1. PowerPoint Presentation by Charlie Cook Copyright © 2004 South-Western. All rights reserved. Chapter 2 Documenting Business Processes and Information Systems Documenting Business Processes and Information Systems

2. Copyright © 2004 South-Western. All rights reserved.2–2 Learning Objectives To read and evaluate data flow diagrams To read and evaluate system flowcharts To read and evaluate entity-relationship diagrams To prepare data flow diagrams from a narrative To prepare system flowcharts from a narrative

3. Copyright © 2004 South-Western. All rights reserved.2–3 Flowcharts used in practice Auditors and consultants at PricewaterhouseCoopers LLP use flowcharts and systems narratives in a variety of engagements, including financial audits, business process reengineering, and security reviews. During financial audits, auditors review business applications—such as sales, billing, and purchasing—and the processes associated with those applications.

4. Copyright © 2004 South-Western. All rights reserved.2–4 Flowcharts used in practice (cont) To document each process, the auditor conducts interviews with the process owner, writes a narrative, and prepares accompanying flowcharts. Then, the auditor reviews the narrative with the process owner for accuracy and completeness. These documents allow an auditor to design the audit, identify areas where controls may be needed, and prepare audit findings and recommendations.

5. Copyright © 2004 South-Western. All rights reserved.2–5 Flowcharts used in practice (cont) With the increasing use of computers in business today, flowcharting is essential in financial audits to allow the auditor—to see information flows and identify areas where information may be changed, manipulated, or even lost. In addition, with the reliance on automated processing systems for financial information, the IRS now requires flowcharts and narratives to be created and maintained for all automated processing systems used by businesses.

6. Copyright © 2004 South-Western. All rights reserved.2–6 Data Flow Diagrams (DFD) Context diagram  Top-level diagram Physical flow diagram  Internal entity  External entity Logical data flow diagram  Process and flow of data Systems flow charts  Information processes and operations processes

7. Copyright © 2004 South-Western. All rights reserved.2–7 Data Flow Diagram (DFD) Symbols FIGURE 2.1 NOTES: a. A bubble can be either an entity on a physical data flow diagram or a process on a logical data flow diagram. b. The data store symbol may represent a view—a portion—of a larger entity-wide database.

8. Copyright © 2004 South-Western. All rights reserved.2–8 A Context Diagram FIGURE 2.2

9. Copyright © 2004 South-Western. All rights reserved.2–9 A Physical Data Flow Diagram FIGURE 2.3

10. Copyright © 2004 South-Western. All rights reserved.2–10 A Logical Data Flow Diagram (Level 0 Diagram) FIGURE 2.4

11. Copyright © 2004 South-Western. All rights reserved.2–11 Balanced Data Flow Diagrams The next five slides depict “balanced” data flow diagrams. Balanced DFDs exist when the external data flows are equivalent. The first DFD is a context diagram and the next one is an “explosion” of it into a level 0 logical DFD. The next diagram is an “explosion” of the logical level 0 DFD, and so on.

12. Copyright © 2004 South-Western. All rights reserved.2–12 A Set of Balanced DFDs FIGURE 2.5a

13. Copyright © 2004 South-Western. All rights reserved.2–13 A Set of Balanced DFDs (cont’d) FIGURE 2.5b

14. Copyright © 2004 South-Western. All rights reserved.2–14 A Set of Balanced DFDs (cont’d) FIGURE 2.5c NOTES: 1. There is no Diagram 2.0, as process 2.0 is an elementary process (i.e., it cannot be exploded further). 2. Assume that bubbles 1.1, 1.2, 1.3, 1.4, 3.1.1, 3.1.2, and 3.2 are elementary processes.

