Financial modelling best practice guidelines: second edition

Financial modelling guideRSM has recently issued the second edition of its financial modelling guideline, developed for and published by the ICAEW. Good quality financial modelling is critically important to businesses; spreadsheets are the lingua franca of accountants yet too often the models we receive are barely decipherable: the spreadsheet parallel to schoolboy French or even Pidgin English. 

The guideline, written by our financial modelling team, aims to provide direction on best practice modelling, both (a) in terms of the framework and context within which financial modelling takes place, and (b) in terms of applied techniques. Our hope is to elevate skills beyond the excel equivalent of basic conversational gambits and to improve the reader’s fluency in financial modelling.

The guideline is set out in two parts. The framework and context for modelling are addressed in part A of the guideline, which focuses on:

  • people – the roles and skills needed to commission, develop, review and use a model;
  • process – the approach and methodology to developing a robust financial model; and
  • principles – the practices and techniques used, including our six golden rules.

Applied modelling techniques are addressed in part B, which provides guidance on how to apply the best practice principles in the real world, with a focus on techniques for marshalling and manipulating data, improving flexibility and speed, and reducing risk of error.

The guideline was originally developed for the fast moving corporate finance deal environment, with an emphasis on flexible and dynamic forecasting, on risk management, and on presentation. We believe however that the best practice methodology and techniques we espouse can be of benefit whatever the modelling or spreadsheet context.

The first edition, published four years ago, received a very positive reception from the corporate finance community, our clients, and our competitors. Since then, spreadsheets have continued to hit the headlines, whether the West Coast Mainline re-franchising debacle or more recently M&S restating its sales growth rate figures due to a spreadsheet error. Against that backdrop, we have seen a growing focus on spreadsheet risk (especially in the public sector) and an emerging consensus across practitioners as to what good looks like in relation to spreadsheets and modelling.

This edition has been generally refreshed as well as updated to:

  • extend the material on dashboards and model review techniques;
  • add new material on useful Excel functions, enhancing model speed, and comparing the latest versions of excel; and
  • align content to highlight the ICAEW’s twenty principles for good spreadsheet principles.

If you would like a copy sent to you, please email Linda Kearns.

We hope you find this document useful, if you would like to discuss modelling, model assurance or modelling training needs with one of the team, please email Alistair Hynd.