CHAPTER 3

Systems Development and Documentation Techniques

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, and how
are they prepared?
• Documentation includes narratives (written descriptions), flowcharts, diagrams, and other written
material. Documentation covers the who, what, when, where, why, and how of data entry,
processing, storage, information output, and system controls.
– Accountants use documentation to understand how a system works; to evaluate the
strengths and weaknesses of an entity’s internal controls; and to determine if a proposed
system meets the needs of its users. They prepare documentation to demonstrate how a
proposed system would work or demonstrate their understanding of a system of internal
controls.
• In this chapter, we discuss two of the most common documentation tools:
– Data flow diagrams--Graphical descriptions of the sources and destinations of data.
DFDs show where data comes from, how it flows, the processes performed on it, and
where it goes.
– 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.
• Documentation techniques are necessary tools for accountants:
– 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.
– Sarbanes-Oxley (2002) effectively requires that publicly-traded corporations and their
auditors document and test the company’s internal controls.
– Auditing Standard No. 2 promulgated by the PCAOB requires that the external auditor
express an opinion on the client’s system of internal controls.
• Documentation tools help accountants by organizing very complicated systems into a form that
can be more readily understood and helping new team members understand a pre-existing system.
• Both DFDs and flowcharts are used frequently by IS professionals, can be prepared with
available software, and are tested on professional exams.

DATA FLOW DIAGRAMS

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 • A data flow diagram (DFD) graphically describes the flow of data within an organization. It is
used to document existing systems and to plan and design new systems. There is no black-and-
white approach to developing a DFD.
• A data flow diagram consists of four basic elements:
– Data sources and destinations appear as squares. They represent organizations or
individuals that send or receive data used or produced by the system. An item can be
both a source and a destination.
– Data flows appear as arrows. They represent the flow of data between sources and
destinations, processes, and data stores. A data flow can be two way and would then
have a bidirectional arrow.
– Transformation processes appear as circles and represent the transformation of data.
– Data stores appear as two horizontal lines and represent a temporary or permanent
repository of data.
• Data flows and data stores are typically collections of data elements. Example: A data flow
labeled student information might contain elements such as student name, date of birth, ID
number, address, phone number, and major. The data dictionary contains a description of all
data elements, data stores, and data flows in a system.
• 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.
• The highest level of DFD is called a context diagram. (See Figure 3-5 in textbook.) The context
diagram provides a summary-level view of the system. It depicts a data processing system and
the external entities that are sources of its input and destinations of its output. The context
diagram can be broken into greater levels of detail.
• Guidelines for creating DFDs:
– RULE 1: Understand the system. Observe the flow of information and interview people
involved to gain that understanding.
– RULE 2: Ignore control processes and control actions (e.g., error corrections). Only
very critical error paths should be included.
– RULE 3: Determine the system boundaries—where it starts and stops. If you’re not sure
about a process, include it for the time being.
– RULE 4: Draw the context diagram first, and then draw successively greater levels of
detail.
– RULE 5: Identify and label all data flows. The only ones that do not have to be labeled
are those that go into or come out of data stores.
– RULE 6: Data flows that always flow together should be grouped together. Those that
do not flow together should be shown on separate lines.
– RULE 7: Show a process (circle) wherever a data flow is converted from one form to
another. Likewise, every process should have at least one incoming data flow and at least
one outgoing data flow.
– RULE 8: Transformation processes that are logically related or occur simultaneously can
be grouped in one bubble.
– RULE 9: Number each process sequentially. 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 5.21, 5.22, etc.
– RULE 10: Process names should include action verbs, such as update, prepare, etc.
– RULE 11: Identify and label all data stores, whether temporary or permanent.
– RULE 12: Identify and label all sources and destinations. An entity can be both a source
and destination. You may wish to include such items twice on the diagram, if needed, to
avoid excessive or crossing lines.
– RULE 13: As much as possible, organize the flow from top to bottom and left to right.

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 – RULE 14: You’re not likely to get it beautiful the first time, so plan to go through
several iterations of refinements.
– RULE 15: On the final copy, lines should not cross. On each page, include the name of
the DFD, date prepared, and preparer’s name.
• The data flow diagram focuses on the logical flow of data. The next section covers flowcharts,
which place greater emphasis on physical details.

FLOWCHARTS
• A flowchart is an analytical technique that describes some aspect of an information system in a
clear, concise, and logical manner.
• Flowcharts use a set of standard symbols to depict processing procedures and the flow of data.
Every shape on a flowchart depicts a unique operation, input, processing activity, or storage
medium.
• In the days of yore, flowcharts were commonly drawn with templates. Now, it is more common
to use a software program such as Visio. Microsoft Power Point is also used. The software uses
pre-drawn shapes, and the developer drags the shapes into the drawing.
• There are four types of flowcharting symbols:
− Input/output symbols indicate the type of device or media that provides input to or
records output from a process.
− Processing symbols indicate the type of device used to process the data or whether the
data is processed manually.
− Storage symbols indicate the type of device used to store data while the system is not
using it.
− Flow and miscellaneous symbols may indicate the flow of data and goods, the beginning
or end of the flowchart, the location of a decision, or an explanatory note.

INPUT/OUTPUT SYMBOLS
• Document symbol represents a document or report that is prepared
by hand or printed by a computer.

• Multiple Copies of One Document--The document copies should be

numbered in the upper, right-hand corner.

• Input/Output; Journal/Ledger symbol can represent any input or

output on a program flowchart. Also represents accounting journals
or ledgers in a document flowchart.

• Display symbol represents information displayed by an online

output device such as a terminal, monitor, or screen.

• Online Keying symbol represents data entry by an online device

such as a terminal or personal computer.