15. Copyright © 2004 South-Western. All rights reserved.2–15 DFD and Five Information Systems Components People Procedures Data Software Hardware DFD (sometimes called a process model a process model because it directs because it directs the reader’s focus the reader’s focus to those elements of the system that transform data into information)

16. Copyright © 2004 South-Western. All rights reserved.2–16 System Flowcharts and Five Information Systems Components People Procedures Data Software Hardware System flowcharts (shows the relationships between software and between software and data input and outputs. data input and outputs. At the same time, it At the same time, it depicts the real-world depicts the real-world device used to implement device used to implement the system. Thus, it the system. Thus, it would distinguish would distinguish keyboard from scanner keyboard from scanner input, disk from tape input, disk from tape storage, and screen from printer output)

17. Copyright © 2004 South-Western. All rights reserved.2–17 Systems Flowcharting Symbols FIGURE 2.6a

18. Copyright © 2004 South-Western. All rights reserved.2–18 Systems Flowcharting Symbols (cont’d) FIGURE 2.6b

19. Copyright © 2004 South-Western. All rights reserved.2–19 Common System Flowcharting Routines The following slides show several common ways of showing processing using system flowcharting. Pay particular attention to the way the columns are set up to communicate the flow of activities between processing entities.

20. Copyright © 2004 South-Western. All rights reserved.2–20 FIGURE 2.7a (a) Enter document into computer via keyboard, edit input, record input Common Systems Flowcharting Routines (c) Update sequential data store

21. Copyright © 2004 South-Western. All rights reserved.2–21 FIGURE 2.7b Common Systems Flowcharting Routines (cont’d) (d)Preparation and later manual reconciliation of control totals

22. Copyright © 2004 South-Western. All rights reserved.2–22 FIGURE 2.7c Common Systems Flowcharting Routines (cont’d) (e) Key and key verify inputs

23. Copyright © 2004 South-Western. All rights reserved.2–23 FIGURE 2.7d Common Systems Flowcharting Routines (cont’d) (e) Key and key verify inputs (f) Enter document into computer using scanner (g) Enter document into computer using scanner and manual keying

24. Copyright © 2004 South-Western. All rights reserved.2–24 Entity Relationship Diagrams (ERD) and Five Information Systems Components People Procedures Data Software Hardware ERD (reflects the system’s key entities and the relationships among those entities and the relationships among those entities and is commonly used to represent a and is commonly used to represent a data model) data model) DFDs often portray system procedures, and DFDs often portray system procedures, and ERDs often depict specifications for the ERDs often depict specifications for the database. database.

25. Copyright © 2004 South-Western. All rights reserved.2–25 Entity-Relationship (E-R) Diagram FIGURE 2.8

26. Copyright © 2004 South-Western. All rights reserved.2–26 Drawing DFD Diagrams The basic steps of the process are:  Create or obtain an accurate and reliable narrative.  From the narrative, create a complete table of entities and activities.  Draw a context diagram with external entity boxes by distinguishing carefully between internal and external entities.  Draw current physical flow diagrams by creating bubbles for internal entities, and showing flows to and from all entities and data stores.  Draw current logical flow diagrams by grouping activities that occur together, and naming the logical sub-processes each describes.

27. Copyright © 2004 South-Western. All rights reserved.2–27 Table of Entities and Activities Go thru the narrative line-by-line and circle each activity being performed. An activity is an action being performed by an internal entity or an external entity. Activities can include actions related to data (originate, transform, file, or receive) or to a business process. Business process activities might include picking goods in the warehouse, inspecting goods at the receiving dock, or counting cash.

28. Copyright © 2004 South-Western. All rights reserved.2–28 Table of Entities and Activities(cont) For each activity there must be an entity that performs the activity. As you circle each activity, put a box around the entity that performs the activity.

29. Copyright © 2004 South-Western. All rights reserved.2–29 Narrative of the Causeway Cash Receipts System (Paragraph #1) The Causeway Company uses the following procedures to process the cash received from credit sales. Customers send checks and remittance advices ( 匯款通知 ) to Causeway. The mailroom clerk at Causeway endorses the checks and writes the amount paid and the check number on the remittance advice, which is the amount that a customer returns with the accompanying payment.

30. Copyright © 2004 South-Western. All rights reserved.2–30 Narrative of the Causeway Cash Receipts System (Paragraph #1) Periodically, the mailroom clerk prepares a batch total of the remittance advices and sends the batch of remittance advices to accounts receivable, along with a copy of the batch total. At the same time, the clerk sends the corresponding batch of checks to the cashier.

