The Rise & Fallof Spreadsheets

A curious study on the widespread usage of yesterday’s

“visible calculator” for today’s complex financial close.

So, this spreadsheet walks into a bar...

T he spreadsheet has replaced the fax machine

as a euphemism for truly outdated technology,

the kind that creates more problems than it solves.

Jokes abound: “There are only two ways to develop

error-free spreadsheets. Only the third one works.”

Or “To err is human. To foul things up, you need

a spreadsheet.” Yet spreadsheet antipathy goes

beyond a few bad jokes.

Lately, Excel has such a bad rap you’d think it was the finance world’s own

Voldemort. For MarketWatch, Excel has become a significant contributor to

“the proliferation of bad math.” Tim Worstall, a Fellow at the Adam Smith Institute

in London takes it up a notch, calling Excel “the most dangerous software on the

planet...[with] tens of thousands, hundreds of thousands, of financiers and bankers

throwing trillions of dollars around the markets on the basis of their incomplete

spreadsheets and their ignorance of how they’re doing it wrong.”

“Electronic” spreadsheets weren’t always so despised. For hundreds of years, accounting processes required pencil, paper,

and an antiquated tool called a slide rule. The 10-key adding machine (the Standard, manufactured in 1903), was a definite

improvement, as was the manufacturing of the handheld calculator (in 1967 by Texas Instruments). But most accounting

processes were still highly manual, with accountants creating—and updating—paper spreadsheets. In 1961, Richard

Mattessich originated the idea of an electronic spreadsheet, and by 1978, his research had inspired new developments,

including Dan Bricklin’s VisiCalc. Considered the first spreadsheet software, VisiCalc was conceived as “a magic

blackboard” that made it possible for users to perform calculations automatically within cells. While VisiCalc was followed

by the creation of Lotus 1-2-3 and Microsoft Excel in the 1980s, of the three, Excel is the only software still in use today.

1903 – 10-KEY 1961 1980 – Birth of Spreadsheets

Accounting Technology

Innovation Curve

INNOVATION PLATEAU 1980 - 2004

The Rise and Fall of Spreadsheets 3

Imagine still faxing yourclose packet to the CFO...

W hile rotary phones have given way to smart phones and fax machines to email,

Excel’s popularity has only grown since its initial release in 1985. And with millions

of users all over the world, it would be easy to assume that Excel’s continued use in accounting

departments might indicate its usefulness. But in the case of spreadsheets, just because

something is popular doesn’t mean it’s advantageous.

Today’s spreadsheets are a tremendous improvement

over the ancient slide rule. Excel itself is a powerful

calculator, and a critical tool for performing and

displaying the results of mathematical operations.

But the very functionality that made electronic

spreadsheets so revolutionary in the late 1970s

also makes them perilous when it comes to

performing complex, multilayered accounting

functions. While Excel enables rapid calculations

and linked results over multiple worksheets, it also

makes it very difficult to quickly and easily identify

errors. Yesterday’s paper spreadsheets, though

cumbersome, didn’t enable hidden rows, multiple

saved versions and duplication, potential pitfalls

inherent to Excel today.

In addition, spreadsheets were designed to be visible

calculators, not databases. Yet Excel is used just as

frequently as an ad hoc database to store and populate

data. The danger? With Excel, what you see isn’t necessarily

what you get. The software’s limited visibility, behind-the-

scenes formulas, and unique cells continually threaten

data integrity. Research shows the same: in 2008, a team

at the University of Hawaii discovered that 88% of analyzed

spreadsheets contained errors. In another study, 63% of

spreadsheets had errors. Worse, the study participants,

nine highly experienced users, were “very confident”

that their spreadsheets were correct.

of spreadsheets contain errors

He stole $793,595 from the Treasury Office.

Theft. A Clallam County cashier took money from the Treasurer’s Office, disguising the theft in hidden

rows in her spreadsheet. The employee was estimated to have been involved in $793,595 of “questionable

transactions” over a period of five years. An office accountant who processed the employee’s reports

stated, “When you looked at the spreadsheet, it didn’t look like anything was missing.”

Underestimation of tax. An experienced staffer who “used the wrong spreadsheet” led to Kern County’s

oversight of a taxable property worth $1.26 billion. The error resulted in a miscalculation of a tax bill for

a petroleum company and a potential loss of $12 million a year for taxpayers.

