Model Review

Overview

Financial models drive decisions on acquisitions, financing and investment, yet many are built under time pressure, modified by several people and never independently checked. Spreadsheet errors are common, and a single faulty link or hard-coded figure can change a conclusion that involves millions in value.

A model review is an independent examination of an existing model to establish whether it is mechanically sound, logically coherent and fit for the purpose it is being used for. We report what we find, rate it by significance and recommend how to fix it.

What the service covers

The depth of review is agreed with you, and can cover any of the following areas:

• Structure and layout, including separation of inputs, calculations and outputs, and ease of navigation.
• Formula integrity: consistency across periods, broken links, hard-coded values, range errors and circular references.
• Logic and mechanics, including timing, the treatment of working capital, depreciation, tax, interest and debt repayments.
• Integrity of the statements: whether the balance sheet balances and the cash flow reconciles in every period and every scenario.
• Scenario and sensitivity functionality, and whether the outputs respond correctly to changes in inputs.
• Consistency of the model with the transaction documents, loan agreement or accounting policies where these apply.
• Reasonableness of the assumptions, where this is within the agreed scope, and their link to historical data.
• Documentation, version control and protection against unauthorised changes.

Key activities and deliverables

Key activities

• Agree the purpose of the model, the users and the level of review required.
• Analyse the structure with specialist tools and a manual walkthrough of the logic.
• Test formulae for consistency and trace the key calculation chains from input to output.
• Run stress tests with extreme and unusual inputs to see whether the checks hold.
• Where required, build an independent calculation of key outputs to compare with the model.
• Record all findings in a log, classified by severity, and discuss them with the model owner.

Deliverables

• A model review report summarising the scope, approach, conclusions and overall assessment.
• A detailed findings log, rated by significance, with cell references and recommended corrections.
• Where agreed, a corrected version of the model with changes tracked.
• A list of recommendations to improve structure, documentation and control.
• A re-review once the corrections have been made, if required.

Our approach and methodology

We tailor the review level to the risk. A high-level review looks at structure, the major calculation paths and the output logic. A detailed review examines formulae systematically. A full review adds an independent recalculation of the key outputs. The right level depends on the importance of the decision and on the model's complexity.

We test the model against recognised good practice, including the FAST Standard and the ICAEW Financial Modelling Code, and we report on whether it does what it is meant to do, not only on whether it is neatly built. Unless the scope says otherwise, we examine whether the model correctly computes the assumptions it contains rather than whether the assumptions themselves are right.

Benefits for clients

• Confidence that decisions rest on a model that works as intended.
• Detection of errors before they reach investors, lenders or counterparties.
• Lower model risk and fewer costly surprises after completion or financial close.
• A prioritised list of improvements that can be fixed efficiently.
• An independent view that satisfies lenders, investors or boards who require a check.

Who needs this service

A model review is valuable for anyone who relies on a financial model for a significant decision, including:

• Lenders and investors who require an independent check of a borrower's or investee's model.
• Deal teams before committing to a price or a financing structure.
• Boards and audit committees overseeing models used in strategic decisions.
• Companies inheriting a model from a previous owner, adviser or employee.
• Finance teams that want a second pair of eyes before circulating a model externally.