Sarbanes Oxley (SOX) and Excel - YouTube

in 2002 Sarbanes-Oxley legislation was passed in response to Enron and other

financial reporting issues that came up in 2001. Most people know at least that

this legislation increased personal liability that chief financial officers

can face if they are not more aware of internal controls, but what you may not

know is that this legislation also addressed Excel data integrity issues.

For example, one company had an error because of a minus sign being left out

of an equation that caused an error in the magnitude of 2.6 billion dollars.

Many errors are within formulas and calculations and the crucial thing to

learn around this are what can go wrong and decide how you want to go about

reducing these risks. It might be surprising to you that software systems

today often do not do all of the number crunching that a company or department

needs to make financial decisions. Now, if you think about an accounts payable

system, for example, often those software programs are really good at reducing

error. When programmers develop software they go through a procedure of defining

requirements, developing the tool, and then testing it to make sure it works

properly, given all kinds of business scenarios. However, when we develop Excel

spreadsheets, we often do not go through all these steps. This is the beauty of

Excel. We can do ad hoc analysis and reporting fairly quick but this is also

the incredible risk you can have by not having a disciplined approach to

development of spreadsheets-especially those that can have a material effect on

financial statements if the spreadsheet data is wrong when reported. Now it is

also important to note that a spreadsheet of sale quantities could

also affect financials even if there are no dollar values in the spreadsheet. If

you provide any kind of activity data like sales that accountants could

eventually apply dollars to, your spreadsheet should have controls over it

to ensure the validity and integrity the data - especially if it's eventually

reported to external groups. Thus, you have to think about two things in the

design of spreadsheets that impact your financials. You must think about ways to

prevent errors and how you can detect errors preventive controls can include

several different things. One is you want to establish spreadsheet instructions

and policies. For example, how often will the design be reviewed. Another approach

you can take is to have version controls any time you go through any changes to

the spreadsheet so that you have a working old file while you are making a

new change. This way you have not lost a good functioning file. It is always a

good idea to test spreadsheets and make sure that data is flowing and

calculating correctly and any changes should be tracked in a change control

log and any reviews should be done by someone other than the person who uses

the spreadsheet. Most often all of this requires solid training for your staff.

Detective controls are those items that actually affect the design of the

spreadsheet. You can ask yourself what is the approach we want to take to

designing spreadsheets? There are basic things you can do that if you train

users on these important facets of design you can reduce your risk. For

example, do you have control tools to check data input? Can you keep data input

separate from formulas? Can you identify constants and only enter them once?

Password protection is another way to make sure that your data is protected

and you can password protect the file itself or you can pick which cells to

protect inside the file. Excel has tools and functions that can assist in

preparing a solid design approach to spreadsheets things like passwords and

data validation can be very useful depending on your needs. I will go into

more detail on some of these in other more detailed videos about how to use

these in conjunction with preventive and detective controls. Finally at any level

of the organization, whether you are a manager or not, taking this aspect of

your work seriously can save embarrassment, possible fines, or even

prison time. I've seen a few people in my career that could have been named as

accessories to crimes or should have had knowledge of what was

happening around them with financial data, so please do learn how you can

manage Excel to reduce your risk thanks for watching and I look forward to

sharing more detailed information on excel tools in future videos.

Thank you