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Financial Model Audit: Parallel Build vs Cell by Cell

Header Image - Financial Model Audit: Parallel Build vs Cell by Cell
January 2022  |  Model Audit

One of the key differences in approach adopted by the various financial model audit firms is whether they follow a parallel build or a cell by cell approach.

If you are engaging an auditor to review your model, it is a question you should ask.

Cell by Cell

This approach is what the name implies. Someone is paid to methodically go through the model one cell at a time, checking that every formula does what one would expect it to be doing.

Parallel Build

Under a parallel build approach, the model auditor uses their own model in parallel with the model under test. They will use the same inputs and validate that the outputs generated by the test model match the results generated by their own. They will complete a detailed reconciliation exercise of the financial statements and key output metrics and seek to understand any variances.

So, which is best?

At Gridlines, we prefer to adopt the Parallel Build approach, as it offers a number of key benefits versus Cell by Cell.

  1. It gives a high level holistic view that the key outputs are materially correct by providing an independently generated benchmark.
  2. It is better at picking up omissions. A cell by cell approach may tell you if a formula included within the model is correct, but it won’t tell you if something you would expect to see included in the model is missing altogether. Using an independently generated model built in parallel will be much better at identifying items missing entirely from the test model.
  3. It is an active rather than a passive process – as an auditor, it is much easier to remain mentally engaged in an active process, building a model and checking results than it is to be working slavishly through thousands of cells completing a tick box exercise. We think this keeps the risk of error from an auditor’s perspective low.
  4. It doesn’t encourage trivial issues – if an analyst has been tasked to read through some hundreds of lines of formulas, this can encourage the raising of immaterial issues – once spotted, it is very tempting to raise what would otherwise be dismissed as too trivial, sometimes simply to feel like the time hasn’t been wasted. Using the parallel build inherently only highlights areas where the results are different between the model under examination and the parallel build.
  5. It fits with our skillset as model builders as well as auditors. We can quickly generate high-quality models using a combination of our pre-audited templates and our model audit software ‘Openbox’.

To find out more about our approach to Model Audit, contact us today. We’d love to hear about your project.

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Danny Leitch

Partner

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