THE ROLE OF SPREADSHEET MODEL DESIGN IN CORPORATE

FINANCE COURSES
Carlos Correia
1
, Tessa Minter
2

1
University of Cape Town (SOUTH AFRICA)
2
University of Cape Town (SOUTH AFRICA)
E-mails [arete@telkomsa.net, tessa.minter@uct.ac.za]
Abstract
Spreadsheet Models are pervasive in practice and are increasingly used in the teaching of corporate
finance. The use of spreadsheets enables students to obtain the skills required to apply corporate
finance theory in the real world. Yet, there is limited focus in academic courses on the design and
layout of financial models to ensure the integrity of spreadsheets, even when the consequences of
errors have been shown to be highly significant in practice. Studies have indicated errors in 20% to
80% of operational spreadsheet models and KPMG have reported error rates of over 90%. The
objectives of this paper are to analyse the main risks relating to spreadsheet design, the methods
used to minimise quantitative and qualitative modelling errors. These issues are often not addressed
in an educational setting.
The consequences of incorrect model design, model structures that increase the potential for errors
and a lack of documentation may not be highlighted due to the limited ambit of spreadsheet models in
an academic course setting. Yet, non-adherence to the fundamental principles of spreadsheet design
can have lasting effects on what students do in the work environment later on. The paper further
analyses how the issues of complexity, interdependencies, model maintenance and what-if analysis
influence model design. This paper then concludes on how the interrelated issues of model design
and layout, avoidance of errors and documentation are crucial in setting up financial models, and how
it is necessary to integrate effective spreadsheet design within any corporate finance course.
Keywords: Spreadsheets, financial models, model design, spreadsheet errors, corporate finance
1 INTRODUCTION
The use of spreadsheets is pervasive in practice and extensive use is made of financial models for
decision making in the real world. Increasingly, spreadsheets are being used in the teaching of
corporate finance and textbooks will often include the output of spreadsheets as well as provide Excel
models as ancillary support materials for users of textbooks. Further, in case studies, Excel models
are supplied to enable students to undertake financial modelling which will assist in financial decision
making.
Although there are courses in financial modelling, the focus of this paper relates to the use of
spreadsheets and financial models to apply financial theories. In finance courses using case studies,
the use of financial models is integral to analysing large volumes of financial data required by students
to make relevant decisions. A relevant question is whether we are lecturing Excel or finance.
Although we may consider that we are simply employing the power of financial models and
spreadsheets to more effectively lecture finance and undertake what-if analysis, the reality is much
more complex. The computing power and flexibility of spreadsheets are in reality changing the way
we solve financial problems. For example, we will not use some formulae in the future as modelling in
Excel facilitates the application of financial theory without the necessity of formulaic short-cuts.
Effectively, the use of spreadsheets represents end-user programming without professional
programmers.
Although the flexibility and power of spreadsheets has distinct advantages for analysts and financial
managers to complete tasks, there are some serious limitations. The fact is that spreadsheets are
being increasingly used for mission-critical applications (Grossman, Mehrotra and Ozluk [1]) when the
preparers of financial models have limited training in the design of spreadsheets. Further, there is
growing evidence that most spreadsheets have errors (Panko, [2]; Powell, Baker and Lawson, [3])
The objectives of this paper are to firstly evaluate the role of spreadsheets in the teaching of corporate
finance, secondly, to analyse the role of spreadsheet errors, thirdly, to evaluate the role of
spreadsheet design in reducing the incidence of errors and fourthly, to recommend the use of
appropriate spreadsheet design principles in the teaching of corporate finance that may have
beneficial effects on the future incidence of spreadsheet errors in practice.
2 THE ROLE OF SPREADSHEETS IN CORPORATE FINANCE COURSES
There is widespread use of financial models in business. The use of spreadsheets in the teaching of
corporate finance should improve the practical skills of students whilst it has been argued that
business education has been too focused on conveying concepts and theory (Bennis and OToole,
[4]). It is also true that the use of spreadsheets may enable an increased ability to focus on concepts
as the mechanical calculations are assigned to spreadsheet models. It is possible for students to
acquire financial modelling skills to effectively analyse business situations and apply financial theory in
a business setting.

