Recently, the CEO of a prominent enterprise software company wrote that auditors should consider including spreadsheets in their disclosure of “critical audit matters” (CAMs) as they begin to comply with the new auditing standards adopted last year by the Public Company Accounting Oversight Board.

The argument is that “impenetrable spreadsheets” represent an error-prone, manual accounting process that don’t provide enough visibility into how they support the financial statements. Therefore, they are especially challenging to audit, and may rise to the level of a CAM. The recommended solution? Ditch the spreadsheets for proprietary software that promises to automate your reconciliations and calculate journal entries for you.

We’ve heard similar arguments before. In the fall, an article in the Wall Street Journal stirred up a tempest with the headline “Stop Using Excel, Finance Chiefs Tell Staffs” and stories about finance teams that had ostensibly dropped Excel entirely in favor of enterprise performance management (EPM) software to eliminate errors and manual processes. One accountant in particular rose up to defend the noble spreadsheet, posting on Twitter that developers could have his Excel after they’ve “ripped it from my cold, dead hands.”

This debate is all a bit of a red herring. Realistically, no one is getting rid of their Excel licenses, and every one of these solutions that promises to replace Excel has an “Export to Excel” button. Excel is powerful and endlessly customizable. There will always be something you can’t do in your ERP or EPM and you’ll want to do in a spreadsheet.

There are also plenty of tasks today still better done in a spreadsheet than in a proprietary database: Reconciliations that support the monthly financial close, for instance. The argument that spreadsheets become too complex to audit properly is false, as any good auditor will tell you. Rather, it’s proprietary software that creates extra work for auditors.

Excel is essentially an open standard for accountants. All accountants know how it works and anyone can look under the hood to figure out what's going on in a particular spreadsheet. Since all the formulas are exposed, it’s easy for a third party who didn’t create the spreadsheet to audit the formulas and assumptions in a well-designed workbook. You can't easily do that with a database. In all likelihood, the auditors of a company using a specialized application for their reconciliations will have to export the data into Excel anyway and recalculate in order to validate the outputs.

But what about errors? Supposedly, ditching spreadsheets for our reconciliations and analysis will prevent costly errors. We’ve been told for years by anti-Excel developers that spreadsheets are full of them.

I’m happy to tell you, it’s a myth. A myth that began with a University of Hawaii study in 1998 that suggested that as many as 97 percent of spreadsheets contain “serious material errors.” As with many studies, it went on to be cited by anyone who wanted to convince accountants that spreadsheets are too risky. But as any accountant who works with spreadsheets on a regular basis will tell you, that 97 percent is an absurd statistic that must have been the result of a limited or flawed sample size.

When it comes to reconciliation workpapers, as long as they’re constructed according to best practices, there’s not much chance for error. Most reconciliations are simple, and roll forward from month to month with just a few changes.

That’s why we don’t need a specialized application to manage these workpapers. It just ends up creating more work for the accounting staff. This is the problem when non-accountants try to make software for accountants — they take something simple and make it complicated because they don’t understand how accountants work.

A spreadsheet is like a very sharp knife. In the right hands, it can slice and dice like no other. And, as with any powerful tool, it can also be dangerous. But that doesn’t mean that we should take away all the knives and replace them with a food processor. There’s a time and a place for both.

And in the world of accounting, sometimes we need spreadsheets, and sometimes we need a specialized application. We need both. And whatever new apps we implement ought to add on to the functionality that’s built up over decades within Excel rather than trying to replace it entirely.

The spreadsheet is here to stay.

Mike Whitmire

Mike Whitmire

Michael Whitmire, CPA, is co-founder and chief executive officer at Los Angeles-based FloQast, Inc., a developer of accounting close management software.