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Go Back to Sarbanes Oxley Home Page
Part 1- Sarbanes- Oxley
demands spreadsheet risk management
By Adrian
Miric
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Controlling
financial reporting has never been more important than it is in
today’s highly regulated corporate environment. The recent
introduction of Sarbanes-Oxley in the US has meant that US listed
companies need to ensure that their spreadsheets are controlled.
It won’t be long before the rest of the world needs to address
this issue.
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The proliferation of error-prone spreadsheets threatens to
undermine controlled financial reporting.
This is the first column in a five-part series in which we
investigate the problems and the solution.
Spreadsheets were designed to capture and manipulate financial
information. However, with so many different inter-related
spreadsheets, containing a variety of formulas and with simple human
intervention, errors are bound to, and do, creep in.
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PricewaterhouseCoopers research showed that 91% of spreadsheets have
at least a 5% error margin. KPMG found the same percentage with major
errors. Butler discovered that 86% of spreadsheet errors result in
extra tax payments.
The causes of these findings often have
dire consequences in businesses. For example, a financial
misstatement by NASA resulted in a difference of $644 million.
The cause was a misinterpretation of guidance and errors in the
administration’s ad hoc process for generating budgetary information,
based on undetected errors in the spreadsheet process.
Controlling
these potential problems is a straightforward process involving five
steps, which are:
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Perform a high-level analysis;
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Establish a spreadsheet review group;
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Prepare an inventory of risks;
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Help regular spreadsheet developers; and
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Control identifiable spreadsheets
By
effectively handling the issue using this process, companies mitigate
the risks and reduce the potential for error.
The
benefits of effectively dealing with the Sarbanes - Oxley problem are:
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Reduced errors, ensuring the business can accept lucrative jobs, avoid
loss-making jobs, more accurately simulate model drivers, and have
employees more focused on their core function; and
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Confidence in results of financial data manipulation
Any
business that uses Excel, Lotus or similar products should be aware of
the potential Sarbanes Oxley problem lurking in the business, particularly if
important business decisions are based on the information they
provide. An important question to ask is whether or not the models
employed are tested or reviewed at all and whether or not costly
errors have already been found.
The
remaining articles will propose a method to address these risks
Goto 2nd Article
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* Adrian
Miric is MD of Miricle Solutions. He is a chartered accountant with IT
experience, financing experience and spent five years auditing and
designing spreadsheets with KPMG. In the next column he discusses the
importance of a high-level analysis of spreadsheet proliferation
throughout the organisation.
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Quotable:
All of the biggest
technological inventions created by man - the airplane, the
automobile, the computer - says little about his intelligence, but
speaks volumes about his laziness. (Mark Kennedy) |
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