In courses using case studies, it would be difficult to consider the analysis and implementation of
solutions without the use of spreadsheet models and the attainment of financial modelling skills.
According to Holden and Womack [5], spreadsheet modelling enables students to overcome equation
phobia as spreadsheets require devising equations in non-equation form. Formulae have often
represented shortcuts to solutions which however often resulted in complex equations when we were
dealing with simple problems. For example, it is often difficult for students to see through the formula
for a growing annuity which is presented as follows;

PV of a Growing Annuity = PMT (1+g)

(
(
(
(

+
+

g r
r
g
n
n
) 1 (
) 1 (
1

Conceptually, the above formula refers to a simple time of money problem. This is easy to see if we
set this out in the form of a spreadsheet. Assume a cash flow of $100 000 which will grow by 4% per
year over the next 10 years, beginning from the end of the first year. Assume, the discount rate (r) is
10%. We can simply set the cash flows as follows in Excel and then apply the NPV function to
determine the value of this growing annuity today. The cash flows of this growing annuity are depicted
in Table 1 over a timeline of 10 years.

Table 1 The present value of a growing annuity
3
4
5
6
7
8
9
10
11
12
A B C D E F G H I J K L
Growthrate 0.04
Requiredreturn 0.10
Numberofperiods 10
Beginningannuity 100000
0 1 2 3 4 5 6 7 8 9 10
Annuity 100,000 104,000 108,160 112,486 116,986 121,665 126,532 131,593 136,857 142,331 148,024
PresentValue(NPV) 744,123
=NPV($B$4,C9:AP9)

Using spreadsheets in teaching corporate finance, means that we do not need formulae or at least, we
need fewer and different formulae than before. Students are required to build formulae within
spreadsheets. It is possible to do it the long way in Excel in a very short space of time. The use of
spreadsheets now enable lecturers to reduce the focus on formulae in finance which sometimes act as
barriers to student understanding of key finance concepts.
The use of spreadsheets to solving case studies in finance is consistent with the experience of
Marriott [6] who used spreadsheets as a key component in a course requiring students to deal with
business simulations. Marriott ([6], p.55) states that computerised business simulations, presents an
opportunity for students to develop algorithmic thinking, to use spreadsheet-modelling skills in a
realistic setting, to enhance cognition in understanding the 'whole' of a business problem, and to
reduce instrumentality through the intrinsic enjoyment of problem-based learning.
The effective use of spreadsheets facilitates the use of case studies in the teaching of corporate
finance. It would be difficult to effectively use case studies to teach corporate finance without the
capability of spreadsheet modelling. Holden and Womack [5] contrast spreadsheet modelling to the
use of spreadsheet templates and state that templates can become black boxes if students do not
build the equations or graphs. Templates represent passive learning whilst spreadsheet modelling
represents active learning.
3 ERRORS IN SPREADSHEETS
Spreadsheets consist of data and formulae and therefore most errors relate to incorrect data, incorrect
use of formulae and poor practices which impact on the effective future use of a spreadsheet model.
Panko and Halverson [7] differentiated errors between quantitative and qualitative errors. Quantitative
errors included mechanical, logic and omission errors which result in errors in the current model.
Mechanical errors result from typing errors whilst logic errors refer to the use of an incorrect function
or formula. Omission errors refer to incorrectly not including relevant variables or misinterpretation of
the problem.
Qualitative errors may reflect poor practices rather than resulting in errors in the current model. Poor
practices include the use of lengthy, complex formulae, the hard-coding of numbers within formulae,
inadequate documentation, poor design and layout, and a lack of data validation, amongst other
practices.

