Excel, or spreadsheets in general, is the go-to tool for accountants due to its unmatched flexibility, multi-purpose nature and cost-effectiveness.
But its efficacy is affected by user skills, limited security, performance issues and integration challenges.
Users need to recognise when Excel cannot manage the complexity or scope of analysis, and evaluate if a more specialised business intelligence software is required.
Excel, or spreadsheets in general, is the go-to tool for accountants due to its unmatched flexibility and cost-effectiveness. Its adaptability enables it to handle diverse tasks such as financial modelling, data analysis, reporting, and automation. As a low-cost tool bundled with Microsoft Office subscriptions, Excel provides a versatile solution that can often replace the need for multiple specialised applications, making it indispensable for a wide range of accounting tasks.
THE ROLE OF EXCEL IN ACCOUNTING
In accounting, tasks that fall outside the scope of ERP (enterprise resource planning) or accounting systems are typically managed using Excel. While ERP or accounting systems handle large-scale, standardised processes effectively, they often lack the flexibility needed for ad-hoc or highly customised tasks. Excel fills this gap by providing a dynamic platform where users can adapt and create solutions tailored to their specific needs.
Excel is often the starting point – a platform where initial ideas, processes, or analyses are developed. Once these needs evolve or grow in complexity, it may become necessary to transition to more specialised tools to achieve better efficiency or scalability. This adaptability and its ability to serve as a launching pad make Excel an indispensable tool.
WHAT IS EXCEL GOOD AT?
Building on its role, Excel’s true strength lies in its ability to handle a wide array of tasks efficiently and effectively:
Agility: Excel is incredibly flexible. You can quickly and easily make changes to cell values, formulas, functions, charts, or layouts with just a few clicks. Compared to other applications that may require writing lines of programming code for similar adjustments, Excel simplifies the process, making it accessible to more users.
Multi-purpose: From data storage and processing to reporting, Excel can manage it all. While specialised tools often excel in their specific domains, Excel's all-in-one capability can save time and effort by consolidating tasks on a single platform. This versatility is particularly valuable for users seeking a streamlined workflow.
Lower investment: Excel is cost-effective when compared to the combined expenses of specialised tools. Its subscription cost and the minimal time investment required to build spreadsheets often make it the preferred choice for businesses. This affordability, coupled with its wide-ranging utility, is a key reason why Excel remains a staple in most workplaces.
Compatibility: Excel’s widespread adoption ensures compatibility and ease of collaboration. Sharing an Excel spreadsheet with colleagues or external stakeholders is straightforward, and there is a high likelihood that they will understand and interact with the content effectively.
EXCEL’S WEAKNESSES
Dependency on user skills: Excel is highly dependent on users’ skills. Users must select and apply the correct formulas or functions for computations. If the wrong functions are used, the output may not be accurate, leading to potential errors in the results.
Limited security: Although Microsoft improved security with the transition from XLS to XLSX formats, Excel still does not provide adequate protection over data, computation logic, and access controls. This limitation often drives users to choose other tools over Excel. While these weaknesses can be mitigated to some extent through VBA coding, it requires significant effort and reduces the workbook’s agility.
Performance issues: Excel performs well with a few lines of data and formulas. However, as the amount of data grows, the application tends to lag, and computations can become slow. Many users have experienced this limitation when working with large datasets.
Integration challenges: While less critical in the past, integration is now a significant requirement in today’s interconnected world. Excel lacks robust native integration with other applications, particularly cloud-based ones.
EXAMPLE OF EVALUATION PROCESS
For example, accountants often rely on Excel to perform financial analysis. When the complexity or scope grows, it will come to a point where accountants would need to evaluate if they should implement a more specialised BI (business intelligence) software. When considering whether to use Excel or a specialised BI tool for data analytics, walking through an evaluation process is key. This is an example of how to approach such an evaluation:
User proficiency: Assess the ability of users to understand and operationalise analysis requirements. For instance, if users are experienced and can customise Excel to meet complex needs, it may remain a viable choice. However, if users require pre-built templates or automated features available in BI tools, transitioning to such tools could save time and reduce errors, ensuring smoother workflows.
Data sensitivity: If the analysis is to be shared with multiple parties, evaluate whether sharing an Excel file could expose sensitive data or formulas to the risk of unauthorised or accidental changes. BI tools often provide better security controls for shared analyses.
Data volume: Large datasets can quickly overwhelm Excel, leading to performance issues such as lagging or crashes. BI tools are designed to handle extensive data volumes efficiently, making them a better choice in such cases.
Frequency of analysis: If the analysis needs to be performed frequently, consider a BI tool that allows seamless connection with upstream data sources, such as your accounting software. This enables real-time analysis and eliminates the need for repeated manual data updates.
By carefully evaluating these factors, you can decide whether to stick with Excel or transition to a specialised tool to achieve better outcomes. Always consider the incremental costs – money, time, and effort – relative to the incremental benefits, as this will provide a clearer understanding of whether the shift aligns with your objectives and resources.
CONCLUSION
Excel remains the first go-to tool for accountants because of its cost-effectiveness, versatility, and multi-purpose nature. However, achieving optimal results requires recognising its limitations and knowing when to transition to specialised tools. Starting with Excel often serves as an effective foundation, allowing professionals to adapt and expand to specialised solutions as their needs grow and evolve. Moreover, it encourages users to reflect clearly on their needs and requirements. This approach may make subsequent implementation smoother and more effective, particularly in the context of automation or technology adoption.
