CHAPTER 3

Systems Development and Documentation Techniques

 Learning Objectives

Prepare and use data flow

diagrams to understand,
evaluate, and document
information systems.
Prepare and use flowcharts to
understand, evaluate, and
document information systems.

Copyright 2012 Pearson Education 3-2

 What Is Documentation?

Set of documents and models

Narratives, data flow models, flowcharts

Describe who, what, why, when, and where of systems:

Input, process, storage, output, and controls

Copyright 2012 Pearson Education 3-3

 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?
 INTRODUCTION

Documentation includes the following types of tools:

Narratives (written descriptions)

Flowcharts
Data Flow Diagrams
Business process diagram
 INTRODUCTION

Documentation includes the Narratives

(written descriptions), Flowcharts, Diagrams,
and other written material that explain how a
system works.

Documentation explain how a system works

including the who, what, when, where, why,
and how of:
Data entry
Processing
Storage
Information output
 INTRODUCTION

How do accountants use documentation?

In fact documentation tools are important on one or
more of the following:
At a minimum, they have to read documentation
to understand how a system works.
They may need to evaluate the strengths and
weaknesses of an entitys 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
 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
 Data Flow Diagram Levels

Context
Highest level (most general)
Purpose: show inputs and outputs into system
Characteristics: one process symbol only, no data stores

Level-0
Purpose: show all major activity steps of a system
Characteristics: processes are labeled 1.0, 2.0, and so on

Copyright 2012 Pearson Education 3-9

 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.
 Why Should You Learn Documentation?

You need to be able to read documentation in all its forms:

narratives, diagrams, models.

You need to be able to evaluate the quality of systems,

such as internal control based in part on documentation.

SAS 94 requires independent auditors to understand all

internal control procedures.
Documentation assists in auditor understanding and
documentation of their understanding

Sarbanes-Oxley states that management:

Is responsible for internal control system
Is responsible for assessing the effectiveness of the IC System
Both management and external auditors need to document
and test IC System

Copyright 2012 Pearson Education 3-11

 INTRODUCTION
You need to be able to read documentation in all its forms:
narratives, diagrams, models.
You need to be able to evaluate the quality of systems, such
as internal control based in part on documentation.
Statement Auditing Standards (SAS) -94 requires that
independent auditors should understand the automated and
manual procedures an entity uses.
This understanding can be gleaned through documenting the
internal control systema process that effectively exposes
strengths and weaknesses of the system.
SOX (2002) effectively requires that the management of public
companies to include in its annual report:
a) The responsibility of management to establish and maintain an
adequate internal control structure.
b) assesses the effectiveness of the companys internal control.
this means that company employee as well as auditors must
be able to prepare, evaluate, and read different types of
documentation such as flowchart.
 INTRODUCTION

Documentation tools help accountants by:

Organizing very complicated systems into a form that can be
more readily understood.
Helping new team members understand a pre-existing system.
 INTRODUCTION

Which method should you useflowcharts or Data Flow

Diagrams DFDs?
62.5% of IS professionals use DFDs
97.6% use flowcharts
92% of users were satisfied with the use of both.
Both can be prepared relatively simply using availabl..e software
Both are tested on professional exams
CONCLUSION: You need to know them both
 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

There is no black-and-white approach (ideal way) to

developing a DFD. Because of different problems need
different methods.
 DATA FLOW DIAGRAMS

Example of a data flow

diagram of the customer
payment process from Accounts
Figure 3-3 in your textbook. Receivable

Customer 1.0 Remittance 2.0 Receivables

Customer payment Process data Update Information Credit
Payment A/R Manager

Deposit

Bank
 DATA FLOW DIAGRAMS

A data flow diagram consists of four basic elements:

Data sources and destinations
Data flows
Transformation processes
Data stores
 Data Flow Diagrams

Graphically describes the flow of data within a system

Four basic elements

Internal
control

Entity Data Flow

Process

Data Store

Copyright 2012 Pearson Education 3-18

 DATA FLOW DIAGRAMS

A data flow diagram consists of four basic elements:

Data sources and destinations
Data flows
Transformation processes
Data stores
 DATA FLOW DIAGRAMS

Data sources and destinations

Appear as squares
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 FLOW DIAGRAMS

Data sources and

destinations are marked in
red. Accounts
Can you tell which are Receivable
sources and which are
destinations?

Customer 1.0 Remittance 2.0 Receivables

Customer payment Process data Update Information Credit
Payment A/R Manager

Deposit

Bank
 DATA FLOW DIAGRAMS

Accounts
Receivable

Customer 1.0 Remittance 2.0 Receivabl

Source payment Process data Update es Destination
Payment A/R Informatio
n
Deposit

Destination
 DATA FLOW DIAGRAMS

A data flow diagram consists of four basic elements:

Data sources and destinations
Data flows
Transformation processes
Data stores
 DATA FLOW DIAGRAMS

Data flows
Appear as arrows
Represent the flow of data between sources and
destinations, processes, and data stores
 DATA FLOW DIAGRAMS

Data flows are shown in red.