31. Copyright © 2004 South-Western. All rights reserved.2–31 Table of Entities and Activities for Causeway Cash Receipts System TABLE 2.1 EntitiesParaActivities Customers11.Send checks and remittance advices. Mailroom (clerk)12.Endorses checks. Mailroom (clerk)13.Writes amount paid and check number on the remittance advice. Mailroom (clerk)14.Prepares a batch total of the remittance advices. Mailroom (clerk)15.Sends the batch of remittance advices and the batch total to the accounts receivable clerk. Mailroom (clerk)16. Sends the batch of checks to the cashier. Accounts receivable (clerk)27.Enters the batch into the computer. Accounts receivable (clerk)28. Keys the batch total, the customer number, the invoice number, the amount paid, and the check number. Computer29.Verifies the invoice is open and the correct amount is being paid. Computer210.Updates the accounts receivable master data. Computer211.Notifies the clerk of errors. Computer412.Logs check number and amount paid. Computer313.Prints a deposit slip. Cashier314.Compares the deposit slip with the batch of checks. Cashier315.Takes the deposit to the bank. Computer416.Creates a cash receipts listing. Computer417.Prints a summary of customer accounts paid. Accounts receivable (clerk)418.Compares the computer reports with the remittance advices and batch totals. Accounts receivable (clerk)419.Sends the total of cash receipts to the general ledger office.

32. Copyright © 2004 South-Western. All rights reserved.2–32 Drawing the Context Diagram A context diagram consists of only one circle. We must draw the external entity boxes. To do this, we must decide which of the entities we found in the previous step are external and which are internal to the system.

33. Copyright © 2004 South-Western. All rights reserved.2–33 Distinguishing external entities from internal entities Entities that do not perform any information processing activities will be external entities; the remaining entities will be internal. Information processing activities are those activities that retrieve data from storage, transform data, or file data. Information processing activities include document preparation, data entry, verification, classification, arrangement or sorting, calculation, summarization, and filing—both manual and automated.

34. Copyright © 2004 South-Western. All rights reserved.2–34 Distinguishing external entities from internal internal entities (cont) The sending and receiving of data are not information processing activities because they do not transform data. Mark activities in Table 2.1 that do not perform any information processing activities: 1,5,6,15,19 Activity 7 only described activity 8 and can be marked. Activity 11 can be marked because it is an error routine (DFD guideline 2 on page 42)

35. Copyright © 2004 South-Western. All rights reserved.2–35 Table of Entities and Activities for Causeway Cash Receipts System TABLE 2.1 EntitiesParaActivities Customers11.Send checks and remittance advices. Mailroom (clerk)12.Endorses checks. Mailroom (clerk)13.Writes amount paid and check number on the remittance advice. Mailroom (clerk)14.Prepares a batch total of the remittance advices. Mailroom (clerk)15.Sends the batch of remittance advices and the batch total to the accounts receivable clerk. Mailroom (clerk)16. Sends the batch of checks to the cashier. Accounts receivable (clerk)27.Enters the batch into the computer. Accounts receivable (clerk)28. Keys the batch total, the customer number, the invoice number, the amount paid, and the check number. Computer29.Verifies the invoice is open and the correct amount is being paid. Computer210.Updates the accounts receivable master data. Computer211.Notifies the clerk of errors. Computer412.Logs check number and amount paid. Computer313.Prints a deposit slip. Cashier314.Compares the deposit slip with the batch of checks. Cashier315.Takes the deposit to the bank. Computer416.Creates a cash receipts listing. Computer417.Prints a summary of customer accounts paid. Accounts receivable (clerk)418.Compares the computer reports with the remittance advices and batch totals. Accounts receivable (clerk)419.Sends the total of cash receipts to the general ledger office.

36. Copyright © 2004 South-Western. All rights reserved.2–36 Distinguishing external entities from internal internal entities (cont) Mailroom, accounts receivable, cashier, and computer perform information processing activities and are thus internal entities. The customer does not perform any such activities and is an external entity (source). Additionally, the bank and the general ledger office do not perform information processing activities and are also external entities (destination). Now draw Context Diagram

37. Copyright © 2004 South-Western. All rights reserved.2–37 Causeway Context Diagram FIGURE 2.10

38. Copyright © 2004 South-Western. All rights reserved.2–38 Drawing physical DFD To keep physical DFD balanced with context diagram, start by drawing the three external entities (customer, bank, and general ledger office) from context diagram near the edges of a piece of paper. Draw and label each data flow going into the two destination (bank and general ledger) and coming out of the single source (customer). Each internal entity listed in Table 2.1 becomes a bubble in the physical DFD --- we have 4 bubbles. (Figure 2.11) Use a data flow to connect each of the three bubbles to its related external entity

