Isn’t it time accountancy firms demanded spreadsheet management from corporates?

By Henry Umney, CEO, ClusterSeven

KPMG is under the spotlight like never before – most recently for its audit of the drinks giant, Conviviality, which was forced into administration in April this year following a spreadsheet error.

The accountancy watchdog, Financial Reporting Council (FRC), is taking the firm to task, not just for its mistakes in the Conviviality case, but others too. The FRC has upped the ante on the firm with twice as many probes into its audits compared to other accountancies.

“The FRC has good reason to take this approach towards all the auditors. According to the International Forum of Independent Audit Regulators, accounting lapses were identified at 40% of the 918 audits of listed public interest entities they inspected last year.  The watchdog highlighted ‘failure among auditors to sufficiently test the accuracy and completeness of data or reports produced by management’ as one of the major problems. Just prior to Conviviality, auditors were hauled up for accounting failure that potentially led to the collapse of the construction giant, Carillion.

“Additionally, the Public Company Accounting Oversight Board (PCAOB) is also coming down hard on auditors for audit failures and violation of the Board’s quality standards to enforce SOX compliance by organisations. According to the PCAOB Division of Registration and Inspections, the most frequent audit deficiencies are in the areas relating to auditing internal control over financial reporting, assessing and responding to risks of material misstatement, and measurements.

“Ensuring accuracy of data and management reports at client sites for auditors is potentially neigh impossible without the aid of technology, primarily due to ‘spreadsheet risk’. Commonly, corporates use spreadsheets to augment their IT systems for data collection and enrichment, complex calculations and financial reporting. While these spreadsheets deliver excellent functionality and flexibility for such activity, they are largely used in an unmonitored and uncontrolled manner. Due to the number of spreadsheet applications in use, manual supervision and management of these complex files for data quality and integrity of data is unachievable. In Conviviality’s case, it led to “a spreadsheet error” that caused a £5m hole in the company’s profit forecast and omission of a £30m tax bill.

“Faced with potential fines in the region of millions of dollars, and their reputations at stake, accountancy firms need to look for ways to deliver against regulators’ demands of more evidence of auditability and control. Enforcing a best practice, automated approach to data management and spreadsheet governance from corporates is an easy win. It’s time accountancy firms started demanding it of corporates.”

By Henry Umney, CEO, ClusterSeven

KPMG is under the spotlight like never before – most recently for its audit of the drinks giant, Conviviality, which was forced into administration in April this year following a spreadsheet error.

The accountancy watchdog, Financial Reporting Council (FRC), is taking the firm to task, not just for its mistakes in the Conviviality case, but others too. The FRC has upped the ante on the firm with twice as many probes into its audits compared to other accountancies.

“The FRC has good reason to take this approach towards all the auditors. According to the International Forum of Independent Audit Regulators, accounting lapses were identified at 40% of the 918 audits of listed public interest entities they inspected last year.  The watchdog highlighted ‘failure among auditors to sufficiently test the accuracy and completeness of data or reports produced by management’ as one of the major problems. Just prior to Conviviality, auditors were hauled up for accounting failure that potentially led to the collapse of the construction giant, Carillion.

“Additionally, the Public Company Accounting Oversight Board (PCAOB) is also coming down hard on auditors for audit failures and violation of the Board’s quality standards to enforce SOX compliance by organisations. According to the PCAOB Division of Registration and Inspections, the most frequent audit deficiencies are in the areas relating to auditing internal control over financial reporting, assessing and responding to risks of material misstatement, and measurements.

“Ensuring accuracy of data and management reports at client sites for auditors is potentially neigh impossible without the aid of technology, primarily due to ‘spreadsheet risk’. Commonly, corporates use spreadsheets to augment their IT systems for data collection and enrichment, complex calculations and financial reporting. While these spreadsheets deliver excellent functionality and flexibility for such activity, they are largely used in an unmonitored and uncontrolled manner. Due to the number of spreadsheet applications in use, manual supervision and management of these complex files for data quality and integrity of data is unachievable. In Conviviality’s case, it led to “a spreadsheet error” that caused a £5m hole in the company’s profit forecast and omission of a £30m tax bill.

“Faced with potential fines in the region of millions of dollars, and their reputations at stake, accountancy firms need to look for ways to deliver against regulators’ demands of more evidence of auditability and control. Enforcing a best practice, automated approach to data management and spreadsheet governance from corporates is an easy win. It’s time accountancy firms started demanding it of corporates.”