I bet more than a few of our readers use spreadsheets in their accounting, payroll and HR processes. You might even be thinking of (or currently) using them in your efforts to convert from GAAP to IFRS. And why wouldn’t you?
“Spreadsheets are dynamic tools that can provide a wide variety of functionality at minimal cost. Consequently, in an environment of stringent deadlines and temporary data processing needs, they are used to fill the gaps in functionality within the computing environment”, says the CICA’s Information Technology Advisory Committee (ITAC).
Nonetheless, the committee notes in IFRS and Spreadsheets: A High-Risk Combination that the use of spreadsheets can cause problems. They are prone to error, burdensome to maintain and generally subject to less control and security than dedicated applications, which have controls built in. Without controls, the slightest mistake can lead to incorrect results, which a system with controls would catch at the outset.
“Anything more than a simple spreadsheet has a high likelihood of error and can have a significant impact on the organization … An analysis of seven spreadsheet-error studies … found an average error rate of 88%.”
Indeed, even the simplest errors can lead to excessive (and unnecessary) payments and exorbitant fines. (See the committee’s guide for examples.)
Remarkably, given the risks, the technology committee doesn’t simply recommend not using spreadsheets, but instead offers suggestions on managing the risk:
- Familiarize yourself with the risks
- Ask yourself if spreadsheets are the best tool for the job
- If you decide to use spreadsheets, determine whether they will be a temporary or permanent solution (hint: make them temporary)
- Make your spreadsheets as simple as possible; e.g., avoid using macros, pivot tables and linking documents
- Extend the control environment to your spreadsheets
See IFRS and Spreadsheets: A High-Risk Combination for the details.
We’ve just updated Chapter 7 — Accounting and Reporting in Volume I of Finance & Accounting PolicyPro. The chapter includes valuable information on the transition from GAAP to IFRS.
First Reference Human Resources and Internal Controls Compliance Editor