13 terms

CPA Audit - Flowcharting

What is a flowchart?
A flowchart is oftentimes used in an auditor's study of internal control to create a visual image of the various controls that are supposedly in place.
When is a flowchart normally drawn in an audit?
A flowchart may be drawn at any time in an audit when an auditor wants a visual representation of an information or transaction processing system or a group of activities.

However, a flowchart is most often utilized in performing tests of controls in the auditor's assessment of control risk. In this part of an audit, the auditor needs to come to an understanding as to the design of the internal control within a company. One method of capturing that design is through the use of a flowchart.
In performing tests of controls in efforts to reduce the assessment of control risk, the auditor needs to obtain an understanding of the design of individual systems.

What are the ways this understanding is usually documented?
To document the auditor's understanding of the design of the accounting information system or a group of activities, the auditor may do any one or a combination of the following:
1. Memorandum - Write a description of the system.
2. Questionnaire - Ask the client to respond to a list of questions about the design of the system.
3. Flowchart - Draw a visual depiction of the system.
In documenting the design of a system, a questionnaire might be used.

What are the rules for creating a questionnaire?
In a questionnaire, all questions are created so that they are answered either "yes" or "no". Questions are written so that "yes" means the system is designed properly, whereas a "no" answer points to a potential design problem.

In writing a questionnaire, the auditor anticipates every step or procedure that should be taken in the information system. An individual question would then be created, including each of these steps, to determine if they have been incorporated into the design of the system.
In reviewing a flowchart, what three things is an auditor especially interested in seeing?
By looking at a flowchart, the auditor should be able to identify:
1. The departments involved with a particular system.
2. The documents created in that system and what use is made of these documents.
3. The control processes and procedures that are performed in the system that are relevant to the assessment of internal control.

Flowcharts that are well prepared provide a concise overview of the entity's transaction activities and help the auditor to identify controls and deficiencies in the system.
In flowcharting, what does the triangle symbol depict?
A triangle symbol denotes a file or off-line storage. It is labeled to indicate how the document in question would be filed; alphabetically, by number, by date, or by some other parameter.

If the document later comes back out of the triangle, it is referred to as a pending file and the label reveals what caused the document to come back out of the file.
In flowcharting, what does the diamond symbol depict?
The diamond symbol indicates that a decision is made at this point in the transaction process. This symbol is usually labeled with a question that must be answered either "yes" or "no", with different actions resulting, depending on the answer.
In flowcharting, what does the rectangle symbol depict?
A rectangle is the symbol for a computer operation.
In flowcharting what does the square symbol (with rounded corners) depict?
The square is the symbol for an auxiliary operation (an alternate process). This would be some activity that is helpful in the process, but not an absolute requirement. For example, putting payroll checks into alphabetical order might be viewed as an auxiliary operation.
In flowcharting, what does the five-sided symbol depict?
The five sided symbol indicates that a document or some other tangible output of the system is sent off-page, either to another system or to a location outside of the company. This off-page connector is labeled to show where the item is being sent. For example, a sales invoice might be entered into one of these symbols, with the explanation to customer.
What does the symbol for disk storage look like?
Disk storage is usually depicted as a small round disk in a shape appearing as a somewhat high hockey puck.
In flowcharting, what symbol is used to depict a document?
The document symbol resembles a rectangle with a curved bottom line.
What are the advantages and disadvantages of using a flowchart to document the auditor's understanding of the design of a system or group of activities?
A flowchart provides a visual depiction of the entire accounting information system. Therefore, it more easily provides a view of the system in its entirety.

However, control weaknesses do not always stand out. The auditor has to be able to work through the system and spot locations where weaknesses are present.