Millions of users have become Excel devotees since its debut, with a significant following among finance and accounting professionals.
There are many reasons to love Excel. It’s easy to use and the program has many fantastic features. That being said, it’s a poor choice for managing the financial close and reporting process.
Why? (1) Excel isn’t designed for collaboration, (2) Excel is error prone, (3) spreadsheets are difficult to govern, and (4) spreadsheets lack data management and backup capabilities. Let’s explore each of these risks in more detail.
Excel: Designed for the Use of an Individual
If you’re an accountant or bookkeeper at a small company, you’re probably the only person handling the business’ financial records. The accounting is performed within one system and you’re not not receiving reporting data from any other sources, so you don’t need to consolidate results or report to regulatory bodies. In that case, Excel can be a viable tool for financial reporting.
However, the situation is different at larger organizations with finance or accounting departments consisting of many people managing multiple divisions and cost centers. Team members need to share information with one another, especially during the period-end close. That’s where Excel fails.
Excel wasn’t designed as a collaboration tool that can support a corporate process, nor is it a database designed to support multiple users simultaneously entering and reviewing data.
During the financial close and reporting period, collaboration is paramount. Firms require a tool that enables, not impedes, working together. Cloud-based enterprise performance management (EPM) software allows them to do that. Multiple users can enter data simultaneously, and anyone who’s authorized can view information from anywhere, regardless of whether someone is inputting it or not. And with the EPM software doing the heavy lifting in the cloud, users can leverage Excel as a front-end for reporting, analysis and data entry.
A Case of Irreconcilable Differences
Have you ever looked at an Excel spreadsheet and wondered if the information in it was completely accurate? There’s a good chance it’s not. Ray Panko, a professor of IT management at the University of Hawaii, reviewed spreadsheet field audits conducted by various companies between 1995 and 2007 and discovered that 88% of spreadsheets contain some kind of error.
How is that possible? Well, it’s not that hard to imagine, actually. If your company has multiple branches or subsidiaries, and all of them use Excel files for financial reporting, it can be very challenging when you’re trying to consolidate all of that data into one spreadsheet. You might accidentally omit numbers while you’re copying and pasting. And you have no idea whether the data was entered correctly in the first place.
Accounting and finance departments always need to be able to trust their numbers, but it’s never more important than during the period-end close and reporting process. Cloud-based EPM software eliminates the need to spend valuable time and resources reconciling multiple Excel files. With cloud-based EPM software, working from a centralized database, there’s a single version of the truth, and you can trust the numbers.
Excel Isn’t Compatible with Good Data Governance
The aforementioned risks of using Excel for financial close and reporting are intrinsically linked with another drawback: no one can govern the data.
Let’s say Rebecca is a team member of the accounting department at a large, multinational company. She creates a spreadsheet to track the financial data for the marketing team, and Rebecca formats it in such a way that it makes sense to her. When her colleague Mark in Marketing looks at the Excel file, he doesn’t understand what Rebecca’s done, so he makes changes tot the spreadsheet, or generates a new spreadsheet of his own.
The creation of multiple spreadsheets in a variety of formats runs completely counter to the idea of good data governance. In this situation, the CFO or department head has no control over how spreadsheets are formatted or what information goes into them. When it comes time to close the books, who knows whether Mark or Rebecca’s spreadsheet is the most accurate?
Cloud-based EPM software can be a vital part of good data governance practices. It gives the company control over which information is entered, stored, and utilized – and by whom. So, when financial closing time comes around, no one has to wonder whether they can rely on the information stored within the software. Full audit trails are available to trace numbers presented on the balance sheet or income statement back to their source.
Unlike Other Excel Alternatives, Excel Files Aren’t Backed Up
Accounting and finance professionals can trust their data when they know it’s up to date. With Excel files, you don’t know if that’s the case.
We’ll go back to the example of Rebecca. She saves her spreadsheets on her workstation’s hard drive. Rebecca isn’t as diligent about backing up her files as she should be, so when a ransomware attack strikes her firm just before closing period, she loses access to everything stored on her computer. The IT department restores documents on the network drive, but they can’t bring back the most recent version of Rebecca’s Excel files.
With cloud-based EPM software, data is constantly backed up. No one ever has to worry that they’re looking at an out-of-date version of information, which is especially crucial at financial close time.
At the enterprise level, spreadsheets simply aren’t an appropriate solution to collecting, consolidating and reporting financial results. Accounting and finance departments need to be absolutely confident that their numbers are accurate so they can comply with government regulations and so that leaders can make the best decisions. Cloud-based EPM software enables them to do that. To learn more, read this white paper which highlights the advantages of managing financial close and reporting in the cloud.