Grenville J. Croll
Spreadsheet audit and review procedures are an essential part of almost all City of London financial transactions.
Structured processes are used to discover errors in large financial spreadsheets underpinning major transactions of all types. Serious errors are routinely found and are fed back to model development teams generally under conditions of extreme time urgency.
Corrected models form the essence of the completed transaction and firms undertaking model audit and review expose themselves to significant financial liability in the event of any remaining significant error.
It is noteworthy that in the United Kingdom, the management of spreadsheet error is almost unheard of outside of the City of London despite the commercial ubiquity of the spreadsheet.
Key phases in a typical spreadsheet model review process are:
- Familiarisation. The structure of the model is briefly appraised, in terms of sheets, linked sheets and associated databases.
- Low level review. The model is partitioned and dispatched to one or more reviewers for detailed low level scrutiny. The objective is to establish the correctness of the detailed model formulae and other model parts.
- High level review. Wider issues such as the correct handling of interest, tax and other financial and accounting issues is determined.
- Sensitivities. A few key model variables such as interest rates, cost and revenue assumptions are changed to review the characteristics of the transaction under various commercial scenarios. The performance of the model under these scenarios is checked and documented.
- Final review and report. A report is issued to the client confirming that various previously agreed review procedures have been performed upon the model. Any unresolved issued are documented.
The process generally involves numerous feedback iterations with the model developer.
2002, Integrity and Internal Control in Information Systems V, Volume 124, May, pages 213-219