MGA 311 Ch 2

What is Documentation?

• Documentation is a communication device that describes in pictures, words, or using both how to use the system, what the system does, and how the system operates

What is the role of Documentation?

• Documentation is used to support the internal controls, business processes, and the role of systems in an organization

Without documentation, it is unclear how the accounting system works, some questions may be,

• How would you know what are the inputs to the system?

• How would you know how the system processes transactions?

• How do you know if reports are complete and accurate?

What forms of documentation are there?

• flow charts

• narratives

• diagrams

After the Sarbanes Oxley Act (SOX) of 2002, documentation of processes and internal controls is now mandatory for those companies who need to be compliant with:

• Sections 404

• Auditors will review documentation to look for internal control deficiencies and to gain an understanding of how processes and systems work

What should Documentation include?

• The design of controls on which management financial reporting assertions and disclosures will be based

• Descriptions on how transactions significant to financial reporting are initiated, authorized, recorded, processed, and reported to document proper authorization

• Establishment and continued assessment/testing of fraud prevention controls

What CONTROLS should Documentation include?

• Controls over the financial reporting process that provide management with confidence that the information in the financial statements can be relied upon

• Controls over the safeguarding of assets, whether obvious (locked inventory) or not (information security)

• Controls over the information technology environment (access controls, program changes, etc.)

What is user documentation?

• documentation that would assist the users of the system in performing their day to day jobs, depending on their role in the organization

What does user documentation include?

• Brief narrative description covering the objectives of the system, the overall mode of operation, and the structure of the major subsystems

• Graphical descriptions showing information flows among the subsystems

• List of programs without operating instructions

• Description of principal files used by programs

• Sample input illustrating what is required by each program

• Sample output showing what is produced by each program

• Control procedures

• Error recovery procedures

• Crash recovery procedures

What is System Documentation?

• documentation that would assist the technical support staff of the system and other individuals, such as accountants and auditors, that need to know how the system works

System Documentation generally assists with:

• Understanding complex accounting systems

• Understanding what internal controls are in place and how effectively they are working

• Identify and solve problems in existing accounting systems

• Implement successful new accounting systems

• Train new personnel in both accounting and system environments

• Meet the ongoing need to keep existing accounting systems current

• Communicate system design decisions

What are Documentation Standards?

• Documentation standards are written policies and procedures within an organization that govern the preparation, use, and maintenance of documentation.

• Documentation standards are essential within an organization if a goal is to maintain adequate documentation (an industry best practice).

What is included in Documentation Standards?

• Identification of the preparer

• Information included and omitted

• The manner in which the material is to be presented

• Authorizations required for each type of documentation

• Instructions for preparation of documentation

• Distribution and use of documentation

• Review and maintenance procedures for documentation

What are the Operational Rules for Documentation?

Documentation should:

• Conform to industry, national, or international documentation requirements (especially when regulation is involved)

• Be consistent across an organization

• Only be distributed to those that require the documentation

• When no longer in use, the documentation should be destroyed

• Have a person who is responsible to ensure that the documentation is up to date

• Have a periodic review of the documentation (quarterly, semi-annual, annually)

What are the Consequences of Out- of- Date Documentation?

• Individuals within your organization may be completing the wrong processes

• Internal controls may be not being performed if they were not included in the out of date documentation

• Other individuals who rely on the documentation (auditors, regulatory bodies, etc.) may waste time by reviewing documentation that is not current

What are the CAUSES of Out- Of- Date Documentation?

• Takes time and resources (people) to update the documentation

• Requires someone with a firm understanding of the process to update the documentation

• School of thought: ‘We will eventually get to it when things slow down’ and then things never slow down!

What are the types of System Documentation?

The most common forms used are:

• narratives

• block diagrams

• data flow diagrams

• system flowchart

• business process modeling

What is a Business Process Narrative?

• narratives are text documents that detail a process, internal controls, individuals and systems involved, and answer such questions as who, what, when, where, why, and how

What are key things to remember when writing a narrative?

• be detailed oriented

• Include who is performing the process and what their title is;

• Write the process in a logical manner;

• Use technical and professional writing language;

• Re-read your narrative many times to check for grammar, punctuation, and to see if any details or steps were left out;

• Have a person who is not familiar with the process read through your narrative to see if it is straight-forward and clear;

• Send a copy to the person who performs the tasks you described to see if you accurately captured the process

How are Block Diagrams used?

• Are used to provide an overview of an accounting system in terms of its major subsystems

• Often prepared first before other forms of documentation

What are horizontal block diagrams?

• shows the subsystems of an accounting system and the direction of information flows among subsystems

What are hierarchal block diagrams?

• general view of accounting systems and their subsystems (follows parent/child relationships)

What is a Data Flow Diagram?

• Detailed representation of an accounting system but with fewer technical details

• Used to obtain an overall understanding of the system

• Focuses on the flow of data from input to output

What does the square symbol mean in a Data Flow Diagram?

• Square: External entity (a source or destination of data)

What does the circle symbol mean in a Data Flow Diagram?

• Circle: Process, or operation, that changes the content or status of data

What does the open-ended Rectangle mean in a Data Flow Diagram?

• Open-ended Rectangle: Data store

What does the curved arrow mean in a Data Flow Diagram?

• Curved Arrow: Data flow

What is a Context Diagram?

Context diagram – high level overview of the system

What is a Level 0 data flow diagram?

documents the entire accounting system on a single sheet of paper

What is a System flowchart?

System flowchart – documentation that shows what a system does and how the system does it

What is the purpose of a System flowchart?

• most commonly used to Accountants

• Document complex activities, the source of information, processes involved, and disposition of the information

• Uses ‘if, then’ format

• Follows Input > Process > Output (IPO) format

• National (ANSI) and international (ISO) standards, such as standardized symbols so that the flowchart is easily understood by the reader

What is a Subset: internal control flowchart?

• only focuses on segregation of duties

Guidelines for Flowcharting

• INPUT- PROCESS- OUTPUT

• never connect 2 processes

• one output can become another’s input

• create swim lanes, which are areas of responsibility

• format: left to right, top to bottom

• all documents must have an origin and termination (dont leave documents hanging")

• must have a start/stop to show where the process begins and ends

What is Business Process Mapping?

• Graphical depiction of a business process using common languages to illustrate the business process

• Focuses more on the total process and to take into account interdependencies

An enhanced flowchart for Business Process Mapping includes:

• Descriptions of exactly what the process does to promote the organization's strategy

• Who is responsible for what

• Standards to be maintained in the process

• Performance indicators or other measures of process success

• Can assist with compliance to ISO 9001