Does it appear that a data flow
can be two-way? Accounts
If so, how is it handled? Receivable

Customer 1.0 Remittance 2.0 Receivables

Customer payment Process data Update Information Credit
Payment A/R Manager

Deposit

Bank
 DATA FLOW DIAGRAMS

Data flows should always be

labeled.
The exception is a data flow Accounts
moving into or out of a data store. Receivable
What symbol is the data store?

Customer 1.0 Remittance 2.0 Receivables

Customer payment Process data Update Information Credit
Payment A/R Manager

Deposit

Bank
 DATA FLOW DIAGRAMS

As you probably surmised from the previous

slides, if a data flow is two-way, use a bi-
directional arrow.

Update
General
Receiv-
Ledger
ables
 DATA FLOW DIAGRAMS

If two data elements flow together, then the

use of one data flow line is appropriate.

Cash Recd & Remittance Slip Process

Customer
Payment
 DATA FLOW DIAGRAMS

If the data elements do not always flow together, then

multiple lines will be needed.

Customer Inquiry Process

Customer Payment
Customer Payment
 DATA FLOW DIAGRAMS

A data flow diagram consists of four basic elements:

Data sources and destinations
Data flows
Transformation processes
Data stores
 DATA FLOW DIAGRAMS

Processes
Appear as circles
Represent the transformation of data
 DATA FLOW DIAGRAMS

The transformation processes are

shown in red.
Every process must have at least
Accounts
one data inflow and at least one data
Receivable
outflow. Why?
What do you notice about how the
processes are labeled?

Customer 1.0 Remittance 2.0 Receivables

Customer payment Process data Update Information Credit
Payment A/R Manager

Deposit

Bank
 DATA FLOW DIAGRAMS

Data stores
Appear as two horizontal lines
Represent a temporary or permanent repository
of data
 DATA FLOW DIAGRAMS

The data store is shown in red.

Notice that the inflows and
outflows to the data store are not Accounts
labeled. Receivable

Customer 1.0 Remittance 2.0 Receivables

Customer payment Process data Update Information Credit
Payment A/R Manager

Deposit

Bank
 DATA FLOW DIAGRAMS

Data dictionary:
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.
 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.
 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
 DATA FLOW DIAGRAMS

Govt.
Depart- Agencies
ments

Payroll Employee checksEmployees

Processing
System

Bank
Human
Resources

This is the context diagram for the

Manage-
S&S payroll processing system
ment
(Figure 3-5 in your textbook).
 DATA FLOW DIAGRAMS

Govt.
Depart- Agencies
ments

Payroll Employee checksEmployees

Processing
System

Bank
Human
Resources

What information comes into this Manage-

process, and from where? ment
 DATA FLOW DIAGRAMS

Govt.
Depart- Agencies
ments

Payroll Employee checksEmployees

Processing
System

Bank
Human
Resources

What information is produced by this Manage-

process, and where does it go? ment
 DATA FLOW DIAGRAMS

Depart-
ments Employees
Employee
New employee Time paychecks
Human form cards
Resources
1.0
Update 2.0
Employee Payroll
Empl. Pay
change check
Payroll Employ- Bank
form
File ees

Payroll
disburse-
3.0 5.0
ment data
This diagram Prepare Employee/ Update
Reports Payroll File Gen.
shows the next Ledger
level of detail Payroll tax
Payroll disb. voucher
for the context
report
diagram in 4.0 General
Pay Ledger
Figure 3-5. Tax report
Manage- Taxes
& payment
ment Govt.
Agencies
 DATA FLOW DIAGRAMS

Depart-
ments Employees
Employee
New employee Time paychecks
Human form cards
Resources
1.0
Update 2.0
Employee Payroll
Empl. Pay
change check
Payroll Employ- Bank
form
File ees

Payroll
disburse-
3.0 5.0
ment data
What Prepare Employee/ Update
Reports Payroll File Gen.
information Ledger
comes into Payroll tax
Payroll disb. voucher
these
report
processes and 4.0 General
Pay Ledger
from where? Tax report
Manage- Taxes
& payment
ment Govt.
Agencies
 DATA FLOW DIAGRAMS

Depart-
ments Employees
Employee
New employee Time paychecks
Human form cards
Resources
1.0
Update 2.0
Employee Payroll
Empl. Pay
change check
Payroll Employ- Bank
form
File ees

Payroll
Disburse-
3.0 5.0
ment data
What Prepare Employee/ Update
Reports Payroll File Gen.
information is Ledger
produced by Payroll tax
Payroll disb. voucher
these
report
processes, 4.0 General
Pay Ledger
and where Tax report
Manage- Taxes
does it go? ment
& payment
Govt.
Agencies
 DATA FLOW DIAGRAMS

Depart-
ments Employees
Employee
New employee Time paychecks
Human form cards
Resources
1.0
Update 2.0
Employee Payroll
Empl. Pay
Change check
Payroll Employ- Bank
form
file ees

