Once the dominating skill for an accountant to have, a study by Adaptive Insights recently revealed that 95% of CFOs no longer view spreadsheet proficiency as the most important skill within their finance teams.1
Primarily, this is because traditional spreadsheet usage hasn’t been able to keep up with the demands of contemporary corporate finance departments. And organizations have been forced to adapt to spreadsheet shortcomings by implementing automation, to varying degrees, within their financial close.
Despite this trend, there’s uncertainty surrounding what it means to truly automate a process. As each organization’s financial close is different, the types of automation needed and used to supplement their work vary as much as the organizations themselves. And with things like macro templates and recording software commonly being implemented within spreadsheets to speed up accounting work, it’s completely understandable that “automating a process” means different things for different people.
As organizations find new ways to speed up their close process, little effort is spent ensuring that the spreadsheet automation put in place supports both the integrity of the workflow, as well as the resulting financial reporting.
Below, you’ll find three simple reasons why even though spreadsheet automation may speed up your process, it cannot be relied upon as a form of automation for your financial close.
Did you know that nearly 90% of spreadsheets contain errors2? From home budgets to the mountains of spreadsheets that organizations are working with, it’s almost a guarantee that any given spreadsheet will have at least one potentially costly fault present.
Spreadsheet software has always been a seemingly easy-to-use data entry tool to organize the financials of organizations. And with the introduction of macros into spreadsheet software, the work itself will be completed faster. But, the opportunities in large scale operations to mistype financial data are abundant.
From fat-fingering incorrect numbers to copying over the wrong formula, human manipulation and intervention are a requirement with spreadsheets. Sadly, that manual processing is the number one reason of misstatement causing errors in spreadsheets3– and as organizations grow, the amount of risk introduced by spreadsheets into your final balance sheet grows in tandem, due to the additional processing that will be required.
When developing new applications, software companies often take an assembly line approach known as “designer-programmer-tester.” Essentially, multiple people work with the program that’s handed off to them from the previous team member to ensure that all of the bugs are worked out by the time it’s ready to go to market. The “assembly line” approach does wonders for limiting the possibility of human error by checking the validity of the work throughout the entire process.
Unfortunately, when financial processes are handled through manual spreadsheets, unlike the example above, the assembly line is likely only one person, and little visibility into how the financial data is handled is offered to reviewers and even the accountant working with the data.
For instance, do you have a policy of checking the validity of the numbers in your spreadsheets throughout period end? Or is validation and auditing performed at the end of your close, assuming there is time to complete it? And even if you do validate everything throughout your process, auditing both the source of your data as well as work throughout the entire Record to Report process would only introduce another error-prone manual aspect within your finance department.
While implementing software, such as macro automation within spreadsheets, does speed up the process, very rarely do organizations have readily available visibility to ensure and prove that the correct work was done.
Spreadsheet impact and influence within businesses and even society as a whole is a bit of a double-edged sword. And the usage of those spreadsheets ranges far beyond their intended purpose. For instance, features such as pivot tables have been used to map out information that can help save lives, such as IDV Solutions’ mapping of traffic fatalities that takes into effect factors such as the location, time of day and the weather of collisions.3
However, the original purpose of spreadsheets was to assist households in balancing a family’s budget. And while a family’s budget can become stressful, it is not nearly as complicated as the books of a multimillion or billion-dollar company. Because of that original design goal, spreadsheets have a limit on how much information can be pulled into a single document before it just becomes too much; this forces accountants to have a collection of semi-connected spreadsheets that require manual intervention to move data from one silo of information to the other.
Unfortunately, during that data migration things like “copy & paste errors” can and do happen. As a result, a domino effect begins, where work that needs to be completed within one spreadsheet relies on the inaccurate information in the previous spreadsheet. Ultimately, this results in a close process whose very foundation was based on erroneous manual processing.
While any program that allows repetitive processes, calculations and comparisons to be completed without the need for human intervention can technically be considered automation, spreadsheets inevitably require large amounts of human manipulation and data entry for that “automation” to be viable. And within that manual intervention lies a significant amount of opportunities for inputting misstatement-causing errors.
Moreover, no matter how many macro templates or recordings are implemented into your spreadsheets, manual requirements and the risk involved will always be present. Ultimately this makes the contribution that your spreadsheets offer to your business tenuous at best, and dangerous at worst.
To learn how reliable automation can remove the risk of misstatement associated with manual processing and positively impact your business, check out our eBook.
Written by: Caleb Walter