Financial Spreadsheet Risk

Although the business community has witnessed the advent of accounting systems such as Oracle, SAP and Hyperion, more than 70% of global executives still rely on “spreadsheets to track and manage financial reporting on a daily basis” (CFO 2012) according to a survey by Oracle and Accenture.

Hence, it is no surprise companies continue to suffer financial loss from erroneous spreadsheets; this risk is called financial spreadsheet risk or financial risk. Reliance on erroneous spreadsheets by corporations for inaccurate financial reporting and business decision making has been reported in the financial media, because it has often resulted in profit downgrades, share price falls and a revision of corporate financial statements.

 

Chief drivers of Financial Risk

The main aspects of financial risk are:

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Examples of Spreadsheet Errors

There have been a number of publicised cases of large companies suffering financial cost, in part due to erroneous spreadsheets; here is a small sample of the financial risk associated with a spreadsheet:

 

Persistent Factors causing Financial Risk

In certain cases, there could be specific reasons for continual financial risk surrounding corporate spreadsheets, which could be caused by:

  • Resourcing issues around professionals, in terms of implementing changes and improvements to existing models;
  • Staff turnover;
  • Financial modelling fatigue;
  • Unrealistic turnaround and time deadlines; and
  • Information asymmetry, i.e. a company’s tax or strategic planning area failing to fully communicate specific tax implications to the corporate development area, about a proposed asset purchase or greenfield project

 

Averting Financial Risk

Recommended solutions to managing financial risk are: