Model audit process

Our financial model audit methodology

During a financial model audit Corality will review the model using a number of procedures to achieve a significantly increased confidence in the integrity of the model.

• Analytical review Analytical Review will be performed with the aim to understand and test the economics represented by the Model at a macro level rather than by inspection of the contents of any one cell.
• Stress testing Key assumptions in the model will be stress-tested to ensure that the model responds satisfactorily.
• Software generated consistency maps Proprietary software will be used to generate ‘maps’ identifying structural issues in the model.
• Sheet-by-sheet comparison Proprietary software will be used to verify that identical sections of different sheets are replicated without structural anomalies.
• Scenario Analysis The output of a range of potential scenarios will be analysed to interrogate the model for integrity problems.
• Cell-by-cell review Detailed cell-by-cell review of formulas will be performed on select areas with potentially higher impact on the outputs.
• Transaction overview analysis Review of the transaction as a whole taking into account the financial situation and particular requirements to ensure such a project’s success.
• Trend analysis Corality will test the predicted future outcomes of the project model by tracking and reporting on historical variances in cost and schedule performance.

Iterations

There are typically three to five iterations in every financial model audit. The first iteration is when the model is audited for the first time, second to third iterations will be performed depending on how many times the model is updated. Once the initial findings have been completed and the client has made changes to the original model the updated model should be audited. Our reporting format will be as follows:

1. Check on Changes At this stage, we check that all amendments made are as per our report. This involves using our report as a reference and where the client has commented that they will change the model, we check that they have implemented the changes correctly.
2. Comparisons We then run comparison reports with the previous model for the whole spreadsheet to highlight all areas where a change has been made.  The comparisons help to isolate areas we know have changed but also highlight anything else that has been changed by the client.

For all changes, we need to perform a detailed cell by cell review to give us the assurance that the model is operating correctly.

Best practice modelling methodology - SMART

Corality’s financial modelling methodology, SMART, is a set of best practice guidelines, internationally applauded for effective and professional financial modelling. SMART meets the needs of decision-makers and financiers across all major project finance industries – it decreases model risk and results in robust, transparent and user-friendly models suitable for analysis by all stakeholders.

Read more about the SMART modelling methodology.
Corality is a full service analytical consulting firm.

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