Flowcharting and Business Process Diagrams

7.2 Flowcharting and Business Process Diagrams

Flowcharting and business process diagrams are essential tools for Certified Public Accountants (CPAs) and other finance professionals seeking to understand and evaluate how transactions move through an organization’s systems. Diagrams transform abstract processes into visual representations, enabling deeper insights into control design, risk management, and operational efficiency. This section focuses on standard flowcharting techniques, key symbols, best practices, and illustrative examples that guide you in mapping processes—from the moment a transaction is initiated to the point at which it is recorded in the financial statements. By mastering these techniques, you can more effectively spot potential control deficiencies, identify segregation-of-duties conflicts, and design more robust internal control structures.

Importance of Flowcharting in Accounting and IT

Flowcharts provide a bird’s-eye view of a sequence of activities or a business process. In the context of information systems (IS) and controls, they serve multiple purposes:

• Clarifying Roles and Responsibilities: Flowcharts highlight the specific tasks of individuals or departments within a process.
• Identifying Control Points: By explicitly marking where approvals, verifications, or reconciliations occur, flowcharts help pinpoint control strengths and weaknesses.
• Streamlining Communication: Visual diagrams facilitate discussions between accountants, IT professionals, and management regarding system complexities.
• Enhancing Efficiency and Accuracy: Detailed flowcharts are instrumental in redesigning processes for reduced redundancy and improved cost-effectiveness.
• Aiding in Compliance and Audit: In disciplines governed by frameworks such as COSO, COBIT, and NIST, flowcharting contributes to meeting compliance requirements by establishing clear, documented controls.

Overview of Common Flowchart Types

Different flowchart styles cater to various information needs:

• System (or Process) Flowcharts: Present the flow of data or transactions through information systems, describing how inputs are transformed into outputs.
• Document Flowcharts: Trace physical documents or data flows across organizational departments, emphasizing control points for physical/logical documents.
• Program Flowcharts: Illustrate the logic of a software program, typically used by developers for coding and debugging. Though these can be complex, they may be relevant in IT audits when assessing system modifications or integrations.
• Business Process Diagrams (BPMN): Use Business Process Model and Notation to capture end-to-end process flows, roles, tasks, and events, making them especially useful for interdepartmental communication.

Standard Flowchart Symbols

The symbols below are widely recognized in both accounting and information technology contexts:

• Terminator (Start/End): An oval or pill-shaped symbol indicating the beginning or conclusion of a flow.
• Process: A rectangle indicating a task, function, or activity within the process.
• Decision: A diamond symbol signaling a branching point where a question must be answered for the process to proceed along one of several paths.
• Document: A rectangle with a wavy base, representing the creation or use of a physical or electronic document.
• Manual Input: A parallelogram or skewed rectangle, showing a user manually entering data into a system.
• On-Page Connector: A small circle or lettered symbol used to continue the flow on the same page.
• Off-Page Connector: A pentagon (often labeled with a letter, number, or reference) that directs the reader to a corresponding connector on another page.
• Data Storage: A cylinder or open-ended rectangle (depending on the convention) illustrating where data is stored in a database or a file.
• Arrow/Flow Line: A line with an arrowhead indicating the direction of data or document flow.

Below is a concise reference table for basic flowcharting symbols that are commonly used in accounting and IT process documentation:

Constructing a Basic Accounting Flowchart

A well-designed flowchart follows a logical sequence (often top-to-bottom or left-to-right). Take the following best practices into account:

• Consistent Orientation: Arrange symbols and flows consistently (e.g., top to bottom).
• Labeling Precision: Use short, clear labels for each symbol, ensuring consistent terminology.
• Minimal Clutter: Avoid crossing lines whenever possible. If lines must cross, use connectors or bridging to maintain clarity.
• Clear Decision Paths: Every diamond (decision symbol) must have at least two labeled exit arrows.
• Sufficient White Space: Organize symbols in a way that leaves room for additional annotations or references to internal controls.

