Excel Not Designed for “Heavy Lifting”
Increasingly banks and credit unions that have relied on Excel spreadsheets to determine their allowances are finding the software unsuitable for estimating under the new CECL accounting standard. As they work their way through the CECL transition period, all but the smallest, most vertically oriented institutions are realizing that there is simply too much data and too much complexity to estimating under CECL to make using Excel viable.
The problem? It’s the same as Excel has always presented, amplified now with CECL: unwieldy and error-prone.
In our 2015 series of three articles analyzing issues related to working with Excel (“Erroneous Excel”), we quoted Forrester Research Analyst Paul Hammerman: “Besides being extremely unwieldy for processes involving large volumes of data and multiple users, spreadsheets often contain substantial, material errors, according to academic research.” Now, in a November 22 article in The Wall Street Journal, titled “Stop Using Excel, Finance Chiefs Tell Staffs,” Hammerman remarks: “Excel just wasn’t designed to do some of the heavy lifting that companies need to do in finance.”
“Finance chiefs say the ubiquitous spreadsheet software that revolutionized accounting in the 1980s hasn’t kept up with the demands of contemporary corporate finance units,” writes Tatyana Shumsky in the Journal article. “Errors can bloom because data in Excel is separated from other systems and isn’t automatically updated.”
“Almost every organization uses some form of user developed applications such as spreadsheets and databases. They can be easily developed, cost effective to produce, and changed with relative ease,” noted the Institute of Internal Auditors (IIA), as we reported in a MST September 2014 article. “However, risks such as data integrity, availability, and confidentiality can pose threats to an organization.”
Among the most common problems for Excel users:
• Mistakes occur as data is entered into the spreadsheet – ranging from easily discovered typographical errors to more serious problems that can be difficult to uncover, like data embedded in a loan pool
• When adding to or shifting columns, formulas can be broken – most commonly when new fields are added to a data dump being pasted into an existing spreadsheet
• Errors of omission – when loan pools are not properly updated and new loans are dropped into a pool for loans that do not fall into an existing pool
• In circulation – when multiple copies of a spreadsheet are moving from person to person within the bank
• Duplication – when duplicating a calculation in a second location, the default action in Excel is to copy the formula, leading to unintended altered references, formulas and balances
“Older versions of Excel don’t allow multiple users to work together in one document, hampering collaboration,” the Journal article reports. “There is also a limit to how much data can be pulled into a single document, which can slow down analysis.” It points out that Excel has evolved, “to better serve its many groups of specialized customers,” while countering that, “many finance-industry customers … graduate to more specialized software as their needs evolve.”
The observations of The Wall Street Journal are supported by our experiences with financial institutions relative to estimating the allowance. Institutions that have used Excel in the past are converting to software like our Loan Loss Analyzer as they transition for CECL, software designed specifically for estimating the allowance and enhanced to accommodate the additional requirements imposed by the new accounting standard.
Further reading on Excel in banking
- Excel Spreadsheet Usage in Banking
- Erroneous Excel: Part 1
- Erroneous Excel: Part 2
- Erroneous Excel: Part 3
- From Excel to Automation– Case Study with National Bank of Middlebury