Qualitative errors are indicated by the following aspects;
- Poor layout a lack of separation of inputs, calculations and results.
- The hard-coding of data and data embedded in formulae in different parts of the spreadsheet,
particularly data that is likely to change. This makes what-if analysis difficult to implement and
makes the model of limited use in the future when variables may have changed, such as tax rates.
We only have to change data in the input section of a spreadsheet if all data inputs are placed in a
separate section.
- Data that is placed irregularly and haphazardly across a model which makes it difficult to keep
track of input values, even if it is highlighted as a data input value.
- The use of complex formulae within cells. Whilst it may not be possible to avoid complexity
completely, formulae should be as simple as possible by for example creating separate
intermediate calculations in the workings section. Complex formulae increase the potential for
error if changes need to be made to formulae at a later stage.
- No documentation or poor explanatory notes. Use a separate worksheet to explain the
parameters and objectives of the model. Use the cell comments facility in Excel to explain a cells
data or formula. Use version numbers, author information and use names for cells.
- Unprotected worksheet. It is recommended that formulae should be protected to avoid accidental
overwriting.
- No use made of the data validation option. Excel permits the setting of limits to data inputs. For
example, a discount rate may be limited to a feasible range of between 5% and 35%. An error
alert will mean that a user cannot proceed unless one complies with the data validation terms. The
use of combo boxes are also effective to limit the possible changes made to a models input
values.
Panko [2], on the basis of field audits, found that an average of 94% of spreadsheets have errors. In
the same study, Panko also reported that the cell error rate, which reflects the ratio of cells with errors
to all cells with formulae, to be 5.2%. The latter cell error rate may be overstated, as it is dependent
on one field audit, which included a wide definition of what constituted errors. If we are more
restrictive, then the cell error rate falls to 1.3%.
Janvrin [8] refers to studies that indicate that 20 percent to 80 percent of all operational spreadsheets
contain errors. Reports of significant errors arising from spreadsheet errors are widespread. For
example, Janvrin [8] refers to the example of a mutual fund whereby the non-insertion of a minus sign
in a spreadsheet resulted in a distribution error of $1.2 billion.
Powell, Baker and Lawson [3] undertook an extensive study of errors in 50 operational spreadsheets
used by many organisations. Spreadsheets analysed represented completed spreadsheets, which had
been in use over an extended period of time.
Powell, Baker and Lawson [3] defined six error types being;
1. Logic error. This represents the incorrect use of a formula that gives rise to an erroneous
result.
2. Reference error. In this case a formula includes a wrong reference to other cells
3. Placing numbers in a formula. This means that a number is hard-coded into a formula.
4. Copy/Paste error. The formula is invalid due to the incorrect use of the copy/paste function
5. Data input error. In this case, incorrect data inputs are used
6. Omission error. An incorrect formula is used due a blank input cell.
Powell, Baker and Lawson [3] found a total of 483 instances of errors, which involved 4855 error cells.
This reflects that an error in one cell will lead to errors in other linked cells. The average cell error rate
was found to be 1.79% of the 270 722 formulae that were subject to audit.
The use of spreadsheets for mission-critical applications, when we can expect that close to 1 in 50
cells with formulae will have an error, should give one pause for thought about the financial
consequences and the risk exposure of firms to spreadsheets.

In relation to error type, Powell, Baker and Lawson [3] found that hard-coding was the most common
error type. The instances of error types and cell errors are presented in Table 2.

