A typical financial model audit involves 3-4 iterations before an opinion letter is issued. There is no strict definition of what an ‘iteration’ actually is and it is worth exploring this concept a bit more.
In an ideal scenario for a financial model audit engagement of three iterations this is the process
- Submission of initial model
- Model audit iteration one - report of findings
- Deal team revises the model and submits the second version
- Model audit iteration two - Check of amendments and report of new findings
- Deal team revises the model and submits the third version
- Model audit iteration three - Check of amendments and report of new findings
- All findings have now been actioned
- Opinion letter is issued
I work with a pragmatic approach to the definition of an iteration and work with our clients to assist them in making the decision when to submit a new version of the model. Excessively frequent submission of new model versions to the financial model audit team can make the process highly inefficient.
Strict rules as ‘every new file sent to the model audit team is an additional iteration’ is not pragmatic and is not in the interest of improving the process for the transaction team.
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