Model Audit


Model Audit

A Model Audit is the colloquial term for the tasks performed when conducting due diligence on a financial model, in order to eliminate spreadsheet error. A study in 1998 concluded that even MBA students with over 250 hours of spreadsheet development experience had a 24% chance of introducing spreadsheet error [http://panko.shidler.hawaii.edu/SSR/devexpt.htm] . Model Audits are typically requested by banking organisations, in order to reassure lenders and investors alike that the calculations and assumptions within the model are correct, and that the results produced by the model can be relied upon. When a comprehensive review of the model is required, the scope of review is often extended to include tax and accounting, sensitivity testing and the checking of data contained within the model back to the original financing and legal documentation.

Purpose

The purpose of a model audit is to provide reassurance that the results can be relied upon. For this reason, the party conducting the review will provide a level of reliance on the form of an amount of liability. This may range from a multiple of the fee (2x, 3x, 4x fee, etc) to a fixed amount, often up to $20 million USD. In the event an error or omission is found in the model, the organisation relying on the report may choose to sue the model auditor in order to recover any loss.

How is it Conducted?

Most financial models are produced using Microsoft Excel. The model will routinely contain a number of pages of input data, a sheet of formulas (the 'workings') which drive the model, and the output pages, which are usually in the form of standard financial statements (Balance Sheet, Income statement, Cash flow statement, etc.). The model auditor may choose to conduct the model audit using a combination on sheet reconstructions, cell-by-cell checks and spreadsheet audit tools.

Cost and Duration

A Model Audit may take between 1-5 weeks, but this does not include the time taken by the model author to rectify the errors identified by the model auditor. The fee is largely dependent upon the value of the project and scope of review.

See also

* Financial modeling


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Model audit — A model audit is the colloquial term for the tasks performed when conducting due diligence on a financial model, in order to eliminate spreadsheet error. (Also known as Model Review in some areas). A study in 1998 concluded that even MBA students …   Wikipedia

  • Audit Record Generation and Utilization System — or Argus is a fixed model Real Time Flow Monitor designed to track and report on the status and performance of all network transactions seenin a data network traffic stream, doing that by that categorizing IP packets which match the boolean… …   Wikipedia

  • Audit informatique — L audit informatique (en anglais Information technology audit ou IT audit) a pour objectif de s assurer que les activités informatiques d une entreprise ou d une administration se déroulent conformément aux règles et aux usages professionnels,… …   Wikipédia en Français

  • Audit — L audit est une activité de contrôle et de conseil qui consiste en une expertise par un agent compétent et impartial et un jugement sur l organisation, la procédure, ou une opération quelconque de l entité. L audit est surtout un outil d… …   Wikipédia en Français

  • Energy audit — An energy audit is an inspection, survey and analysis of energy flows in a building, process or system with the objective of understanding the energy dynamics of the system under study. Typically an energy audit is conducted to seek opportunities …   Wikipedia

  • Datacenter star audit — The Datacenter Star Audit (DCSA) is one of several services[1] of eco – Association of the German Internet Industry e.V. (German) and was designed as a seal of approval for data centers. It examines and evaluates objectively infrastructure and… …   Wikipedia

  • Systems Applications Products audit — is when a computer system from SAP undegoes an audit to check its security and data integrity. SAP is the acronym for Systems, Applications, Products. It is a system that provides users with a soft real time business application. It contains a… …   Wikipedia

  • Digital Repository Audit Method Based on Risk Assessment — The Digital Repository Audit Method Based on Risk Assessment (DRAMBORA) is a methodology and associated software based toolkit developed by Digital Curation Centre (DCC) and DigitalPreservationEurope (DPE) to support the assessment of digital… …   Wikipedia

  • New model army (militaire) — Pour les articles homonymes, voir New Model Army. La New Model Army est une armée de la Première révolution anglaise. C est en 1645 que le Parlement anglais charge Oliver Cromwell d organiser une armée sur le modèle de ses propres troupes. C est… …   Wikipédia en Français

  • New Model Army (militaire) — Pour les articles homonymes, voir New Model Army. La New Model Army est une armée de la Première révolution anglaise. C est en 1645 que le Parlement anglais charge Oliver Cromwell d organiser une armée sur le modèle de ses propres troupes. C est… …   Wikipédia en Français