Payroll
Disburse-
3.0 5.0
ment data
How do the Prepare Employee/ Update
reports Payroll file Gen.
sources and Ledger
destinations Payroll tax
Payroll disb. voucher
differ from the
report
context 4.0 General
Pay Ledger
diagram? Tax report
Manage- taxes
& payment
ment Govt.
Agencies
 DATA FLOW DIAGRAMS

Depart-
ments Employees
Employee
New employee Time paychecks
Human form cards
Resources
1.0
Employee Update 2.0 Payroll
Empl. Pay
Change check
Payroll Employ- Bank
form
file ees
Payroll
Disburse-
3.0 ment data 5.0
Notice that Prepare Employee/
Update
reports Payroll file
each process Gen.
Ledger
in the DFD is Payroll tax
Payroll disb. voucher
numbered
report
sequentially. 4.0 General
Ledger
Pay
Tax report
Manage- taxes
& payment
ment Govt.
Agencies
 DATA FLOW DIAGRAMS

Depart-
ments Employees
Employee
New employee Time paychecks
Human form cards
Resources
1.0 2.0
Update
Employee Pay Payroll
Empl.
change check
Payroll Employ- Bank
form
File
ees
Suppose we Payroll
exploded Process 3.0
Disburse-
ment data 5.0
2.0 (Pay Prepare Employee/ Update
Employees) in the Reports Payroll File Gen.
next level. The sub- Ledger
Payroll tax
processes would be disb. voucher
Payroll
numbered 2.1, 2.2, report
General
2.3, etc. 4.0
Pay Ledger
Taxes Tax report
Manage- & payment
ment Govt.
Agencies
 DATA FLOW DIAGRAMS

Were going to go through a partial example of how the first

level of detail was created.

But before we do, lets step through some guidelines on how

to create a DFD.
 DATA FLOW DIAGRAMS

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 youre not sure
about a process, include it for the time
being.
 DATA FLOW DIAGRAMS

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.
 DATA FLOW DIAGRAMS

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 5.2.1,
5.2.2, etc.
 DATA FLOW DIAGRAMS

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.
 DATA FLOW DIAGRAMS

RULE 13: As much as possible, organize the

flow from top to bottom and left to right.
RULE 14: Youre 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
The date prepared
The preparers name
 DATA FLOW DIAGRAMS

Now that weve been through the guidelines for developing

DFDs, lets go back to the chapter example and see if we can
re-create a part of it.

You may wish to create a table with the following headings to

organize your information:
Data Inputs
Processes
Data Outputs
 DATA FLOW DIAGRAMS

Data Inputs Processes Data Outputs

 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 employees 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.
Employee records are stored alphabetically.
 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 employees 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.
Employee records are stored alphabetically.

The portion marked in red relates to activities that go on outside the

boundaries of the payroll system. Consequently, these activities will
not be included on the DFD.
 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 employees 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.
Employee records are stored alphabetically.
The portion marked in red suggests two data flows coming into the
payroll process (new employee forms and employee change forms).
The source of the inflows is the human resources department.
 DATA FLOW DIAGRAMS

Data Inputs Processes Data Outputs

New employee forms and
employee change forms
(from H.R. Dept.)
 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 employees 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.
Employee records are stored alphabetically.
The sentence marked in red suggests a process (update employee
records) with the data outflow going to a data store (the
employee/payroll file).
 DATA FLOW DIAGRAMS

Data Inputs Processes Data Outputs

New employee forms and Update records (read from Updated employee/
employee change forms file and record) payroll file
(from H.R. Dept.)
 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 employees 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.
Employee records are stored alphabetically.

The final sentence in this paragraph provides information about the

physical storage of the data. Physical information is utilized in
flowcharts but not in data flow diagrams.
 DATA FLOW DIAGRAMS

Data Inputs Processes Data Outputs

New employee forms and Update records (read from Updated employee/
employee change forms file and record) payroll file
(from H.R. Dept.)

We will not do the entire DFD, however, you could finish this table
by reading the remainder of the narrative in Table 3-1 in your
textbook. The portion of the table completed so far allows us to
draw the segment of the DFD that is highlighted on the following
slide.
 DATA FLOW DIAGRAMS

Depart-
ments Employees
Employee
New employee Time paychecks
Human form cards
Resources
1.0
Update 2.0
Employee Payroll
Empl. Pay
change check
Payroll Employ- Bank
form
File ees

Payroll
disburse-
3.0 5.0
ment data
Prepare Employee/ Update
Reports Payroll File Gen.
Ledger
Payroll tax
Payroll disb. voucher
report
4.0 General
Pay Ledger
Taxes Tax report
Manage- & payment
ment Govt.
Agencies
 DATA FLOW DIAGRAMS

Keep the following in mind as you develop

your DFD:
Remember to ignore control activities, such as
error correction processes.
Some data inputs and outputs will not appear on
the first level of the DFD but appear as the
processes are exploded into greater levels of
detail.
 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.