Tools and Techniques for Auditing your Financial Model

financial modelling read watch Jan 08, 2024

Financial Modeling Reinvented: A Closer Look at Auditing Tools and Techniques 

Model auditing is a critical aspect in financial modeling. It emphasizes the critical role of financial models in decision-making processes and the significant consequences that can arise from errors in these models.  

A prominent example of financial forecasting gone wrong is the case of the Amazon Fire Phone in 2014, where sales forecast and pricing strategy were based on overly optimistic assumptions, leading to considerable financial losses. 

This blog will take you through the importance of thorough testing, validation, and robust review processes for crucial components of a financial model. Avoiding errors in financial models is not only possible but almost inevitable by focusing on mitigating or minimizing errors through detailed review and audit processes.  

This approach helps ensure accuracy, reliability, and confidence in the usability of financial models, enhancing their overall quality and meeting intended objectives. 

We explore the mnemonic, "PAINS," and its effectiveness in building reliable and accurate models. 

 PAINS means: 

P - Presentation Check 

A - Assumption and Technical Accuracy Check 

I - Integrity Check 

N - Numerical and Formula Checks and 

S - Structural Check 


Let’s take a deeper dive into the meaning of PAINS. 

  1. Presentation Check: This step involves reviewing the overall presentation of the financial model. It ensures that the model is presented in a clear, understandable, and professional manner. 
  2. Assumption and Technical Accuracy Check: After building a model, it's essential to verify the assumptions used and check the technical accuracy of the model. This process involves ensuring that the assumptions are realistic and that the model's technical aspects are correct and appropriate for the purpose it serves. 
  3. Integrity Check: The integrity check is about evaluating the consistency and soundness of the financial model. This includes assessing the reliability of data sources, the logical consistency of the model's structure, and the absence of internal contradictions. 
  4. Numerical and Formula Checks: This step requires conducting thorough checks of the numerical data and the formulas used in the model. It involves verifying that the calculations and formulas are correct, consistently applied, and free of errors. 
  5. Structural Check: The structural check focuses on the overall design and framework of the model. This includes examining the model’s layout, and the flow of calculations, and ensuring that the structure is logical and aligned with the model’s objectives. 


Some Essential Tools for Auditing and Reviewing a Financial Model: 


  1. Find and Select: This tool helps to locate all instances where formulas are used in an Excel worksheet. It's useful for identifying and reviewing formulas across the model. 


  1. Formulas: Pressing Ctrl + ~ (Tilde) in Excel displays all the formulas used in the model, allowing for a cell-by-cell review of these formulas​​. 


  1. Ctrl + \ (Backslash): This shortcut is used for checking row differences in Excel. It can be particularly useful for identifying discrepancies or irregularities in row calculations​​. 


  1. Ctrl + [ (Left Square Bracket): This command is used to trace precedents in Excel, helping to see where a particular data point or calculation originates from. Combined with pressing F5, it allows for easy navigation back to the original balance sheet or other relevant sections​​. 


  1. Formula Auditing: Located under the formula ribbon in Excel, this feature includes several tools like tracing precedents and dependents, as well as identifying and removing errors in formulas. 
  1. Watch Window: The Watch Window in Excel, found under the formula ribbon, is a tool used for monitoring fluctuations in data as assumptions change or when conducting reconciliations. 


The Financial Modeling Academy (FMA) 


  • The Financial Modeling Academy (FMA) is a comprehensive and intensive training program designed for individuals seeking to enhance their skills in financial modeling. The academy offers a range of courses that cater to various levels of expertise, from beginners to advanced practitioners. 
  • The partnership between dbrownconsulting and the Financial Modeling Institute (Canada) is highlighted as a significant aspect of the FMA. This collaboration has led to the creation of a valuable scholarship opportunity. This initiative aims to assist finance practitioners in becoming skilled and internationally accredited financial modeling experts. 
  • The scholarship comprises of two routes, the African Residents route and the African Students route. To be qualified for the African Residents route, you must be an African living within Africa (excluding South Africa). To be eligible for the African Students route, you must be an African and a student of any of our recognized institutions including ICAN, ACCA, CFA, etc. 



The Financial Modeling Academy Scholarship Opportunity 

This unique opportunity is tailored for finance practitioners eager to refine their skills and achieve international recognition in financial modeling. Join a community where cutting-edge training meets international accreditation and embark on a journey to redefine your professional trajectory! Don't miss out on this transformative experience – it's your gateway to mastering the financial modeling landscape and carving a niche in the global finance arena. 

Scan the QR codes below to be directed to the FMA African Resident and African Students landing pages! 



About the Author 


Improve your financial model's accuracy and trustworthiness with our insightful webinar blog, "Tools and Techniques for Auditing Your Financial Model." Uncover the PAINS mnemonic for in-depth auditing and delve into vital tools and methods for enhancing the integrity of your model, leading to more reliable financial decision-making. 

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