Table 2 Spreadsheet error types
Error type Instances % Cells %
Hard-coding 182 37.7% 2111 43.5%
Reference 159 32.9% 1074 22.1%
Logic 106 21.9% 1389 28.6%
Copy/paste 17 3.5% 206 4.2%
Omission 13 2.7% 65 1.3%
Data input 6 1.2% 10 0.2%
Total 483 100.0% 4855 100.0%

Beaman, Waldman and Krueger [9] undertook a survey of accounting students who were required to
undertake a spreadsheet exercise. Quantitative and spreadsheet design errors were rife throughout
the models. However, errors were reduced significantly after a semester of being taught spreadsheet
design principles. In a small class setting, the use of spreadsheets can be interactive. However, even
in large class settings; it is possible to impart the principles of good spreadsheet design. This can be
done by setting corporate finance problems in the form of spreadsheets and to adhere to good
spreadsheet design principles even for short problems. Students should be informed of the formulae
used within cells.
Beaman, Waldman and Krueger [9] conclude that educators should include a course in spreadsheet
design principles and problem-solving techniques as part of an undergraduate accounting program.
What about the incidence of errors in textbook spreadsheet applications? The incidence of errors in
Excel spreadsheets in textbooks likely reflects what occurs in practice despite the more limited ambit
and role of financial models in corporate finance courses. In case study textbooks, the use of Excel
spreadsheets is extensive and critical for the analysis of corporate finance issues.
One of the most widely used case study books is Bruners Case Studies in Finance: Managing for
Corporate Value Creation [10] (also, see Bruner, Eades and Schill [11]).
The incidence of hard-coding is widespread in Bruners [10] otherwise excellent case study textbook.
For example, for the Palamon Capital Partners case study, the cost of equity is arrived on the basis of
an iterative process. Yet, the use of hard-coding reflects poor practice and significantly impacts on the
ability to change the input variables. The cost of equity is arrived at by applying CAPM with an
estimated risk-free rate of 5.6% and a market risk premium of 6%.

24
25
B C D E F G H I J K
Levered Beta 1.116 1.110 1.104 1.070 1.042 1.019 1.000 1.000
Cost of Equity 12.30% 12.26% 12.22% 12.02% 11.85% 11.72% 11.60% 11.60%

The formula in Cell D25 is;
=0.056+(0.06*D24)
The formula in Cell K25 is;
=0.056+(0.06*K24)

It is not possible to undertake what-if analysis without changing each and every cell in the series.
This is due to the hard-coding of the risk-free rate and the market risk premium. The risk-free rate and
market risk premium should be located in a separate Inputs section so that the input values can be
easily changed to undertake sensitivity analysis and to facilitate the use of the model in the future. If
we expect inputs to change over time periods, then inputs per year can be entered also in an Inputs
section of the spreadsheet model, which extend over time periods. Further, the model can be unstable
due to circularities which require intervention to restart the iterative process if changes are made. The
use of circularities should be avoided to the extent possible without impacting on the accuracy of the
model.
If risk-free rate and market risk premium parameters are placed within a Data Inputs section, then an
extract from the data inputs section could be set out as follows;
2
3
G H I
Risk-free rate 5.6%
Market risk premium 6.0%


The formula in Cell D25 would then be;
=$I$2+($I$3*D24)
The formula in Cell K25 would then be;
=$I$2+($I$3*K24)
The levered beta for each year is the result of a calculation and so this would not be affected by these
changes.
In another case by Bruner et al [11], Deutsche Bank Securities, the tax rate is not set in a separate
Inputs section but is included separately as an absolute reference in each cell. This represents a
hard-coding error.




20
21
B C D E F G H I J
Pretax cost savings, current dollars $81.17 $78.98 $76.55 $73.74 $70.72 $67.18
Tax expense @ 0.40 ($32.47) ($31.59) ($30.62) ($29.50) ($28.29) ($26.87)

The formula in Cell E21 is;
=0.4*E20

The formula in Cell J21 is;
=0.4*J20
A separate Data Inputs section was used, an extract which could be as follows;
3
K L M
Tax rate 40%

The formula in Cell J21 would then be;
=$M$3*J20
In the same case study, the computation of the companys weighted average cost of capital is
determined to be 8.5%.
59
B C D
Weighted-Average Cost of Capital (WACC) 8.5%

The formula in D59 is;
=($D$37*$D$46)+($D$38*$D$47)+($D$39*$D$48)+($D$40*$D$49)+($D$41*$D$50)+($D$42*$D$51)
+($D$43*$D$57)
This is a relatively lengthy equation which can be more easily understood if we present an
intermediate calculation as set out in Table 3.

