Providing an audit trail for changes to financial data is a major compliance issue in today’s business environment. Tax and accounting departments continue to be called on to increase controls and provide transparency into every level of financial data.

Spreadsheet Risk

Whether your company is small or large, public or private, you probably use spreadsheets in some fashion for calculating and reporting on financial data. Unfortunately, the use of spreadsheets — and more importantly, the lack of controls over spreadsheets — has been a contributing factor in financial reporting errors at a number of companies.

The lack of controls typically found in structured software applications can put companies at risk of significant error that can lead to restated financials, loss of credibility and monetary fines.

Other risks include lack of business continuity, fraud and non-compliance — particularly with Sarbanes-Oxley Section 404.

Ensuring Adequate Control of Spreadsheets

The following controls are normally used to ensure accuracy, availability and security for IT applications. These same controls are what must be implemented for higher risk/higher impact spreadsheets.

• Security — Preventing unauthorized access to corporate data is not only important to protect against fraud, but is a mandatory component of compliance with many regulations.
• Audit/archiving — In addition to being a best practice for any type of corporate financial data, public companies are required by the Sarbanes-Oxley Act to document changes made to financial data.
• Data integrity — Spreadsheets are notorious for containing mistakes. There needs to be systematic verification and validation of calculations and functionality.
• Documentation — When the creator of a spreadsheet leaves the company, other employees are often left with undocumented spreadsheets with no idea how to correctly use and maintain them.
• Back-ups — This should be part of best practices for all corporate data to prevent loss of corporate information assets.
• Change control and quality assurance — All changes should be verified before they are implemented, including structured testing to ensure accuracy of logic and calculations.

The Impact on Productivity

For complex spreadsheets, implementing and maintaining the proper controls is a time-consuming and sometimes nearly impossible effort — an effort that’s in addition to the already significant amount of resources required to maintain the spreadsheets as changes in the business occur. While spreadsheets are widely viewed as low-cost, personal productivity tools, more complex usage can lead to the opposite: A productivity drain as staff becomes application programmers.

A Complex Spreadsheet Example — Fixed Assets and Depreciation

Back when straight-line method was all that was required for depreciation, using a spreadsheet made sense. Today, the situation is dramatically different. In many instances, each asset has the possibility of being depreciated in six (or more) different ways — GAAP, regular tax, AMT, ACE, E&P and state(s) — and all at the same moment in time.

The complex and changing GAAP rules and tax laws that apply to depreciation add to the burden of tracking, interpreting and applying these laws in order to formulate and maintain the correct calculations.

The Safer Alternative

To eliminate the burden and risk of maintaining spreadsheets for important tax and accounting work such as fixed assets management, a packaged application from a reputable vendor will provide the program logic and calculations necessary to accurately and efficiently manage, depreciate and report on fixed assets.

Good fixed assets software has all the tax code and GAAP rules embedded within the product and has thoroughly-tested logic that ensures the rules are applied correctly. Frequent updates by the vendor guarantee that all changes and new laws are included in the software automatically.

When assessing fixed assets software, consider if the application:

• Will help you increase efficiency and productivity (e.g., can reports be generated easily and quickly?)
• Is 100 percent accurate (e.g., is it being maintained by a team of experts in fixed assets, depreciation and interpreting tax law?)
• Provides controls necessary to minimize risk (e.g., does it provide a documented audit trail of all transactions/modifications to asset records?)
• Has the ability to grow with your company (e.g., can it handle an increasing number of fixed assets without an impact on efficiency, performance, and accuracy?)

To get the full report — Protecting Your Business Assets: A Report on Spreadsheet Risk — and to find out more about how you can protect you fixed asset data and assure timely, accurate depreciation calculations by moving from spreadsheets to an expert software application, go to www.bnasoftware.com/norisk1.