Underestimation of funds. In 2011, Knox County Trustee Office auditors discovered

a $6 million-dollar accounting mistake. The error occurred because a single account

“wasn’t correctly linked into an Excel spreadsheet.”

Expensive fines. Arizona Portland Cement Corporation was fined $350,000 by the Environmental

Protection Agency (EPA). While the company was in compliance with emissions standards, their permit

application had errors. According to Steve Regis, Vice P resident of engineering for CalPortland, Arizona

Portland’s parent company, “Although the EPA still lists the company as a high-priority violator, there

never was a physical violation and the entire episode was sparked by a math error. Our consultant

had an error in his spreadsheet, and we submitted the permit application using his data.”

Budget shortfalls. A mistake in a debt services line item led to a perceived budget shortfall for

the Town of Framingham. The staff attributed the mistake to having to use “monstrous spreadsheets”;

the one missing figure resulted in a 1.5% budget shortfall.

Theft

Funds

Fines

Budget

Tax

O verconfidence with Excel has both time and financial

costs. It’s not only the resources and time it takes to

identify and correct these errors—resources that could be

better deployed on analysis and strategy—but the potential

damage to a company’s reputation and finances when the

errors are found by outsiders. For many companies, relying

on Excel for complex accounting has led to embarrassing and

disastrous consequences, including:

Use Excel as a calculator. Stop utilizing it for the close.

W hy are we still utilizing Excel as a financial close tool when it should be used

for its original function, a powerful, visible calculator? Many have asked the

same question, and the responses usually coalesce into these five basic answers. While one

through four may seem logical, number five simply isn’t true—especially when it comes

to managing repetitive, onerous accounting tasks during the close.

By replacing hundreds of Excel spreadsheets

with a finance controls and automation platform,

accountants can reduce (and often even eliminate)

manual processes. Instead of working frantically at

month-end to aggregate close data, accountants can

have data automatically imported into the platform

from almost any ERP. And instead of manually

matching transactions over hours or even days,

accountants can use the platform to complete the

same task in mere minutes.

A finance controls and automation platform doesn’t

just save time. It also reduces human error, increases

standardization, improves visibility, ensures stronger

controls, and streamlines internal and external audits.

The result? Companies can create a more efficient, more

accurate financial close and begin the crucial practice of

Continuous Accounting. Instead of frantically trying to complete

close tasks in a week, accountants can delegate and complete

close tasks across the entire month. And with a finance control

and automation platform that also enables powerful analysis

and reporting, finance can start making truly real-time—not

behind-the-times—business and strategy decisions.

Finally, because many finance control and automation

platforms are housed in the cloud, they’re automatically

updated, infinitely scalable, and easy to use across multiple

business units, regardless of physical location. Some,

like BlackLine, are also easy to learn, according to many

previously diehard Excel users.

“It’s familiar”

“It works well enough”

“It’s easy to learn”

“It’s the way it’s always been done”

“There aren’t any better options”

From “Should we?” to “Why aren’t we?”

Your marketing department wouldn’t dream of using spreadsheets to keep track of thousands of leads

(at least, we hope not). Your HR team has also likely moved beyond using Excel to manage the recruiting,

development, and succession of employees. But accountants everywhere still rely on hundreds or even

thousands of spreadsheets for the close, that onerous yet critical last mile of finance.

Finance Automation offers the transparency and visibility executives need to make better business

decisions, providing accuracy and therefore reducing risk. It frees accountants to focus on strategy

and analysis, tapping into the skillset that drew them to this profession in the first place.

Think about this for a moment: What would your days look like without Excel spreadsheets to update or

stacks of paper records and receipts to sift through? Just think about it, because you now know what’s

possible. Learn more about how BlackLine can make this a reality by visiting blackline.com.

W ith the knowledge of a better alternative—cloud-based,

ERP-agnostic close technology—the question becomes

not “Should we stop using spreadsheets?” but instead “Why aren’t

we using a finance controls and automation platform?”

ABOUT BLACKLINE

BlackLine’s mission is to continuously improve the quality, accuracy, and efficiency of Accounting and Finance by centralizing key accounting functions

within a single, unified cloud platform. BlackLine enables customers to move beyond outdated processes and point solutions to a Continuous

Accounting model, which embeds real-time automation, controls, and period-end tasks within day-to-day accounting activities. As a result, BlackLine

helps companies achieve Modern Finance and ensure an efficient and more accurate financial close. More than 1,500 companies around the world

trust BlackLine to ensure balance sheet integrity and confidence in their financial statements.