Table 3 Determination of weighted average cost of capital
36
37
38
39
40
41
42
43
44
N O P Q
Source of finance Proportion Cost WACC
Revolver 0.0% 3.91% 0.00%
Term loan A 8.9% 4.16% 0.37%
Term loan B 24.7% 4.16% 1.03%
Existing third-party debt 0.7% 4.16% 0.03%
Senior notes 10.4% 7.75% 0.81%
Senior subordinated notes 20.6% 9.00% 1.85%
Shareholders' equity 34.6% 12.74% 4.41%
100.0% 8.50%


The use of intermediate calculations reduces the length and complexity of cell formulae, facilitates
future changes and reduces the risk of errors as well as improving the level of understanding of the
underlying finance concepts.
In the following spreadsheet from the same case studys spreadsheet the cells in grey reflect
corrections to the original spreadsheet set out as Exhibit 14 (Bruner et al [11], p. 527). These cash
flows reflect debt amortisation and interest flows with associated tax effects, and therefore accuracy is
more critical than for valuation or capital budgeting models as there is less scope for error. Any error is
more likely to be material in relation to decision making.
In the first case a positive was entered as a negative (0.48) and the other error represents correcting
for an omission. However, two relatively minor errors have cascading effects on period cash flows,
and the IRR from the loan. These impacts (now corrected) are shaded in grey in Table 4.


Table 4 Analysis of financing returns
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
B C D E F G H I J K L M N O
Pretax income 32.70 5.41 15.93 14.04 11.95 9.84 7.63 4.94 2.04
Income tax (13.08) (2.16) (6.37) (5.62) (4.78) (3.94) (3.05) (1.98) (0.82)
Debt amortization Total
Revolver (0.48) 0.48 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.48
Senior term (102.76) 0.05 11.06 12.43 13.49 12.17 15.59 17.82 20.15 102.76
Total cash flow ($83.62) $3.78 $20.62 $20.85 $20.66 $18.08 $20.17 $20.78 $21.37 $62.69
IRR (ROA after taxes)= 12.80% 41.80
$104.49
IRR of Cash Flows Before Funding Costs and Bank Taxes
Gross Pretax
Cash flow = ($70.54) $5.95 $26.99 $26.47 $25.43 $22.02 $23.22 $22.76 $22.19 104.49
IRR (ROA) before taxes = 23.71%
Analysis of ROA on Senior Bank Credits Only
At closing 2005 2006 2007 2008 2009 2010 2011 2012
Pretax net interest income
Revolver 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Senior term debt 2.83 13.36 11.75 9.96 8.20 6.29 4.00 1.54
Less: taxes (1.13) (5.34) (4.70) (3.99) (3.28) (2.52) (1.60) (0.61)
After-tax net interest income 1.70 8.02 7.05 5.98 4.92 3.78 2.40 0.92
Debt amortization
Revolver (0.48) 0.48 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Senior term (102.76) 0.05 11.06 12.43 13.49 12.17 15.59 17.82 20.15
Total cash flow ($103.24) $2.23 $19.08 $19.48 $19.47 $17.09 $19.36 $20.21 $21.07
IRR (ROA after taxes)= 6.15%
Pretax cash flow ($103.24) $3.37 $24.42 $24.18 $23.45 $20.37 $21.88 $21.81 $21.69
IRR (ROA) before taxes = 10.12%


Whilst we have only analysed one major textbook of case studies, it is expected that corporate finance
textbooks will reflect practice and include spreadsheet errors.