Flowchart Example: Sales Transaction from Initiation to Recording

Below is a simplified flowchart that depicts a typical sales transaction process. This example traces a customer order from receipt to final recording in the accounting books.

    flowchart TB
	    A["Start"] --> B["Customer Order Received"]
	    B --> C["Enter Order in System"]
	    C --> D{"Credit Check <br/>Required?"}
	    D -- Yes --> E["Perform Credit Check"]
	    E --> F{"Credit Approved?"}
	    F -- Yes --> G["Generate Sales Order <br/>& Packing Slip"]
	    F -- No --> H["Notify Credit Dept. <br/>Stop Process"]
	    D -- No --> G
	    G --> I["Pick & Ship Goods"]
	    I --> J["Issue Invoice to Customer"]
	    J --> K["Record Accounts Receivable <br/>and Sales"]
	    K --> L["End"]

Explanation of Key Segments:

1. Order Receipt: The process begins when a customer order arrives. A flowchart symbol (rectangle) captures the tasks of receiving and entering the order into the system.
2. Credit Check: A decision symbol (diamond) prompts verification of whether a credit check is necessary, frequently driven by company policy. If required, the process includes a further decision diamond to determine if credit is approved.
3. Shipping and Invoicing: Upon credit approval, the sales order is generated, goods are picked, packed, and shipped. The system automatically or manually generates an invoice.
4. Recording Transactions: Finally, the process ends with Accounts Receivable (A/R) and Sales recorded in the general ledger (GL), completing the transaction cycle from initiation to accounting recognition.

In practice, you will insert additional steps or control points for approvals, segregation of duties, and compliance with internal policies. For instance, the shipping department will verify the order quantity against the packing slip, and the billing department will ensure that the invoice matches the shipped quantity and prices.

Business Process Model and Notation (BPMN)

While traditional flowcharts remain popular for their simplicity, Business Process Model and Notation (BPMN) offers a richer semantic framework for depicting business processes, events, participants, and inter-departmental interactions. It is widely used in enterprise resource planning (ERP) systems, complex process redesign initiatives, and cross-functional mapping.

Key BPMN Elements: • Pools and Lanes: Define responsibilities by department or role.
• Events (Start, Intermediate, End): Capture triggers, timers, or other events that start, interrupt, or end a process.
• Tasks: Represent activities within a process scope (equivalent to flowchart process rectangles).
• Gateways (Diamonds): Indicate splits or merges in the process flow, similar to flowchart decision points.
• Message Flows: Represent communication between distinct process participants.

Example of a BPMN Diagram Within an ERP Environment

The following Mermaid-based BPMN-style diagram demonstrates how different departments (Sales, Credit, Shipping, Accounting) collaborate for the same sales transaction process depicted in the earlier flowchart.

    flowchart LR
	    subgraph Sales Dept.
	    A["Start <br/>Receive Customer Order"] --> B["Validate Order <br/>( completeness )"]
	    B --> C["Enters Data <br/>in ERP"]
	    C --> D{"Credit Check <br/>Needed?"}
	    end
	    
	    D -- Yes --> E["Send Request <br/>to Credit Dept."]
	    
	    subgraph Credit Dept.
	    E --> F["Review Customer <br/>Credit Terms"]
	    F --> G{"Credit Approved?"}
	    G -- No --> H["Notify Sales Dept. <br/>Reject Order"]
	    G -- Yes --> I["Approve & Send <br/>Notification Back"]
	    H --> J["End <br/>Credit Dept."]
	    I --> J
	    end
	    
	    D -- No --> K["Proceed <br/>to Shipment"]
	    D -- No --> L["(No Credit Check)"]
	    
	    I --> K
	    K --> M["Pick & Ship Goods"]
	    L --> M
	    
	    subgraph Shipping Dept.
	    M --> N["Confirm Shipment <br/>in ERP"]
	    end
	    
	    subgraph Accounting Dept.
	    N --> O["Issue Invoice"]
	    O --> P["Record A/R and <br/>Update Sales"]
	    P --> Q["End <br/>(Process Complete)"]
	    end

Description:

1. Sales Dept.: Initiates the order, enters data into the ERP, and checks if a credit check is required.
2. Credit Dept.: Receives credit check requests, reviews customer terms, and communicates approval or rejection back to the sales team.
3. Shipping Dept.: Once approved, shipping staff picks and ships goods, confirming the shipment details in the ERP.
4. Accounting Dept.: Receives shipment confirmation, issues the invoice, records the A/R, and updates the financials.

Integrating Internal Controls Within Flowcharts and BPMN

Flowcharts and BPMN diagrams can highlight specific internal controls within a process. For example:

• Authorization Controls: Show who must approve a transaction through symbols or annotations.
• Segregation of Duties: Visually split tasks between different lanes (e.g., one for the Sales Dept. and one for the Credit Dept.).
• Verification Steps: Insert decision symbols or events to represent actions like three-way matching (purchase order, shipping document, and invoice).
• Exception Handling: Use branching to depict how outliers or errors are addressed and escalated.

By embedding these control steps, readers can quickly identify how each control is initiated, executed, and monitored.