• Terminal or Personal Computer symbol combines the display and

online keying symbols to represent terminals and personal
computers.

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 • Transmittal Tape symbol represents manually prepared control
totals which are to be compared to computer totals for control
purposes.

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PROCESSING SYMBOLS
• Computer Processing symbol represents a process
performed by a computer, which usually results in a
change in data or information.

• Manual Operation symbol represents a processing

operation that is performed manually.

• Auxiliary Operation represents a processing operation

carried out by a device other than a computer, e.g., an
optical character scanner.

• Off-line Keying Operation symbol represents an operation

that uses an off-line keying device, such as a cash register
or keying to a disk.

STORAGE SYMBOLS

• Magnetic disk symbol represents data stored permanently

on a magnetic disk. Frequently used to represent master
files and databases.

• Magnetic Tape symbol represents data stored on a

magnetic tape. Sometimes represents transaction files.

• Diskette symbol represents data stored on a floppy disk or

zip disk.

• Online Storage symbol represents data stored in a

temporary online file on a direct-access medium such as a
magnetic disk.

• File symbol represents a file of documents that are

manually stored and retrieved. Letter indicates the
ordering sequence: A = alphabetic order; D = date order;
N = numeric order.

FLOW AND MISCELLANEOUS SYMBOLS

• Document or Processing Flow symbol
represents the direction of processing or
document flow. Normal flow is top to bottom
and left to right.

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 • Data/Information Flow symbol represents the
direction of data/information flow. Often used
to show data being copied from one document
to another.

• Communication Link symbol represents the

transmission of data from one location to
another via communication lines.

• On-page connector symbol connects processing

from one location to another on the same page.
Used to avoid crisscrossing lines.

• Off-page connector symbol connects the

processing flow between two different pages.
Signals the exit from one page and the
corresponding entrance on another page.

• Terminal symbol represents the beginning, end,

or a point of interruption in a process or
program. Also used to indicate an external
party.

• Decision symbol represents a decision-making

step. Used in a program flowchart to show
branching to alternate paths.

• Annotation symbol provides for the addition of

descriptive comments or explanatory notes as
clarification.

DOCUMENT FLOWCHARTS
• A document flowchart shows the flow of documents and information among areas of
responsibility in an organization. These flowcharts trace a document from cradle to grave and
show where a document comes from, where it’s distributed, how it’s used, its ultimate
disposition, and everything that happens as it flows through the system.
• Internal control flowcharts are document flowcharts used to evaluate the adequacy of internal
controls, such as segregation of duties or internal checks. They can reveal weaknesses or
inefficiencies such as inadequate communication flows, unnecessarily complex document flows,
and procedures that cause wasteful delays.
• Document flowcharts are also prepared in the system design process.
• Guidelines for preparing flowcharts:
– As with DFDs, you can’t effectively prepare a flowchart if you don’t understand the
system, so interview users, developers, auditors, and management; administer
questionnaires; read through narratives; and walk through systems transactions.
– Identify entities to be flowcharted, e.g., departments, functions, external parties,
documents or information flows, and processes.
– As you read through a narrative, mark the preceding items with different shapes (e.g.,
drawing a rectangle around entities, circling documents, etc.).

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 – Use separate columns for the activity of each entity.
– Flowchart the normal course of operations, and identify exceptions with annotations.
– As much as possible, draw the flow from top to bottom and left to right.
– Use standard flowcharting symbols, and draw with a template or computer.
– Clearly label all symbols. Use annotations if necessary to provide adequate explanation.
– Give the flowchart a clear beginning and ending. Show where each document originated
and its final disposition.
– One approach you can use is to read through the narrative and for each step define: what
was (were) the input(s); what process was carried out; and what was (were) the output(s).
The flow sequence should be input -- process – output.
– Every manual process should have at least one input and at least one output.
– Show all data entered into or retrieved from a computer file as passing through a process
first.
– Do not show process symbols for forwarding a document to another entity or filing a
document
– Do not connect two documents except when forwarding to another column. When a
document is forwarded, show it in both locations.
– When using multiple copies of a document, place document numbers in the upper, right-
hand corner.
– Show on-page connectors and label them clearly to avoid excess flow lines.
– Use off-page connectors if the flow goes to another page.
– If a flowchart takes more than one page, label the pages as 1 of 5, 2 of 5, 3 of 5, etc.
– Show documents or reports first in the column where they are created.
– Start with a rough draft; then redesign to avoid clutter and crossed lines.
– Verify the accuracy of your flowchart by reviewing it with users, etc.
– Place the flowchart name, the date, and the preparer’s name on each page of the final
copy.

SYSTEM FLOWCHARTS
• A system flowchart depicts the relationship among the inputs, processes, and outputs of an AIS.
The system flowchart begins by identifying the inputs to the system. Each input is followed by a
process, i.e., the steps performed on the data. The process is followed by outputs—the resulting
new information. In other words, it’s the same basic input – process – output pattern that we saw
in the document flowchart.

PROGRAM FLOWCHARTS
• Program flowcharts illustrate the sequence of logical operations performed by a computer in
executing a program. They also follow an input – process – output pattern. The program
flowchart details the logic of processes performed by the computer and becomes the
programmer’s blueprint for writing the actual computer program.

SUMMARY

• We’ve learned about graphical forms of documentation, particularly:

– Data flow diagrams
– Flowcharts
• We’ve learned why these tools are important to accountants and how they are employed.
• We’ve learned basic guidelines for creating data flow diagrams and flowcharts.

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TEACHING TIPS
• Students typically have more difficulty determining exactly what portions of a “story” to diagram
than they do drawing the actual picture. Practice is the only remedy. However, it helps if they
can start with “baby steps” such as Problems 3.1 and 3.16.

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