Tax & Accounting Blog

Excel – The Dirty Secret

Blog, Corporations, ONESOURCE March 10, 2020

A recent Deloitte survey found that 73% of companies used Microsoft Excel to prepare VAT returns. Yet in our European Tax Technology Survey, only 11% of businesses believed they can still rely on manual processes and spreadsheets. Couple this information with the fact that Microsoft recently stopped support for Windows 7 and will cease mainstream support for Windows 10 this year it seems many finance departments are walking a very slippery slope in terms of the tools they use to underpin critical business practices.

So, the big question is, how reliant, or perhaps, over-reliant on spreadsheets are you? And should you be worried? A few years ago, a leading UK retailer announced that its quarterly sales had grown by more than 1%. However, just a few hours later, it issued a statement saying that sales had in fact, fallen. This inaccuracy led to a drop in share price and numerous articles spreading damaging news of the company’s error. The mistake was put down to a summing miscalculation. A simple double-counting mishap in the spreadsheet. An easy-to-make, small slip it might have been, but it led to a damaging outcome for the company’s quarterly performance.

17% of large businesses had also suffered financial loss because of poor spreadsheet governance.

It’s not the only time in recent years a large organisation has missed a small error in a finance spreadsheet that has, in turn, led to a significant and negative impact on its operations. A YouGov study, commissioned by F1F9 found that 72% of medium and large businesses use them for budgeting or forecasting. Furthermore, 78% of British companies say that spreadsheets support key financial decisions. Spreadsheets seem to underpin elementary financial processes. However, 17% of large businesses had also suffered financial loss because of poor spreadsheet governance.  What’s most shocking about these horror stories and statistics is the over-reliance by major organisations on spreadsheets and their willingness to base significant decisions on them, even though they understand that dependencies can and do lead to serious consequences.

The problem isn’t the functionality of the software itself. Errors occur when it’s used inappropriately.

But let’s step back for a moment because the problem isn’t the functionality of the software itself. Excel is an excellent tool and is easy to use for many functions, from forecasting to analysis. Nevertheless, errors occur when it’s used inappropriately. Spreadsheets can support professional tax and accounting software and enhance companies’ operations; however, Excel should not be the central pillar or be allowed to be ungoverned in key strategic decisions or legislative reporting processes or models.

And why, you may ask, is Excel routinely applied outside of its capabilities in tax and accounting practice? Let’s be frank, because it’s cheap and everyone can use it… quickly! It comes as part of the broader Office365 package so there are no additional costs to the business and as it’s a universal application that is recognised, editable and accessible by almost all users. It seems like a no-brainer for some businesses. Until it’s too late.

Have you ever considered what happens if the only person who knows how to use the key spreadsheet leaves your company? What happens if someone else makes an unknown change? How secure is the file location? Who knows how many versions of the spreadsheet exist in the company and which version is current and reliable? Errors can easily occur, but the time wasted on re-learning or modifying spreadsheets can be immense.

The way many tax and finance users rely on spreadsheets is high-risk.

On top of this, there are no standard automatic debugging tools in Microsoft Excel, which means that significant mistakes can remain hidden. Think about resourcing – hours can be spent checking formulae in spreadsheets, making sure that links are functional. And then if you find an error or a spreadsheet requires an adjustment to one of the worksheets, the process of assessing the impact upon other linked workbooks or worksheets is equally time- consuming. In short, the way many tax and finance users rely on spreadsheets is high-risk, frequently error-prone and resource-intensive. Every time a user makes a change, he or she creates a new risk. If using spreadsheets is your way of managing your business’ finances, how does that reality make you feel?

Tax authorities are encouraging companies to move away from manual processes towards automated solutions for tax and accounting.

The great news is that with HMRC’s introduction of Making Tax Digital (MTD) you shouldn’t have to argue too hard for investment into adopting professional tax and accounting software to remove or reduce spreadsheet risk and meet the ever-increasing challenges of global reporting and compliance. It’s not just in the UK that tax authorities are encouraging companies to move away from manual processes towards automated solutions for tax and accounting. Of course, it makes it easier for tax authorities to audit a company’s financial data more effectively, but in a world where transparency is an absolute must I am sure that resonates with most people. And why not make life easier for your business as well as the tax professionals at HMRC?

Of course, the beauty of deploying specialist software means it helps you to formalise a compliance process that is repeatable and auditable across your organisation, thereby reducing the risk of errors, financial penalties, and substantial fines. The added benefit is that an automated process saves time and makes the reporting process more efficient. Unlike spreadsheets, professional software tracks and traces any changes made by users, time-stamping each step of the process to maintain version control.

You don’t need to throw Excel out on its ear.

It’s worth noting that professional tax and finance software does not replace spreadsheets; rather, they can complement one another. The best practice is to understand where it is that spreadsheets perform well, and use them for these areas to enhance support of more specialised software in the process chain. You don’t need to throw Excel out on its ear. It has a place where it can perform a myriad of functions; however, you should not be using it to handle the entirety of your organisation’s transactional data. For instance, once specialist software has processed this data, then Excel can be used to manipulate the output to meet various needs. By taking this approach you’ll then be able to maximise the benefits of both Excel and professional software.


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