39. Copyright © 2004 South-Western. All rights reserved.2–39 Drawing physical DFD Use a data store whenever some data must be stored and possibly used later. For example, activity 16 in Table 2.1 says the computer creates a cash receipts listing. This implies that the table of accounts receivable master data must be read so that the open invoice record can be retrieved. Hence, we should draw a data store for the accounts receivable master data and a flow from the data store to the computer bubble. See Figure 2.11 Study the rest of Figure 2.11 from the text yourself

40. Copyright © 2004 South-Western. All rights reserved.2–40 Causeway Current Physical DFD FIGURE 2.11

41. Copyright © 2004 South-Western. All rights reserved.2–41 Drawing logical DFD Draw top-level (level 0) logical DFD with the unmarked activities in Table 2.1 including activities 2,3,4,8,9,10,12,13,14,16,17, and 18. Create a new table with these activities (Table 2.2) Group related activities according to guidelines 7-10 (see text on pages 45-46) Create an appropriate name for each grouped activities, which will be used in a bubble in the logical DFD Logical DFD in Figure 2.12 Study the rest of Figure 2.12 from the text yourself

42. Copyright © 2004 South-Western. All rights reserved.2–42 Table of Entities and Activities for Causeway Cash Receipts System (Annotated) TABLE 2.2

43. Copyright © 2004 South-Western. All rights reserved.2–43 Causeway Current Logical DFD (Level 0) FIGURE 2.12

44. Copyright © 2004 South-Western. All rights reserved.2–44 Drawing DFD Diagrams The basic steps of the process are:  Create or obtain an accurate and reliable narrative.  From the narrative, create a complete table of entities and activities.  Draw a context diagram with external entity boxes by distinguishing carefully between internal and external entities.  Draw current physical flow diagrams by creating bubbles for internal entities, and showing flows to and from all entities and data stores.  Draw current logical flow diagrams by grouping activities that occur together, and naming the logical sub-processes each describes.

45. Copyright © 2004 South-Western. All rights reserved.2–45 Drawing Systems Flowcharts Read systems flowcharting guidelines on pages 51-52 Study Figure 2.13

46. Copyright © 2004 South-Western. All rights reserved.2–46 Causeway Systems Flowchart FIGURE 2.13

47. Copyright © 2004 South-Western. All rights reserved.2–47 Why do we need all three different diagrams? Logical data flow diagrams (DFDs) present only the logical elements of an information system. By excluding the physical elements, the logical DFD allows us to concentrate on what a system is doing without being distracted by how the functions are being performed and by whom.

48. Copyright © 2004 South-Western. All rights reserved.2–48 Why do we need all three different diagrams? (cont) Physical DFDs present the physical elements of an information system. They concentrate on who is acting on the data flowing through the system. Physical DFDs allow us to concentrate on the entities involved in processing information.

49. Copyright © 2004 South-Western. All rights reserved.2–49 Why do we need all three different diagrams? (cont) Finally, a flowchart presents the logical and the physical details of a system's functions. It shows the details of how a process is accomplished and also shows the organizational unit that performs the process. As we will see in Chapter 9, these details are necessary to permit evaluation of a system's controls. Also, systems flowcharts describe exception and error routines, which DFDs do not. DFDs concentrate on usual and recurring events.

50. Copyright © 2004 South-Western. All rights reserved.2–50 Physical DFD for Problem 2-1 FIGURE 2.14

51. Copyright © 2004 South-Western. All rights reserved.2–51 Logical DFD for Problem 2-2 FIGURE 2.15

52. Copyright © 2004 South-Western. All rights reserved.2–52 Flowchart for Problem 2-3 FIGURE 2.16

53. Copyright © 2004 South-Western. All rights reserved.2–53 Entity-Relationship (E-R) Diagram for Problem 2-4 FIGURE 2.17

54. Copyright © 2004 South-Western. All rights reserved.2–54 Flowchart Segments for Problem 2-9 FIGURE 2.18