OUR THOUGHTS ON:

Spreadsheet Errors: How to Prevent

Risk Advisory/Internal Audit

By Kevin Hoover

When reviewing Excel spreadsheets, do you assume that all the information and formulas in the spreadsheets are correct? Errors are often embedded in spreadsheets and go undetected until they significantly impact a financial position or impair business decisions. It happens more often than you would think and has caused companies millions, and in several cases billions of dollars due to undetected formula errors.  If you Google “Spreadsheet Errors,” you will find countless articles on the subject. In the early days of implementing the Sarbanes-Oxley Act, it was estimated that up to 90% of financial spreadsheets had material errors embedded within their formulas.

Many companies rely on spreadsheets as a key tool in their financial reporting and operational processes. As a result, the use of spreadsheets is an integral part of the information and decision-making framework for these companies.  In developing and using spreadsheets, companies embrace the ease and flexibility of spreadsheets but also must ensure their integrity and accuracy in order for the company to place reliance in outcomes. Specific characteristics that contribute to the risks involved with using spreadsheets are:

  • Complexity of the spreadsheet and calculations
  • Number of spreadsheet users
  • Type of potential input, logic and interface
  • Size of the spreadsheet
  • Frequency and extent of changes and modifications to the spreadsheet

There also are numerous spreadsheet risks, including:

  • Human input errors
  • Cut and paste issues
  • Malicious tampering
  • Inconsistent formulas
  • Broken running totals
  • Incorrect cell references
  • Broken links
  • Hidden cells
  • Overwritten files
  • Version control problems
  • Hardware and software breakdowns

If these risks are realized, the effects can cause any of the following:

  • Lost revenue and profits
  • Fraud
  • A Sarbanes-Oxley violation
  • Financial restatement errors
  • Inaccurate forecast
  • Underpriced product

So how do you prevent these errors from occurring? Employing several software tools, Schneider Downs is able to analyze spreadsheets and flag the following error types and a host of others:

  • Fixed-value formulas
  • Formula inconsistency
  • Calculation and logic errors
  • References to empty cells
  • Omitted cells
  • Unlocked formula cells
  • Unprotected worksheets

If you have any questions regarding spreadsheet analysis and how to evaluate the risks related to your spreadsheets, or if you would like to review or audit your current spreadsheets of your organization, please contact Kevin Hoover at khoover@schniederdowns.com, Jim Yard at jyard@schneiderdowns.com, or Don Owens at dowens@schneiderdowns.com.

© 2013 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

 

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

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