Executive supportsystems (ESS)are designed to

provide top executiveswith information rele-vant to their roles ashigh-level managers.The information isprovided in a veryuser-friendly manner,utilizing a great deal of colorand drop-down options. The keyassumption made in developingESS is that the users (top man-agement executives, lead auditengagement partners) have lim-ited computer skills. Thesesame executives and engage-ment partners, however, areresponsible for making criticaldecisions to solve major prob-lems as they arise. Thus, thechallenge for designers of ESSis to make the system user-friendly enough for theseaccountants to comfortably use,yet so information-rich that theyprovide accurate, relevant, andtimely information.

In this article, we willdemonstrate how ESS can beapplied using spreadsheets,allowing financial officers andaccountants to utilize this tech-nology in a variety of different

services ranging from audits andreviews to write-up and taxpreparation.

THE EXPECTATIONS PROBLEM

In a wide variety of engage-ments, accountants find them-selves needing to use analytictests. Audit engagementsrequire the use of analytics.Likewise, review engagementsrequire that accountants per-form analytical procedures. Inaddition to these situationswhere analytics are required bythe authoritative literature to beused as part of the engagement,accountants often use analyticsas a general reasonableness testin a variety of other engage-ments including tax prepara-tion/advising, monthly write-upwork, and various financialconsulting engagements.

One of the fre-quent failures—whichhas been repeatedlycited in peer reviews—is the accountant’sinability to establish ameaningful expectationprior to performing theanalytical procedure.Often, accountants will

calculate a set of ratios (such as aratio of the period-to-periodchange in each financial state-ment element) and investigate allfluctuations that exceed somearbitrary amount (such as 10 per-cent). This “flux” analysis can bevery useful, if meaningful expec-tations are established.

Instead of building a spread-sheet that automatically high-lights any period-to-period fluc-tuations in excess of thepredetermined amount (e.g., 10percent), it is possible to buildan ESS that will accomplish twogoals. First, it can be constructedin such a way that the engage-ment accountant must establishexpectations for each item in thefinancial statements. Second, themodel can be constructed insuch a way that the engagementaccountant who does not haveenough time, or is not techno-

Executive support systems (ESS) are designed togive top executives vital information for theirwork as high-level managers. The author givesstep-by-step instructions for creating a spread-sheet-based ESS for financial officers andaccountants. © 2004 Wiley Periodicals, Inc.

Mark Friedman and Paul Munter

Creating an Excel-Based ExecutiveSupport System

featu

reartic

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53© 2004 Wiley Periodicals, Inc.Published online in Wiley InterScience (www.interscience.wiley.com). DOI 10.1002/jcaf.20038

logically proficient, can stillemploy the user-friendly model.

For example, five possiblechoices can be given for theengagement accountant to selectfrom when establishing theexpectations. The questioncould be: What is the currentyear amount expected to be inrelation to the prior periodamount? “No Change,” “High-er,” “Lower,” “SignificantlyHigher,” or “SignificantlyLower”? Using spreadsheettechnology, these commandscan be converted into percent-age differences so that theresults that do not comply withthe expectations can be high-lighted and investigated.

This will allow the engage-ment accountant to focus onmeaningful differences (given

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Step 1

Step 2

expectations) and allow a man-ager or partner reviewing thework to quickly focus in on thekey differences and the results ofadditional testing. Furthermore,the manager or partner can easi-ly alter the percentage amountsthat are assigned to each of thefive responses. This would allowthe manager or partner on theengagement to more quickly andefficiently plan and manage theengagement.

In this article, we willdemonstrate how this techniquecan be applied using spread-sheets, allowing financial offi-

cers and accountants to utilizethis technology in a variety ofdifferent services ranging fromaudits and reviews to write-upand tax preparation.

GETTING UNDERWAY

We will create an Excelworkbook with two sheets—onenamed “Assumptions” and theother named “Financial State-ment.” The Assumptions sheetwill contain the expectations intext form, their numeric equiva-lency, and the acceptable varia-tion from the expected expressed

as a percentage. The FinancialStatement sheet will contain thefinancial statement, with theaccount, current period, priorperiod, percent change fromprior period, the expectationsexpressed in text and numericform, and the percent changefrom expectations. To create themodel, open a new workbookand choose File, Save and namethe workbook “Analytical Proce-dures.” Double-click on theSheet 1 tab and rename it“Assumptions.”

On the Assumptions sheet,we will set up the list of expec-tations and their related percent-age change. Label Cell A1“Expectations” and Cell B1 “%Increase From Prior Period.”Highlight Cell B1 so we canwrap the text. Select Format,Cells, Alignment, Wrap text.Type the expectations and per-cent increase from the prior peri-od so that it looks like Step 1.

NAMING THE ASSUMPTIONS

The expectations and theirrelated percent increase will beused on many different rows,but instead of entering absoluteaddresses, it is easier to namethe ranges that we are going touse. On the Assumptions sheet,highlight Cells A2–A6 andselect Insert, Name, Define,type in the name for the range,“ExpectationsList,” and clickon OK, so that it looks likeStep 2.

(Note: The system does notallow the use of spaces in rangenames, although the underscoreis permissible.)

An alternative method fornaming a range is to use thename box. On the Assumptionssheet, select Cells A2–B6, type“PercentIncrease” in the namebox, and press Enter, so that itlooks like Step 3.

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Step 3

Step 4

The difference between theexpected value and the actualvalue has to exceed a confidencelevel before it has to bereviewed. Go to Cell A11 of theAssumptions sheet and type“Significant Variance,” and inCell B11 enter “10%.” SelectCells A11–B11 and selectInsert, Name, Create, only Leftcolumn is to be checked, andclick OK (see Step 4).

