still not fully automated in Financial and ERP systems.

Spreadsheet capabilities – calculations, conditional statements, linking and programming through macros – make them extremely adept at creating ad hoc applications. They can be applied to any number of areas including budgeting, inventory, financial modeling, and data entry of financial information and reporting.

Paradoxically, what makes spreadsheets so attractive is at the root of their shortcomings. Organisations need to balance the ease-of-use, flexibility and low procurement cost of spreadsheets against their shortcomings for use within an enterprise-level context. These shortcomings may be categorised in three main areas:

  • Lack of data integrity – values may be altered deliberately or accidentally
  • Error prone – errors in input, logic, data interfaces and use
  • Not in line with standard IT regimes for critical applications – documentation, testing and version control

It is clear that the shortcomings of spreadsheets may lead to questioning the quality of the data they produce. Poor data quality results in inaccurate reporting and misinformed decision- making. Thus, the reliance on spreadsheets in financially material applications results in an unacceptable level of business and regulatory risk.

The reality of the situation is that many organisations using spreadsheets for key applications are doing so out of necessity. It isn’t always practical or feasible to develop, manage or implement custom applications or to procure point solutions to fill the gap that spreadsheets address. Since a spreadsheet application is better than reverting to manual processes, spreadsheets will continue to be used. In order to deal with the risks introduced by spreadsheets, management needs to take greater care in how and where spreadsheet applications are used and audit needs a means of independently evaluating the accuracy of the data and reports that the organisation depends on.

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Tuesday, July 16, 2013 In: Whitepapers Comments (None)

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