ICAEW: FINANCIAL MODELLING CODE – A GUIDE FOR BEST PRACTICE

Financial modelling drives decision-making throughout the business world, but still there is no universally accepted set of agreed principles for best practice. In its informational guide, Financial Modelling Code, ICAEW’s (The Institute of Chartered Accountants in England and Wales) Excel Community provides essential practical guidance on universal tenets of best practice in the field to minimise spreadsheet risk. The guide was released at a launch event last night at Chartered Accountants’ Hall in London.

The report captures the main guidelines for coherent and correct financial modelling as well as spreadsheet creation to build strong models and reduce errors. In preparing the Code, ICAEW compared and analysed seven organisations’ modelling standards and took input from over a dozen modelling and professional services organisations.

David Lyford-Smith, ICAEW Technical Manager, said: “There are various courses, standards and guides available that explain how to build models, each with their own ideas about what the appearance, layout and functionality of a model should be. While there is much consensus among these methodologies, for both procurers and practitioners there is no universally accepted set of agreed principles for how to carry out financial modelling. Most existing methodologies were developed with particular sectors or practices in mind; hence, they are frequently detail-oriented and not accepted very widely.”

This inconsistency is concerning as David explains: “Improper practice such as incoherent methods, or lack of review and oversight, negatively impacts the world economy. This guide was created to support best practice in creating financial models that are robust, understandable and less likely to contain errors. Each section of the Code addresses a particular element of constructing a model presenting specific recommendations including several options, representing generally suitable and widely adopted approaches.”

ICAEW’s Corporate Finance Faculty has also produced a more detailed publication, entitled Best Practice Guideline: Financial Modelling, which conforms to this Code and explains how to carry out financial modelling in a corporate finance transaction context.

Neil Rutledge, Director, Amberside Advisors Ltd, said: “As one of the UK’s leading financial modelling organisations, Amberside Advisors are proud to be involved with the development and publication of the ICAEW Financial Modelling Code.

“This achievement follows on from the recognition by ICAEW of Amberside’s own financial modelling standard earlier this year.”

The full report can be found here: icaew.com/financialmodelling