Avoid the Downward Spiral
Any decent software application today progresses through the SDLC, well known to anyone in the IT industry as the Software Development Life Cycle. The SDLC is the cycle of an application involving many role players generally beginning with the Analysis phase, moving through Design and Implementation, onto Testing and ending with Evaluation before heading back to Analysis.
For more information on how to adopt a risk intelligent approach to spreadsheets, contact Clinton Eidelman at ceidelman@deloitte.co.za
Spreadsheets are also a form of software application but rarely follow the SDLC and often a spreadsheet user is simultaneously owner, developer, programmer, tester, and end user. While programmers are trained in structural analysis and programming methods — most spreadsheet users are not and while most applications have application level-security — spreadsheets frequently do not. With no intrinsic audit trail, spreadsheets can be modified at anytime, with no history of these modifications. Spreadsheet applications can be an incubator for compounding issues leading to a downward spiral of misinformation.
Some of the key advantages of spreadsheets such as the ability to create quickly, share and modify the content also pose the greatest risks. Spreadsheets are standalone files and practically devoid of system-wide controls. Employees can create, access, manipulate and distribute spreadsheet data and consequently these employees can easily make a critical error while entering this data or configuring formulas. Seemingly innocuous errors such as a bracket in the wrong place or an incorrectly structured nested IF statement could have disastrous financial consequences.
A Risk Intelligent approach to the most effective and streamlined spreadsheets has direct benefits for financial reporting and tax processes. A Tax Manager should ask the following questions:
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During the tax reporting process am I harnessing the power of Pivot Tables, Pivot Charts, Slicers, Goal Seek and Sparklines in addition to the many other advanced reporting features within Microsoft Excel?
- Am I following the best approach when consolidating spreadsheets from different branches/companies or are there ways to automate the process and reduce errors?
- How many versions of a spreadsheet-based tax work paper/schedule exist and where are these versions located (email, network share, hard drives, web-based repositories)? Which is the correct or most-recent version?
- Are the formulas and calculations in my spreadsheet 100% accurate?
- Are the links to the underlying supporting tax schedules accurate?
- Do these update in real-time into my spreadsheet, or rather via copy and paste?
- Who can see or modify data in the spreadsheet? Should they have this level of access?
- Does adequate documentation exist that describes how complex tax spreadsheets in my department obtain and process their data?
Tax managers should consider conducting a review of all spreadsheets that lead to or contain tax information. Such a review should include steps that:
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Identify the population of spreadsheets for review and document a structured inventory with key information
- Rank each spreadsheet based on key criteria
- Remediate and automate selected spreadsheets incorporating spreadsheet design best practices
- Review the spreadsheet control environment and implement policies and procedures accordingly
Nearly every corporate tax department relies heavily on spreadsheets for computations such as tax accounting, statutory due date tracking, tax return workpapers to support book/tax accounting differences, R&D and transfer pricing.
Spreadsheet dependant processes, which often lack adequate controls, pose significant risks for companies. A relatively low cost, low effort spreadsheet review can mitigate these risks by improving the spreadsheets underpinning these processes and in turn lead to a more productive tax function.
For more information on how to adopt a risk intelligent approach to spreadsheets, contact Clinton Eidelman at ceidelman@deloitte.co.za
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