1. Copyright © 2015 Pearson Education, Inc. Systems Documentation Techniques Chapter 3 3-1

2. Copyright © 2015 Pearson Education, Inc. INTRODUCTION Questions to be addressed in this chapter include: ▫What is the purpose of documentation? ▫Why do accountants need to understand documentation? ▫What documentation techniques are used in accounting systems? ▫What are data flow diagrams and flowcharts?  How are they alike and different?  How are they prepared?

3. Copyright © 2015 Pearson Education, Inc. INTRODUCTION How do accountants use documentation? ▫At a minimum, they have to read documentation to understand how a system works (e.g., auditors need to assess risk). ▫They may need to evaluate the strengths and weaknesses of an entity’s internal controls.  Requires heavy reliance on documentation. ▫They may peruse documentation to determine if a proposed system meets the needs of its users. ▫They may prepare documentation to:  Demonstrate how a proposed system would work  Demonstrate their understanding of a system of internal controls

4. Copyright © 2015 Pearson Education, Inc. Why Document Systems? Sarbanes-Oxley Act (SOX) requires management to assess internal controls and auditors to evaluate the assessment SAS-94 requires that auditors understand the automated and manual procedures an entity uses. ▫This understanding can be gleaned through documenting the internal control system—a process that effectively exposes strengths and weaknesses of the system. Used for systems development and changes 3-4

5. Copyright © 2015 Pearson Education, Inc. INTRODUCTION In this chapter, we discuss two of the most common documentation tools: ▫Data flow diagrams Graphical descriptions of the sources and destinations of data. They show: –Where data comes from –How it flows –The processes performed on it –Where it goes

6. Copyright © 2015 Pearson Education, Inc. INTRODUCTION In this chapter, we discuss two of the most common documentation tools: ▫Data flow diagrams ▫Flowcharts Include three types: –Document flowcharts describe the flow of documents and information between departments or units. –System flowcharts describe the relationship between inputs, processing, and outputs for a system. –Program flowcharts describe the sequence of logical operations performed in a computer program.

7. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS A data flow diagram (DFD) graphically describes the flow of data within an organization. It is used to: ▫Document existing systems ▫Plan and design new systems An ERD is a data model, and a DFD is a process model

8. Copyright © 2015 Pearson Education, Inc. Data Flow Diagrams (DFD) Focuses on the data flows for: Processes Sources and destinations of the data (also called external entities) Data stores DFD are visually simple, can be used to represent the same process at a high abstract or detailed level. 3-8

9. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Data sources and destinations (External entities) ▫Appear as squares ▫Represent organizations, individuals, or organizational units that send or receive data used or produced by the system An item can be both a source and a destination Used to define system boundaries Named with a noun

10. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Customer 1.0 Process Payment 2.0 Update A/R Credit Manager Bank Accounts Receivable Customer payment Remittance data Receivables Information Deposit Data sources and destinations are marked in red. Can you tell which are sources and which are destinations?

11. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Data flows ▫Appear as arrows, named with nouns ▫Represent the flow of data between sources and destinations, processes, and data stores ▫A data flow can be used to represent the creation, reading, deletion, or updating of data in a file or database (data store). ▫At least one end of every data flow should either come from or go to a process.

12. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Processes ▫Appear as circles ▫Represent the transformation of data ▫Must be numbered and labeled with a single action verb and an object ▫Avoid the use of two verbs in the process name

13. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Customer 1.0 Process Payment 2.0 Update A/R Credit Manager Bank Accounts Receivable Customer payment Remittance data Receivables Information Deposit The processes are shown in red. Every process must have at least one data inflow and at least one data outflow.

14. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Data stores ▫Appear as two horizontal lines, named with a noun ▫Represent a temporary or permanent data repository ▫Flow out of a data store = retrieval ▫Flow into a data store = inserting or updating ▫Data stores on a DFD are related to entities on an ERD

15. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Subdividing the DFD: ▫Few systems can be fully diagrammed on one sheet of paper, and users have needs for differing levels of detail. ▫Consequently, DFDs are subdivided into successively lower levels to provide increasing amounts of detail. ▫Some data inputs and outputs will not appear on the higher levels of the DFD but appear as the processes are exploded into greater levels of detail.

16. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS The highest level of DFD is called a context diagram. ▫It provides a summary-level view of the system. ▫It depicts a data processing system and the external entities that are:  Sources of its input  Destinations of its output ▫The process symbol is numbered with a “0”

17. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS Payroll Processing System Depart- ments Human Resources Govt. Agencies Employees Bank Manage- ment Time cards New employee form Employee change form Tax report & payment Employee checks Payroll check Payroll report This is the context diagram for the S&S payroll processing system (Figure 3-5 in your textbook). 0

18. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS A Level 0 diagram is a projection of the process on the Context diagram. It is like opening up that process and looking inside to see how it works – to show the internal sub-processes On a Level 0 diagram, you repeat the external entities but you also expand the main process into its subprocesses. Also data stores will appear at this level. The Level 0 diagram must “balance” with the Context diagram. This means they should both have the same external entities with the same flows to and from those entities.

19. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS 1.0 Update empl. Payroll file 2.0 Pay Employ- ees 5.0 Update Gen. Ledger 4.0 Pay taxes 3.0 Prepare reports Employee/ Payroll file General Ledger Human Resources Depart- ments Employees Bank Govt. Agencies Manage- ment Employee Change form New employee form Time cards Employee checks Payroll check Payroll Disburse- ment data Payroll tax disb. voucher Tax report & payment Payroll report This diagram shows the next level of detail for the context diagram in Figure 3-5.

20. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS 1.0 Update empl. Payroll file 2.0 Pay Employ- ees 5.0 Update Gen. Ledger 4.0 Pay taxes 3.0 Prepare reports Employee/ Payroll file General Ledger Human Resources Depart- ments Employees Bank Govt. Agencies Manage- ment Employee Change form New employee form Time cards Employee paychecks Payroll check Payroll Disburse- ment data Payroll tax disb. voucher Tax report & payment Payroll report Suppose we exploded Process 2.0 (pay employees) in the next level. The sub-processes would be numbered 2.1, 2.2, 2.3, etc.

21. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS A Level 1 diagram is a projection of a Level 0 process. A Level 1 diagram shows all the processes that comprise a single process on the level 0 diagram. It shows how information moves from and to each of these processes. Level 1 diagrams may not be needed for all Level 0 processes. On Level 1 diagrams we do not repeat external entities. Data stores may not be repeated either.

22. Copyright © 2015 Pearson Education, Inc. CONTEXT DIAGRAM CUSTOMER Food Ordering System 0 Management Report KITCHEN RESTAURANT MANAGER Food Order Customer Order Receipt

23. Copyright © 2015 Pearson Education, Inc. LEVEL 0 DIAGRAM CUSTOMER Transform Customer Food Order 1.0 Management Report KITCHEN RESTAURANT MANAGER Food Order Customer Order Receipt Update Inventory Update Goods Sold 2.0 3.0 INVENTORY D2 GOODS SOLD D1 Goods Sold Data Inventory Data Formatted Goods Sold Data Formatted Inventory Data Daily Inventory Depletion Amounts Daily Goods Sold Amounts Produce Management Report 4.0

24. Copyright © 2015 Pearson Education, Inc. DFD Balance CUSTOMER Transform Customer Food Order 1.0 Management Report KITCHEN RESTAURANT MANAGER Food Order Customer Order Receipt Update Inventory Update Goods Sold 2.0 3.0 INVENTORY D2 GOODS SOLD D1 Goods Sold Data Inventory Data Formatted Goods Sold Data Formatted Inventory Data Daily Inventory Depletion Amounts Daily Goods Sold Amounts Produce Management Report 4.0

25. Copyright © 2015 Pearson Education, Inc. Level 1 Diagram Process Customer Order 1.1 Customer Order PROCESS 1 ON THE LEVEL 0 DIAGRAM SUB PROCESS 1 THIS LEVEL 1 DIAGRAM Transform Order to Kitchen Format 1.3 Customer Order Food Order Generate Customer Receipt 1.2 Customer Order Generate Inventory Decrements Customer Order 1.5 1.4 Generate Good Sold Increments Inventory Data Goods Sold Data Receipt NOTE HOW WE HAVE THE SAME INPUTS AND OUTPUTS AS THE ORIGINAL PROCESS SHOWN IN THE LEVEL 0 DIAGRAM

26. Copyright © 2015 Pearson Education, Inc. Another Level 1 Diagram Management Report Daily Inventory Depletion Amounts Daily Goods Sold Amounts Produce Management Report 4.0 4.1 Access Goods Sold and Inventory Data Daily Goods Sold Amounts Daily Inventory Depletion Amounts Inventory Data Goods Sold Data 4.2 Aggregate Goods Sold and Inventory Data Prepare Management Report 4.3 Management Report ORGINAL LEVEL 0 PROCESS LEVEL 1 PROCESSES PROCESSES 2.0 AND 3.0 ON THE LEVEL 0 DIAGRAM DO NOT NEED FURTHER DECOMPOSTION

27. Copyright © 2015 Pearson Education, Inc. Basic Guidelines for creating a DFD Understand the system that you are trying to represent. A DFD is a simple representation meaning that you need to consider what is relevant and what needs to be included. Start with a high level (context diagram) to show how data flows between outside entities and inside the system. Use additional DFD’s at the detailed level to show how data flows within the system. Identify and group all the basic elements of the DFD. Name data elements with descriptive names, use action verbs for processes (e.g., update, edit, prepare, validate, etc.). Give each process a sequential number to help the reader navigate from the abstract to the detailed levels. A process labeled 5.0 would be exploded at the next level into processes numbered 5.1, 5.2, etc. A process labeled 5.2 would be exploded into 5.2.1, 5.2.2, etc Edit/Review/Refine your DFD to make it easy to read and understand. 3-27

28. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS The first paragraph of the narrative for the payroll process reads as follows: ▫When employees are hired, they complete a new employee form. When a change to an employee’s payroll status occurs, such as a raise or a change in the number of exemptions, human resources completes an employee change form. A copy of these forms is sent to payroll. These forms are used to create or update the records in the employee/payroll file and are then stored in the file.

29. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS 1.0 Update empl. Payroll file 2.0 Pay Employ- ees 5.0 Update Gen. Ledger 4.0 Pay taxes 3.0 Prepare reports Employee/ Payroll file General Ledger Human Resources Depart- ments Employees Bank Govt. Agencies Manage- ment Employee Change form New employee form Time cards Employee paychecks Payroll check Payroll Disburse- ment data Payroll tax disb. voucher Tax report & payment Payroll report

30. Copyright © 2015 Pearson Education, Inc. DATA FLOW DIAGRAMS The data flow diagram focuses on the logical flow of data. Next, we will discuss flowcharts, which place greater emphasis on physical details.