Do spreadsheets lead to compliance failures?

A full 92% of all US public companies use spreadsheets for critical accounting activities in their revenue reporting processes, according to a recent survey of financial executives. And that increases the likelihood of compliance failures and financial restatements. The research, which involved 685 companies, was conducted by www.RevenueRecognition.com and IDC and sponsored by Softrax Corp.

Revenue spreadsheets: the compliance killers

The reason for widespread spreadsheet use, says the survey, is that key revenue recognition and reporting tasks are still not automated in financial/ERP systems. Only 8% of all responding companies say they are able to complete their revenue reporting process without having to take data offline and into spreadsheets. The rest of the surveyed companies use spreadsheets, which are prone to errors, lack audit capabilities and resist internal controls.

According to the survey, more than half of all companies use spreadsheets to create their accounting entries for revenue. Other spreadsheet-based tasks include revenue scheduling, allocation and redistribution based on accounting guidelines. Surprisingly, public companies with more than $200 million in revenue are substantially more reliant than the overall sample on spreadsheets for revenue accounting entries.

When asked to identify the single most important change they would make to improve their revenue accounting processes, the top three answers were:

1. Enhance revenue recognition functionality in financial systems (22%)
2. Establish single source of “clean” revenue data (19%)
3. Implement business intelligence solution for analysing revenue (18%).

Message behind the results

Even with corporate compliance at stake, there are significant obstacles to overcome in automating revenue reporting processes. “Revenue recognition processes are dependent upon information from multiple sources and typically cannot be executed in existing enterprise systems,” says Kathleen Wilhide, director of compliance and bBusiness performance management research at IDC. “What is required is automation across this function, which will yield a host of benefits, including more accurate results, better internal controls, less reliance on uncontrolled spreadsheets, and freeing up time for performance analysis.”

The full report, Enterprise Systems and Revenue Recognition: The Missing Link, is available at www.RevenueRecognition.com. For more information, e-mail info@RevenueRecognition.com.