Error Detection and Prevention in Regards to

¶ … error detection and prevention in regards to regulatory issues and governance issues. With the advent of the internet, the use of spreadsheets and other data manipulation software has become widespread. The use of these forms of software has numerous implications for any business irrespective of size. For one, the ubiquitous nature of spreadsheet modeling allows it to be instantly transferred between end-users without any subsequent recreation of the original document. This allows multiple end-users to have access to the same spreadsheet without recreating it, thus saving time and increasing efficiency.

Furthermore, spreadsheets modeling tools provide multiple solutions to multiple problems facing businesses. Excel, for example, can preform data mining tasks, what if analysis, and report generation. All of which provide a means for the end user to make better informed decisions therefore increasing profits and customer satisfaction. Spreadsheets are not without their flaws however. As the article indicates, errors occur constantly in spreadsheet production. In many instances, these areas are transferred to other unsuspecting end users of the model.

This compound effect creates widespread errors in the calculations and thus decision making of the end user. Even more prevalent, is the issue of fraud, as individuals will intentionally manipulate spreadsheets to achieve a desired effect. The detection and subsequent prevention of fraud within spreadsheet modeling is quite difficult due in part to the overall abundance of information present within the spreadsheet. A person with desires to locate fraud must first comb though large amounts of information to simply pinpoint one mistake.

More troublesome, the individual looking for the mistake may himself overlook aspects hidden within the spreadsheet causing the fraudulent financial information. As such, the prevention of such efforts is quite difficult (1). This not only has a profound impact on the end user but by all stakeholders involved in the use of the financial information provided by the end user. These stakeholders include, audit firms, management, employees, customers, investors, and the government. In regards to investors, misleading spreadsheet information can have a profound impact on individual investing behavior.

As the article stated, 80-95% of all U.S. based companies use spreadsheet financial reporting. Many of these financial statements contain mistakes that, as I mentioned earlier, are very difficult to detect. Therefore, investors are using misleading financial information that will subsequently cause them to make ill advised investing decisions. These decisions further effect the economy as money that could otherwise be used for honest companies is going towards fraudulent companies with misleading financial reporting standards.

This will cause the fraudulent company to obtain financing that is not duly disserved at the expense of the honest company with honest financial reporting standards. Once the fraudulent company is detected, the original investor will ultimately lose money as he or she was misled into investing into the company to begin with. Thankfully, the government and other oversight committees have initiated regulation in which to curb the influence of errors and fraud within financial reporting. These committees have enacted various standards in which all companies must adhere to.

These regulations include SOX, J-SOX, COSO, and COBIT. All of these regulations have the intended purpose of providing a means of detecting errors, mitigated risk associated with using spreadsheets, while not inhibiting the overall innovation of the tool (2). It is my belief however, that these regulations although warranted, will do little to curb the prevalence of errors and security. First, humans are the individuals that input data and create security for that data. It is human nature to make mistakes. No amount of regulation will inhibit this fact.

Further, who is to decide if an activity is a security issue or a fraud issue? Fraud, in particular is hard to prove on an individual basis, as it will be difficult to prove beyond a reasonable doubt. Finally, in regards to security, it is the nature of the internet and of spreadsheets to constantly evolve. That is what makes the use of spreadsheets for financial.