Cipcommunity

Spreadsheet Analysis

Spreadsheet Analysis

Introduction An electronic, or computerized spreadsheet, can be defined as a software application which displays multiple cells that together make up a grid consisting of rows and columns, each cell containing alphanumeric text, numeric values or formulas which performs the calculation processes (Bessant, 2003; Stroman, Wilson, and Wauson 2004 and Power n. d. ). It has been extensively employed ranging from the field of business and financial community to engineering, educational, scientific and medical areas (Ballantine, 1991; Bessant, 2003 and Randles, 2005).

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

This essay firstly, will give a brief outline of development of electronic spreadsheet application and particularly indicate its widespread utilization in accounting sector; emphasis will be largely placed on the critical analysis of advantages and pitfalls of spreadsheet modeling in financial accounting and reporting. Finally, remedies which can reduce the probability of dangers of spreadsheets will be introduced to improve the practicability of spreadsheets.

Ballantine (1991), Walkenbach (2007) and Power (n. d. ) acknowledged that VisiValc, which was pioneered by Dan Bircklin and written for the Apple II computer in 1978, should be the first electronic spreadsheet. Admittedly, it essentially laid the foundation for future spreadsheets. Release in 1983, Lotus Development Corporation’s 1-2-3, designed to run on the IBM PC, was an instant success, becoming the leading spreadsheet when DOS was the dominant operating system (Walkenbach, 2007; Ballantine, 1991).

New spreadsheet programme, Excel, is gradually outstanding due to its function of graphical interface and it has the largest market share on the Windows and Macintosh platforms (Power, n. d. ). Both Falck and Lynn (2004) and Grossman (2005) maintains that spreadsheets are so prevalent in business that approximately two thirds of companies continue to depend on spreadsheets to make risky decisions, capture and report financial and managerial accounting data, communicate information to internal and external stakeholders even though advanced technologies have come into existence.

Spreadsheets themselves have merits to facilitate the financial reporting procedures. Nevertheless, there seem to be a variety of considerably severe problems accompanied with convenience. It is obvious that the invention of spreadsheets save not only time and cost compared with traditional manual worksheets (Ballantine, 1991; Falck and Lynn, 2004). According to Ballantine (1991), ‘the price of electronic spreadsheets varies from around 10 percent to a half of the hardware costs of a personal computer system. In addition to this, the business spreadsheet consultancy (2010) and Coon (2005) claims that Excel or Lotus 1-2-3 programme is usually installed inherently in employees’ desktops, and increased use of spreadsheets software makes no difference to organizations overall IT budget nor to its existing software maintenance concerns. In terms of time-saving, spreadsheets can recalculate formulas automatically and efficiently if any of the numbers in the cells included in the formula is changed (Stroman, Wilson and Wauson, 2004).

Conversely, manual worksheets are time consuming in performance of input changes. Another advantage is that it is easy to use and flexible (O’Beirne, 2005). Ballantine (1991) and Coon (2005) point out that it requires no general purpose language programming experience to use it and individuals can use it without a great deal of extensive specialist training which could be costly and time consuming. Furthermore, the electronic spreadsheet is a flexible tool which does not force the user to set up models in a specific way and can be changed easily and quickly (Ballantine, 1991; Coon, 2005).

However, O’Beirne (2005) also refutes the view of flexibility, stating that anybody could use and change a given spreadsheet in an uncontrolled manner. Chan, Lee and Lam (2004) also argue that development and data validation of extremely flexible spreadsheets require substantial time. With respect to users, O’ Donnel (2008) maintains that only one person at a time can effectively use a spreadsheet, especially if it is being updated. It can help protect privacy of a specific person.

Nonetheless, it appears that some features, for instance, the need for multiple simultaneous users to select data or update data in the tables, are absent from spreadsheet programs (ibid). Finally, ‘electronic spreadsheets have tended to encourage businesses to consider factors which were previously not considered in the budgeting process when manual worksheets were used’, such as the internal and external environmental influences on the organizations and sensitivity analysis (Ballantine, 1991). Concerning the dangers and drawbacks of computerized spreadsheets, three major issues, which are errors, security nd control, are closely related. It is possible to build very large spreadsheets which can contain as many as millions of cells depending on the memory size of the computer running the software (Stroman, Wilson and Wauson, 2004). However, most large spreadsheets include at least one significant error. A large number of publications over two decades have clearly described the seriousness of spreadsheet errors and their adverse or potential impact on businesses. A financial model review by KPMG Management Consulting reports that ‘in 95% of the financial models reviewed, at least 5 errors were found’ (Rajalingham, Chadwick and Knight, 2000).

Similarly, IBM White Paper (2009) cited that PWC found that 90% of the spreadsheets analyzed contained significant error. More generally, consultants have estimated that 20% to 40% of all spreadsheets contain errors (Panko, 1998). Errors can occur during cell entry, at the end of the development stage, in code inspection and in operational spreadsheets, despite the reduction of errors in final operational systems (Panko, 1998; Rajalingham, Chadwick and Knight, 2000; Panko and Halverson, 1996).

Errors cannot be avoided, awfully, ‘if the worksheet were linked to a database or part of a web of interconnected spreadsheets, the error would instantly corrupt all those files’ (Callaham, 2002). Apart from this, system-generated errors which arose from bugs of spreadsheet software and qualitative and quantitative errors due to carelessness or negligence of operators are possible origins leading to pitfalls of spreadsheets (Rajalingham, Chadwick and Knight, 2000; Panko, 1998).

Secondly, security issues should be considered when handling electric spreadsheets. Threats posed by viruses, Trojans and unencrypted USB sticks are all well known factors which probably create insecurity of spreadsheets. However, when security risk is introduced in this situation, poorly managed Excel spreadsheets is the main danger (Condon, 2009). Another important pitfall of spreadsheet is the difficulties of compliance with financial reporting standards, especially the US Sarbanes-Oxley Act.

Sarbanes-Oxley Act is a legislation which is used for testing the reporting capabilities of the widely used business management software-spreadsheets (Leech, 2005). ‘One of the main problems of spreadsheet development is that no specific development methodology is available’ (Chadwick, 2007). It implies that formal spreadsheet in financial reporting varies inevitably. Therefore, there are diverse limitations for compliance with the standards. Finally, the facts overlooked by the spreadsheet modeler are that many factors which affect an organization are qualitative rather than quantitative.

Spreadsheets display solely quantitative characters and do not take account of intangible or qualitative elements (Ballantine, 1991). Additionally, Paine (1997) claims that spreadsheet models are hard to read and maintain and there is need to develop a compiler that generates spreadsheet formula from textual specifications of models, called Model Master. Some approaches can be applied to remedy the drawbacks electronic spreadsheets encounter. Two areas have an obvious need for spreadsheet error controls accuracy controls and fraud controls. Panko, 2007) Although Sarbanes-Oxley was produced in response to fraud incidents, the Conclusion In conclusion, electronic spreadsheets have been progressing continuously over the past twenty years. The advantages of spreadsheet are evident in financial statement of corporations, whereas dangers are associated with the benefits. Errors, security and compliance are core issue which should be considered. Software might be developed to explore methods to make computerized spreadsheets more accurate, intelligent and effective.

x

Hi!
I'm Iris

Would you like to get such a paper? How about receiving a customized one?

Check it out