The functions and credibility of model check and model audit

To understand the importance of model check, it is essential that you have a clear picture of a model audit to begin with. Building a model review or audit is not an easy task. It may take hours of calculations to represent your strategies through financial numbers in a way that the potential investors can trust in your projection. The cost drivers, risk factors and daily capital needs are to be assessed as well. They need to be checked and re-checked to align them with the long-term objectives. The model review will also help in reassuring your investors and customers that all financials are in place. Transparency in transactions will make them confident of investing capital in your business. Hence, the credibility of these models is also a decisive factor in assessing your organization’s financial position.

Planning and implementing a model audit

For a model audit to work well, you need to prepare a financial model first. The review of this model will be termed as model audit and this is not at all related to financial audit. This is basically done to avoid any chances of error on the spreadsheet while preparing a financial model. This kind of evaluation or due diligence is performed on request by financial organizations to assure the potential investors and lenders of the reliability and credibility of the model. A complete and holistic audit may also include checking from the original financial and legal documents on the basis of which the model was developed.

Performing a model check

A model check could include any or all of the following elements – reviewing the logic, consistency with finance, legal documentation, local generally acceptable accounting principles and tax as well as the sensitivity. Checking the feasibility, viability and credibility of a financial model is often required for financing projects and infrastructure of an organization. Though it is difficult to reach an absolutely accurate model check, it is expected to give a true picture of the dependability of the model if it’s a question of taking risks to finance a project.

How do you know that your model is credible?

Check for the accounts receivable and payable, income tax calculations, sales projection approach which should ideally be a bottom-up approach. These three elements are the areas where most of the errors are made. To make your financial model realistic these should be calculated properly.

There is nothing wrong with outsourcing your financial planning services. The issue starts when you wash your hands off the function entirely. As the organization looking for potential investors to bring in more capital to the business, you need to keep checking the credibility of the reports that are prepared. This will help you in keeping track of your company’s finances. After all, it is you who needs to appear at presentations with all the explanations and logical interpretations of the numbers displayed on the slide. So, if you are handing over the responsibility of preparing a model audit to an expert financial service provider then performing a model check to be sure of its credibility is your primary responsibility.

Get a credible model check ( http://www.riconsulting.com.au ) done so that your model audit ( http://www.riconsulting.com.au ) is as accurate as possible.