Several hundred million copies of Microsoft Excel are in use worldwide, and it’s easy to understand why spreadsheets enjoy immense popularity within corporations. Spreadsheets can be designed to analyze data, log and track information, evaluate “what if” scenarios and perform calculations for financial reporting purposes. These spreadsheets are often used by organizational leadership to assess the performance of the organization and develop strategic planning, and used by management in the performance of various internal control activities. User-defined formulas, macros and other options provide further opportunities for individuals to customize spreadsheet functions. This functionality allows the flexibility needed for people to perform their job duties efficiently.
Unfortunately, those same qualities also present considerable risk when spreadsheets are used for financial reporting processes. Spreadsheets lack the imbedded data and logical security controls found in other applications. Proficiency in accounting principles and spreadsheet use varies widely among individuals, too, fostering inconsistent practices and potentially incorrect calculations.
In a typical small or mid-size organization, hundreds of spreadsheets may be incorporated into planning and reporting processes. Financial reporting period closings can take much longer due to the effort required to verify or correct all of that spreadsheet-generated data. Consequently, closing delays and opportunities for inaccuracies also jeopardize the effectiveness of internal controls and, potentially, compliance with Section 404 of the Sarbanes-Oxley Act for public companies. Stakeholder expectations for enhanced accuracy and effective internal controls require confronting and mitigating potential risks. That entails addressing present spreadsheet use, taking appropriate remedial action and implementing best practices to continually reduce risk potential.
To learn more about these mitigation steps and analyzing spreadsheet use in your organization, view the Weaver Risks Insights document Steps to Mitigate Spreadsheet Risks. For a discussion specific to your organization, please contact Alyssa Martin or Jody Allred, partners in risk advisory services.