4 SPREADSHEET DESIGN
Although the use spreadsheet models can play a pivotal role in the teaching of corporate finance, we
find that often there is little attention by educators to spreadsheet design, documentation and
minimising the potential for spreadsheet errors.
The design of spreadsheets should be simple, reflect a logical flow, minimise the potential for errors,
and enable the effective future use of the model and the application of what-if analysis. It is
important to plan and set out the objectives of the spreadsheet model. A complete outline of relevant
design considerations is beyond the scope of this article and we will focus on selected methods for
ensuring good design and which can be used in the teaching of corporate finance.
A spreadsheet model should include separate sections for inputs, results, cash flows and calculations,
what-if analysis as well as workings. In the teaching of corporate finance, we should follow these
guidelines when applying finance theory particularly in such areas as capital budgeting, analysis of
financing decisions, leasing, bond valuation and the valuation of companies. Table 5 sets out a
recommended layout for a financial model. Yet, an appropriate layout is only a first step. The correct
layout of a financial model should be combined with other tools within Excel to minimise the potential
for errors.
It is important to stress test models by using extreme input values and to evaluate the reasonability of
results from such stress testing. Iterative calculations should be avoided if possible.








Table 5 Layout of a spreadsheet model
Title Version Date
Inputs Summary of Results
Cash flows and calculations
Results
What-if analysis
Workings
We may include references in this section but prefereable to include in sub-section references to
variables such as WACC which may referenced to separate section. Forms controls can also be
included in this section. Extend inputs section over cash flows and calculations section so that inputs per
year can be matched to each year in the cash flows and calculations section.
In capital budgeting and valuation applications, this section discloses the cash flows per period. This
section should only include formulae linked to values in the data inputs section. No hard-coding in this
section. No embedded data values - cash flows should consist only of references to the data inputs
section.
This section can include Data Tables or tornado graphs as well as Scenario Manager Tool in Excel.
Workings should be referenced and should enable preparers to reduce the complexity of formulae in the
calculations section by setting out intermediate calculations. Set out calculations of plugs, calculations of
investment cash flows and financing flows in this section. Also include section of ratios if applicable.
Results presented close to data inputs.
Immediate analysis of how changes to
inputs impact on results
Separate section for Data Inputs. Formulae in cash
flows and calculations section will refer to this
section for data input values. Colour code data
inputs.


The most common error found in spreadsheets by Powell, Baker and Lawson [2] relates to hard-
coding. Ensuring that all inputs are placed in a separate inputs section will minimise the potential for
hard-coding. In teaching corporate finance, it is undemanding to set problems within appropriate
spreadsheet designs.
For example, a simple bond valuation can be set out in an appropriate format to reduce the possibility
for error. We can include a separate inputs section, a separate results section and a separate cash
flow section. In teaching corporate finance, we can employ the auditing toolbar (see arrows in Table
6) to demonstrate to students the source of the value reflected in cells. For example, the formula in
Cell C9 is =$B$6*$B$5 and this can be demonstrated in class. Further, the consequences of hard-
coding can be explained as well as the consequences of not employing absolute references ($) to
anchor values and then copying from C9 to D9 and so on.





Table 6 Bond valuation spreadsheet
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
A B C D E F G
Valuation of Bond 9/28/2011
Inputs Summary of results
Market Yield 7% Value of Bond 108.20
Face value 100
Coupon rate 9%
Cash flows and calculations
Year 0 1 2 3 4 5
Coupon interest 9 9 9 9 9
Redemption of Face Value 0 0 0 0 100
Total cash flows 9 9 9 9 109
PV factor 0.93458 0.87344 0.81630 0.76290 0.71299
Present value 8.41121 7.86095 7.34668 6.86606 77.71549
Sum of present values 108.20
NPV 108.20
[Excel function in B15: =NPV($B$4,C11:G11)]


