Spreadsheet Auditing Resources

Spreadsheet Audit

On this page you’ll find information about:
– why spreadsheet errors are a big problem,
– how to reduce errors in your spreadsheets,
– and how to carry out a spreadsheet audit.

Spreadsheet Error Research

We All Make Mistakes

We’ve all heard stories of spreadsheet errors, and some of the worst are listed on the Horror Stories web page of EuSpRIG, the European Spreadsheet Risks Interest Group.

We may be tempted to think, “I’d never do that”, but Prof. Ray Panko in Hawaii has spent decades researching spreadsheet errors. He has found that there is a “base error rate” of between 1% and 5% for any complex human activity. And this means that errors are inevitable in almost any spreadsheet.

When things go wrong, there are spreadsheet error experts who can help sort things out. But it’s much better to avoid problems in the first place, by following proper quality assurance standards in developing, testing, and auditing spreadsheets.

Developing and Testing Spreadsheets

Quality Standards

The most widely-recognised standards for developing financial models (spreadsheets) come from the Institute of Chartered Accountants in England and Wales (ICAEW). The ICAEW has published Twenty principles for good spreadsheet practice, and a more detailed Financial modelling code. And to go with these documents, there is a very helpful series of Intro to Financial Modelling online articles explaining step-by-step how to put the standards into practice.

After the ICAEW standards, probably best known is the comprehensive 72-page FAST Standard. This stands for Flexible, Appropriate, Structured, and Transparent, and it is backed by the FAST Standard Organisation. Another much simpler guideline comes from the US Corporate Finance Institute.

Whatever standard you choose, it is important to follow it consistently, and then test your spreadsheet thoroughly. The ICAEW and FAST standards are about development rather than testing, but Prof. Ray Panko points out that Microsoft spends as much time on testing as it does on development. And this is where Rainbow Analyst can make a big difference, for instance with its Formula Scan function that makes formula inconsistencies immediately visible.

Spreadsheet Audit and Review

Reducing Risk

Even the most carefully crafted spreadsheet will likely contain errors, and the best way to reduce the risk of spreadsheet horror stories as mentioned earlier is a professional financial model review or model audit. This will involve a top-down inspection review, probably some kind of bottom-up analytical review, and occasionally even an independent replication of what the model does.

As with spreadsheet quality standards, the ICAEW has published a comprehensive guide to How to review a spreadsheet, covering five different levels of review as well as the useful audit functionality built into Excel itself. And at the other extreme is a one-page summary from Danielle Stein Fairhurst.

When it comes to a detailed analytical review, Rainbow Analyst can reduce your time and costs by an order of magnitude. As one of our users told us, “Up until now it has taken us days to trawl through models but your add-in has reduced this to a matter of hours. It is very powerful and well worth the money”.

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