Accountants and finance departments have lived with spreadsheets for as long as most can remember. Almost every accounting department, from the smallest bookkeeping operation to the largest multinational finance division, revolves around spreadsheets. Microsoft and other software developers have ensured that affordable spreadsheet programs are widely available to everyone, so it is hardly surprising that they are the option we turn to.
We use spreadsheets for invoice ledgers, sales ledgers, expenses, suppliers, asset registers… the list is endless. But is the most familiar solution necessarily the best solution?
The right tool for the right job
Spreadsheets will always be a useful tool for companies of all sizes. But the key to any solution is to use the right tool for each job. Spreadsheets are a familiar and comfortable option, but they are frequently applied to tasks that are ill-suited to their purpose. The asset register is a prime example.
Very few companies start out with the intention of using spreadsheets to manage a large asset base; it just happens that way. Spreadsheets are adopted in the early days when the company has relatively few fixed assets. But as an organisation grows, so does its asset base. And as technology advances, even the smallest companies amass a large number of assets such as PCs, printers and mobile equipment. It is estimated that the average asset register held on a spreadsheet now contains more than 2,500 line items. Even the best designed spreadsheet will have trouble coping with a large number of assets.
As a company grows the spreadsheet-based register becomes more of a handicap. Research suggests that 75% of companies find the spreadsheets complex to set up initially and as the register grows, the amount of time and effort required to maintain the register can grow out of all proportion to the spreadsheet’s effectiveness.
Spreadsheets are also notoriously difficult to integrate with other accounting systems. Again, this problem is magnified when a spreadsheet is used to maintain an asset register. Fixed asset management is a particular discipline with specific demands, for instance the requirement for regular written reports.
A wide variety of useful information is contained in an asset register and a spreadsheet can often make that information difficult to unlock. Detailed reports on asset transfers and disposals, or assets by location, can be invaluable to a company but producing such reports from spreadsheet-based information often demands a great deal of human analysis. While spreadsheets can manage the figures, one is yet to be invented that can write a report.
A spreadsheet-based asset register is unwieldy and inflexible. But of more concern is the risk that it will also result in inaccurate information. In the current financial reporting climate, that is a risk that companies should not be prepared to take.
Perhaps more significantly, in the post-Enron accounting world, auditors are looking at companies and their reporting procedures much more closely. Auditors want is evidence of good accounting practice and for that they need clear audit trails.
Companies that breach reporting requirements – whether innocently or not – are likely to face not only onerous disciplinary procedures but also the risk that any transgressions will be interpreted (by both shareholders and regulators) as something more sinister. No company can afford to make mistakes.
Spreadsheets, accuracy and the audit trail
Whether finance departments are familiar with spreadsheets or not, serious risks arise when a spreadsheet system is applied to a fixed asset register, particularly when it comes to producing accurate information and leaving a clear audit trail:
Spreadsheets allow no control over changes. Anyone with access to the software can make an undocumented change to the data, such as altering the asset purchase cost or the depreciation period or even deleting an entry altogether, which leaves no audit trail. Anyone checking the spreadsheet – such as the external auditor – would find it impossible to establish which changes were made, when, by whom and why.
Location, location, location
A spreadsheet-based asset register generally contains a location code for each asset but the nature of spreadsheets means that changes in location are difficult to track. But it is information that auditors, and the company, will need. Specialist asset software contains barcoding that allows for reconciliation of the details on the register with a physical audit.
The personal touch
Spreadsheets are individual by nature. They are often created by one staff member with his or her own preferred technique and individual quirks. The result is a spreadsheet that is impossible to audit. And what happens if that staff member leaves the company? The formulae and references are rarely logged – statistics suggest that just 10% of spreadsheets are properly documented. The result is that a company can be left with a complicated document that contains all the necessary information but which no-one can accurately read.
Depreciation is a complicated concept that demands complicated calculations. A number of variables and formulae can be applied according to each situation. It is hardly surprising, then, that more than four out of five companies questioned in a recent survey found incorrect depreciation calculations in their asset spreadsheets.
Guarding against fraud
The majority of frauds are planned and carried out by a current or former employee. Security is a major weakness of spreadsheet applications as users rarely apply proper limitation on who can access the spreadsheet and change the data.
Spreadsheets are a useful tool in many respects but their familiarity and accessibility means that they are frequently applied to tasks with much more sophisticated requirements. The fixed asset register is a prime example. Even relatively small companies can amass a large number of assets and accurate and reliable maintenance and analysis of its asset information is vital to future success. A spreadsheet-based register can often prove unwieldy and inflexible but much greater is the danger that it will produce inaccurate and unreliable information.
Company reporting has undergone a transformation in recent years and companies are required to produce accurate and up-to-date information. Auditors are becoming increasingly demanding of recorded information and company systems. Research shows that spreadsheets can be dangerously inaccurate when incorrectly applied to key tasks.