Advantages and Limitations of Flowcharts

Before standardizing flowcharts as part of your documentation or audit methodology, consider the following:

• Advantages:
– Simple Visual Communication: Flowcharts are easy to grasp for both technical and non-technical stakeholders.
– Uniform Understanding: Reduced misinterpretation of textual narratives and complex instructions.
– Problem and Risk Identification: Gaps or redundancies in a process often become clearer when mapped graphically.
– Basis for Automation: Well-documented processes can be easily transformed into automated workflows, especially in ERP or RPA (Robotic Process Automation) setups.

• Limitations:
– Maintenance Overhead: Process changes require consistent updates of diagrams. Out-of-date flowcharts can create confusion.
– Can Become Overly Complex: Large organizations with sprawling transactions might need advanced BPMN or hierarchical flowcharts to maintain clarity.
– Not a Substitute for Narrative: Flowcharts complement, but do not replace, detailed documentation of responsibilities, policies, or regulatory compliance requirements.

Tracing a Transaction Through a Flowchart: A Case Study

Imagine a mid-sized retail chain implementing a new sales processing system. As the auditor or internal control specialist:

1. Identify Major Steps: From customer order intake to final financial reporting.
2. Assign Departments: Sales, Shipping, Accounting, etc.
3. Pinpoint Key Controls: Approval thresholds for credit, verification of shipments, separation of duties for record-keeping.
4. Draw the Process with Standard Symbols: Show multiple decision points and connectors to make the chain of events clear.
5. Analyze the Diagram: Are there bypasses to certain controls? Are tasks consolidated into a single role that poses a segregation-of-duties risk?
6. Recommend Improvements: Suggest additional control steps (e.g., daily credit review by a separate function) and ensure the process steps are feasible.

This visual approach often leads to immediate clarity about potential bottlenecks or control weaknesses that might otherwise go unnoticed.

Common Pitfalls in Flowcharting

• Overcomplicating the Diagram: Trying to capture every minor detail can cause confusion. Instead, maintain a big-picture perspective.
• Using Inconsistent Symbol Definitions: Different notations can create ambiguity. A standardized legend is advisable.
• Missing Decision Paths: Failing to label all branches from a decision diamond can lead to incomplete process representation.
• Ignoring Iterative Processes: Some tasks are repeated several times (e.g., invoice revisions). Depict these loops clearly.
• Not Involving Key Stakeholders: Flowcharts should incorporate insights from everyone involved in the process, including staff who execute daily tasks and managers who oversee them.

Best Practices for Effective Flowcharts and Business Process Diagrams

1. Start With High-Level Processes: Map from a bird’s-eye perspective before adding layers of detail.
2. Define Clear Scope: Specify which part of the process or system the flowchart covers, ensuring it aligns with audit or business objectives.
3. Use Consistent Icons and Colors: For example, use one color for processes, another for decisions, or use lane shading to emphasize departmental responsibilities.
4. Review and Validate: Involve process owners and relevant stakeholders to verify accuracy.
5. Document Assumptions: If a step is assumed to be performed automatically or outside the system, note this to avoid confusion.
6. Update Regularly: Schedule reviews to keep flowcharts in sync with business changes, especially after system upgrades, new regulatory requirements, or organizational restructuring.

Conclusion

Flowcharts and business process diagrams lie at the heart of effective audit practices, risk management, and system documentation in modern accounting environments. They make complex processes accessible, reduce misunderstandings, and highlight the interplay between various departments and controls. Whether you choose a simple flowchart or adopt BPMN for complex ERP environments, these visual tools are indispensable for uncovering inefficiencies, non-compliance risks, and control gaps.

In the next sections of this chapter (7.3 Evaluating Processing Integrity Controls in Major Cycles, 7.4 Common Control Deficiencies and Mitigation Techniques, and 7.5 Third-Party and Vendor Risk Management), you will see how detailed mapping of cycles and controls serves as the backbone for a thorough risk assessment and control analysis. By honing your skills in flowcharting and business process diagramming, you build a strong foundation for effective auditing, consulting, and compliance work.

References and Further Reading

• AICPA. “Audit and Accounting Guide: Audit Sampling.” A comprehensive reference for sampling methodologies in financial audits and IT contexts.
• BPMN 2.0 Specification. Official resource to learn the ins and outs of BPMN.
• COSO Internal Control—Integrated Framework. Explains how to align visual process controls with a larger internal control structure.
• Taylor, G. “Accounting Information Systems: Understanding Business Processes.” A helpful textbook focusing on AIS documentation and flowcharting best practices.

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