The Hindu Business Line : Don't spread your spreadsheet too thin, too wide

BASDA, the Business Application Software Developers Association, "represents more than 250 of the world's leading applications software developers and is the acknowledged voice of the software applications industry," as one learns from www.basda.org.

The Association has brought out a study, jointly with PricewaterhouseCoopers, on IT implications of Sarbanes Oxley.

The publication cautions that spreadsheets can be a big block in achieving compliance. Perhaps www.pwc.com is yet to update, because a search for `Basda' on the firm's site didn't show any result.

About Basda's report, there's a posting on www.accountingweb.co.uk noting that "fast-breeding financial spreadsheets are an expensive and pernicious barrier to meeting the corporate governance demands" of SOX.

The Association has also pointed out that there is no such thing as SOX-compliant software, only compliant companies!

When implementing SOX, it is necessary to prepare an inventory of "systems that may affect financial statements". Such inventories typically reveal that spreadsheets are being much more widely used for business processes and applications than is expected, notes the report. "One US company cited in the report uncovered the existence of 150,000 such spreadsheets," informs AccountingWeb.

What are the problems with spreadsheets? Most of the processes in the rows-and-columns grid are "overly complex, duplicative and fragmented". For auditors, the implication is that spreadsheets act as `end-user computing' of `high risk manual processes'. Quite harrowingly, these require audit each time, unlike "automated processes that only have to be audited once".

According to Basda, "The move to integrate, with workflow, a single dataset and audit trail, will provide a simplified systems architecture that will be far easier to maintain and control."

A related story on AccountingWeb leads to `Will SOX drive Excel out of management reporting?' Section 103 of the SOX Act mandates that record-keeping accurately reflect the transactions and dispositions of the company's assets; and provide reasonable assurance that transactions are adequately recorded to permit preparation of financial statements.

"Many US auditors are refusing to accept figures derived from spreadsheets that they feel do not have adequate controls," states the story. Of interest should be PwC's 2004 report, `The Use of Spreadsheets: Considerations for Section 404 of the Sarbanes-Oxley Act'. Where material or in case the computations are complex, it is advisable for companies to move from spreadsheets to "an application system with a more formal IT control".

The nine-page report on the firm's site opens with a terrifying anecdote:

"A spreadsheet error at a major financial institution was deemed a significant factor in a $1 billion financial statement error in the classification of securities. The error resulted from a flawed change control process — an unapproved change to a formula within the spreadsheet — and other control deficiencies, including lack of technical and user documentation, insufficient testing and inadequate backup and recovery procedures."

A September 26 datelined story on http://biz.yahoo.com informs that Compassoft Inc, which is into automated Sarbanes-Oxley regulatory compliance initiatives and enterprise risk management (ERM), has acquired the UK-headquartered Spreadsheet Auditing Ltd, creator of EXChecker, "a spreadsheet auditing application that discovers and reduces errors in spreadsheets that could lead to material misstatements in financial reports".

It cites European Spreadsheet Risks Interest Group (EuSpRIG) to remind that companies are increasingly realising the risk potential of "spreadsheets that are error-prone and can easily be manipulated to commit fraud."

A caution against spreading your spreadsheet too thin and too wide!

Cost focus is in the air

AROUND the World in 80 Days is what Jules Verne lovers may fondly remember. How about `Around the World on $48'? That's from the headline of a recent article on http://knowledge.wharton.upenn.edu.

It asks, "How High Can Discount Airlines Fly?" in the light of two major airlines, Delta and Northwest, filing for bankruptcy protection, and discount carriers apparently "winning the battle for America's skies". Discounters are taking off in Mexico, India, China, Europe and points in between, notes the article.

What is `the fundamental difference between the discounters and the well-known network carriers'? The older airlines focussed on revenue, while the upstarts have focused on costs, says the article citing Todd Sinai, a Wharton professor.

Ever tried to cost an air ticket?

Future finance technology

HOW can technology help create a high-performance finance function? For answer, study `Future Finance' from Accenture.

"Technologies such as electronic data transfer, workflow tools and optical character recognition can significantly increase the efficiency and accuracy of finance operations by automating processes and enabling proactive management," states the firm.

That you may know, but here's something startling — a finding from an online survey conducted by Accenture through the Economist Intelligence Unit — that "many executives are unaware of what process improvements can be enabled through technology."

Electronic data transfer and optical character recognition, which are `robust and secure means of automated data capture', are "yet to make their way to the finance function". Despite all the talk about IT, and 77 per cent of respondents agreeing that automating financial transactions helps create `a single version of the truth', "only 15 per cent of companies surveyed currently transact 60 per cent or more of their accounts payable and accounts receivable functions on a fully automated basis".

That means the bulk of transaction processing is still manual and labour-intensive.

The survey sought to know how much it cost to process an invoice. In most cases it was over $3, and in a good number of cases it was beyond $5. "More worrisome, perhaps, is that more than a third of the respondents reported that their organisation did not know how much it cost to process each invoice it received."

The report cites benchmarking studies that have found the median cost of processing an accounts payable invoice to be around $8, and `the average number of full-time equivalent accounting employees engaged in processing those accounts payable invoices per $1 billion of sales revenues' to be 19. For some companies, it costs around $40 to process an invoice, informs the report.

What is Accenture's conclusion? "An individual finance function attempting to implement new technology for the first time will be stepping into the unknown," it concedes, and suggests the use of an outsourcing provider.

That's because the outsourcing provider usually has `ample prior experience of implementing such tools,' reasons Accenture.

AccountSpeak@TheHindu.co.in

D. Murali

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Manufacturing growth

Harmony in the works

Don't spread your spreadsheet too thin, too wide

An old problem with a vague solution

Will CAs be the new financial scorekeepers?

Is the stock market boom a sideshow?

FDI in retail — A question of jobs, not ownership

Time for an entrepreneurship policy

Housing policy

Independent directors

Welcome cover