SETTING UP THE FINANCIALSTATEMENT

Double click on the Sheet 2tab and rename it “FinancialStatement.” On the FinancialStatement sheet, type in theheadings shown in Step 5.

Now we will name all ofthe cells on the Financial State-ment sheet. Highlight cellsA1–G100 (we will only beusing the first 30 rows, butmake sure that the rangeextends far below the realisticrange), and select Insert,

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Step 5

Step 6

Step 7

Step 8

Name, Create, only Top Rowis to be checked, and click OK.This will permit us to use thename of the cells in formulas.

Enter the values as shown inStep 6. Highlight Cell D3, %Change From Prior Period, andenter this formula:

=IF(Prior_Period>0,(Current_Period-Prior_Period)/Prior_Period,“”)

If the Prior Period amount isgreater than zero, divide the dif-ference between the CurrentPeriod amount and the PriorPeriod amount by the Prior Peri-od amount. If the Prior Periodamount is not greater than zero,the cell is filled with “”, noth-ing. Change the format to “%,”center, and copy the formula toCells D4–D7.

We will enter expectations incolumn E and to eliminate thepossibility of typographicalerrors, we will use a validationlist. Highlight Cell E3, theexpectation for the first account,and select Data, Validation, Set-tings, select List from the pull-down selection, type in“=ExpectationsList” as thesource and click on OK, as inStep 7.

To enter an expectation,click on the arrow in Cell E3and choose the appropriatechoice from the pull-down list(see Step 8).

If something other than theexact description is entered intothe cell, Excel will produce anerror message indicating thatonly certain values can beentered into the cell (see Step 9).

The error message can becustomized. On the FinancialStatement sheet, put the cursoron Cell E3, the expectation forthe first account. Select Data,Validation, Error Alert, fill inthe Title, “Expectations,” and

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Step 11

the Error message, “Pleaseselect one of the choices fromthe pull down list,” make sureyou select Stop from the Styledrop-down menu and click onOK, as in Step 10.

Highlight Cell F3, theexpected results for the firstaccount, and enter this formula:

=IF(Prior_Period>0,(1+VLOOKUP(Expectations,PercentIncrease,2,FALSE))*Prior_Period,””)

If the Prior Period amount isgreater than zero, multiply thePrior Period amount by 1 plus theexpectation percent. If the expec-tation is higher or significantlyhigher (Column E), the value fromthe lookup table is positive, andthe expected results are greaterthan the Prior Period amount, ifthe expectation is lower or signifi-cantly lower, the value from thelookup table is negative and theexpected results are less than thePrior Period amount. If the Prior

Period amount is not greater thanzero, the cell is filled with “”,nothing. Copy both Cells E3 andF3 through Row 7 and change thevalues of the Expectations to thosein Step 11.

Highlight Cell G3, the %Change From Expected Results,and enter this formula:

=IF(Expected_Results<>“”,(Current_Period-Expected_Results)/Expected_Results,“”)

If there is a value in theExpected Results, the percentchange from the expected resultsis the difference between theCurrent Period amount and theExpected Results amount divid-ed by the Expected Resultsamount. The results that aregreater than the Significant Vari-ance, as defined on Cell B11 ofthe Assumptions sheet, areflagged for easy review. On theFinancial Statement sheet, putthe cursor on cell G3, the %Change From Expected Results.Select Format, ConditionalFormatting, select Formula Isfrom the Condition 1 pull-downmenu, and type in the formula:

=ABS(G3)>Significant_Variance

Select the Format button,select the Pattern tab, select thecolor light yellow, select OK to

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Step 13

close the Format Cells dialogbox, and select OK to close theConditional Formatting dialogbox (see Steps 12 and 13).

Change the numeric formatin column G to percent, center,and complete the model bycopying the formulas down (seeStep 14).

The normal syntax for thevlookup function is

=VLOOKUP(Value looking for,Range to look in, Column thatcontains the result)

The normal syntax for thevlookup function is:

=VLOOKUP(Value looking for,Range to look in, Column thatcontains the result)

=VLOOKUP(Expectations,Per-centIncrease,2)

This function would lookfor the value in the cell namedExpectations, Cell E3 on theFinancial Statements sheet,“NC No Change,” vertically

down the leftmost column ofthe range called “PercentIn-crease,” Range A2–B6 on theAssumptions sheet, and returnthe value in Column B, the sec-ond column. In order for thisfunction to work, the leftmostcolumn must be sorted inascending order.

We added the optional rangelookup of False at the end of thefunction. It requires an exactmatch (guaranteed by use of thevalidation list); however, the listdoes not have to be sorted.

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Step 14

Mark Friedman, PhD, CPA, is an associate professor of accounting at the University of Miami. He is a pastpresident of the Miami chapter of the Institute of Management Accountants and a past chairman of theDade County chapter of the Florida Institute of Certified Public Accountants’ Committee on Microcomput-er Applications. Dr. Friedman has created several Internet-based Excel, self-grading, random generatedcase studies that are currently used in financial and managerial courses. Dr. Friedman consults with sev-eral firms relative to the use of the microcomputer as a problem-solving tool. His list of clients includesLucent Technologies, Knight Ridder, Insourse, AT&T, and several local manufacturing and service organi-zations. Paul Munter, PhD, CPA, is a professor and department chair of accounting at the University ofMiami and editor of the Journal of Corporate Accounting & Finance.