In Table 6, we have used the PV factor for each year, to determine the present value of each years
cash flow and the sum represents the value of the bond. We can also use the NPV function which will
directly discount the cash flows set out in Cells C11 to G11. Using a single NPV function reduces the
scope for error but I will often use both as a further check on the accuracy of the model.
Spreadsheets are used extensively in valuations and these models are often critical for making
investment and pricing decisions. These can be large and complex models and are often undertaken
in an environment of significant time pressure and dynamically changing parameters.
Whilst, the other recommendations apply in valuation applications, further checks are required in order
to ensure the integrity of spreadsheets when used for valuation purposes. Firstly, spreadsheets
should include not only future operating cash flows but preparers should independently determine
financing flows and ensure that free cash flows are equal to financing flows. Further, the analysis of
future financial ratios can be indicators of potential problems with spreadsheets. In practice, it is
surprising how few times; valuation models do include financing flows or future ratios.
Although separate worksheets are used in practice to depict the various components of a project, we
recommend as far as possible the setting of spreadsheet models within one worksheet. This will
makes it easier for students to check the model and facilitates the use of the auditing tool bar which is
a useful tool in Excel. The use of data validation tools, and forms controls within corporate finance
applications exposes students to these powerful tools in Excel. Exposure to spreadsheet errors in
practice and the financial consequences of such errors will also indicate to students the importance of
proper model design in minimising the potential for error.
5 CONCLUSIONS
The impact on business decisions and the risk of litigation in relation to models that include errors will
further emphasise the role that spreadsheets play in financial transactions and financial decision
making. Models should be constructed with the view of future model development and the application
of what-if analysis. Simply avoiding the hard-coding of input values will deal with a major
spreadsheet error found in operational spreadsheets. Data validation, combined with cell protection
will reduce the potential for error. It is important to deal with both quantitative and qualitative errors.
In the teaching of corporate finance, it is relevant to make the Excel models available to students and
set out and describe how good spreadsheet design will improve decision making as well as reduce the
risk exposures of firms. Finance graduates as future analysts, bankers, accountants, and chief
financial officers, will employ spreadsheets and financial modelling skills in financial decision making.
In our view, it is important that students should be taught the principles of good spreadsheet model
design and should be exposed to the consequences of spreadsheet errors and how best to avoid
spreadsheet errors in the future.
Spreadsheets should be integrated as much as possible within the corporate finance course rather
than relying on a separate financial modelling course, although such a course can be useful. Students
live in an integrated world and will face integrated business situations in the future. Courses at
university leading to professional qualifications increasingly require a necessary focus on the
integration of competencies. Projects in Excel modelling will also enable students to apply good
practices in spreadsheet design.
Setting documentation standards, good design practice at an early stage of the corporate finance
course may have long lasting effects on practice in the future. Proper spreadsheet model design will
reduce the likelihood of errors and will reduce the current risk exposures of firms to spreadsheet
models. The reality is that spreadsheet models may be easy to prepare, but hard to verify. It is
important to ensure the integrity of spreadsheet models.

REFERENCES
[1] Grossman, T. Mehrotra, V. & Ozluk, O. (2006). Lessons from Mission Critical Spreadsheets,.
University of San Franscisco School of Business and Management Working Paper.
[2] Panko, R. (2005). What we know about Spreadsheet Errors. Journal of End User Computing.
Special issue on Scaling Up End User Development, 10(2), pp. 15-21. Revised May 2008 and
accessed at http://panko.shidler.hawaii.edu/ssr/Mypapers/whatknow.htm
[3] Powell, S.G., Baker, K.R., & Lawson, B. (2009). Errors in Operational Spreadsheets, Journal of
Organizational and End User Computing, 21(3), pp. 24-36.
[4] Bennis, W. G. and O'Toole, J. (2005). How Business Schools Lost Their Way, Harvard
Business Review, 83(5), pp. 96-104.
[5] Holden, C.W. & Womack, K.L. (2000). Spreadsheet Modeling in Finance and Investment
Courses, FEN Educator, 5(5)
[6] Marriott, N. (2004). Using computerized business simulations and spreadsheet models in
accounting education: a case study, Accounting Education, 13 (Supplement 1), pp. 55-70.
[7] Panko, R. & Haverson, R.P. (1996). Spreadsheets on trial: a survey of research on spreadsheet
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