Are you playing football wearing tennis shoes; and why you should stop financial consolidation in Excel

Financial Consolidation Finalyzer
Financial consolidation is defined as the method of consolidating or pooling in together various financial data made available

Financial consolidation is defined as the method of consolidating or pooling in together various financial data made available by smaller subsidiaries or business corporations under the wing of a larger organisation for the main purpose of reporting the numerical data to its parent company.

In today’s fast paced, tech-driven life, convenience and speed are of paramount importance. Our on-the-go jobs demand that we execute our respective tasks with greater efficiency whilst saving time. One of Microsoft’s most popular application, amongst professionals and business entrepreneurs alike, is the Excel Spreadsheet. Excel seems to enjoy a landslide victory in the competition of spreadsheets applications because its features are nothing short of being simple and fantastic in nature. Excel has for long been the defacto choice for finance professionals across the globe.

However, while one can agree that Excel was earlier viewed as the only program available to digitize flowing numerical data which includes financial consolidation of statements, in the present time, Excel seems to be a poor choice for management of such financial information.

Following are the reasons why Excel fails to hit the bullseye for financial consolidation:

1.  Not suitable for collaborative or co-dependant work

Excel seems to be the perfect solution when the accounts of the company are being handled by only one person. Since everything is collated and managed within a single system by the same person, the need for consolidation and reporting to a higher authority doesn’t arise.

But, in larger organisations, the hierarchy is clearly spelt horizontally and vertically, and different departments work in tandem with each other. Team players from numerous departments and divisions are required to collaborate with each other and share such information. Since Excel wasn’t designed for such tasks, it cannot be accessed and altered by multiple users simultaneously for entering and reviewing process. Hence, Excel becomes time consuming in nature for exchanging information.

2.  To err is to be human – Manual mistakes’ frequent occurrence

As the old adage goes, “Too many cooks spoil the broth”. The presence of many groups of people working on the same financial statement, each contributing their share to the document, opens up the possibility for manual errors. Often times we find hard-coded values in financial statements with no traceability whatsoever. The information of grouping of GL accounts is often times lost during the process of consolidation. With multiple links to external documents, loading a file is in itself nothing short of a small miracle. Often times users ‘switch off’ the auto-calculation feature of Excel just to make it faster. This could result in values not being refreshed correctly and potentially introduce disastrous errors in the output. Since Excel is inherently manual in nature, the occurrence of such impactful errors is detrimental to ascertaining the true picture of the business’s accounts and the accuracy of the financials. This also exposes the company to huge compliance risk. Copying and pasting harbour room for errors and there in no provision to trace the history of data entry. Thus, Excel fails here.

3.  No barrier to access and manipulate documents

Excel is pretty much a simple program with a single dimensional user interface that refrains from putting any restrictions on the viewing, reviewing and alteration of the data so entered. The simple mailing of an Excel spreadsheet or uploading of an Excel spreadsheet to a public cloud storage poses huge security risks and puts the information’s authenticity and the business’s reputation at peril. The lack of an industry grade security system makes it difficult for organisations to secure their data from hackers.

4.  Stark incompatibility with governance of data

Excel sheets are not hard to create and enter data into. With no possible tab on who enters which data, data governance becomes a huge issue. The data entered into is often copied and pasted into multiple spreadsheets, resulting in duplicates of the same data. This complicates it for when different people access the data who may make their own additions and deletions, thus distorting the flow of data. As a result, rectification is needed which results in unnecessary delays. There is no continuity.

5.  Poor Scaling

The larger the organisation, the harder it becomes to scale the data since it is prone to get distributed across many spreadsheets. Eventually, it becomes chaotic and difficult to compound all the data onto a single database thereby making Excel the last choice for financial consolidation.

In a nutshell ask yourself a question Do you want to play football with tennis shoes ? Excel is an application that merely serves as tool for entering and collection of data but does not boast of the features of a reliable database. While it has not been explicitly stated as one of the points above, an almost universal side-effect of using excel is the person dependency it creates. This could prove fatal if key people go on unavoidable leave during crucial reporting periods. As it entails many cons, it is advisable for corporations and organisations to opt for cloud based enterprise performance management software (EPM) that is customized to their needs and can help mitigate common place problems that Excel throws upon them.

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