Entity Relationship Diagrams

An entity relationship (ER) diagram is a documentation technique used to represent the

relationship between business entities. In this context, the term entity applies to anything about which
the organization captures data. An entity may be a physical resource (automobile, cash, or inventory), an
event (customer order, purchase inventory, or receive payment), or an agent salesperson, customer, or
vendor). One common use for ER diagrams is to model an organization’s database.
Figure 2-16 shows the symbol set used in an ER diagram. The square symbol represents entities
in the system. The labeled connecting line represents the nature of the relationship between two
entities. The degree of the relationship, called cardinality, is the numeric mapping between entities such
as one-to-one (1:1), one to many (1:M), and many to many (M:M) Cardinality reflects normal business
rules as well as organizational policy.
For instance, the 1:1 cardinality in the first example in Figure 2-16 suggests that each
salesperson in the organization is assigned one automobile. If instead the organization’s policy were to
assign a single a single (one) automobile to more than one (many) salespersons who share it, this policy
would be reflected by a 1:M relationship. Similarly, the M:M relationship between vendor and inventory
in Figure 2-6 implies that the organization buys the same type of products from one more vendors. A
company policy to buy particular items from a single vendor only would be represented by a 1:M
cardinality.
System designers identify organization entities and prepare a model of them, similar to the one
presented in Figure 2-17. This data model is the blueprint for what ultimately will become the physical
database. The data model presented in our example is not, however, sufficiently refined to be the plan
for a workable database. Constructing a realistic data model is an advanced topic that involves
understanding and applying techniques.
Figure 2-16 Entity Relationship Diagram Symbols
Figure 2-17 DATA MODEL

Relationship between ER Diagrams and DFDs

DFDs and ER diagrams document different of systems, but they are related. DFDs model system
processes while ER diagrams model the data used in systems. Each data store in a DFD is represented as
an entity in a corresponding ER diagram ER diagram. Figure 2-17 presents the ER diagram for the DFD in
Figure 2-15.

System Flowcharts
A System flowchart is the graphical representation of the physical relationships among key
elements of a system. These elements may include organizational departments, manual activities,
computer programs, hard-copy accounting records (documents, journal, ledgers, and files) and digital
records (reference files, transaction files, archive files, and masters files). System flowcharts also
describe the physical computer media being employed in the system, such as magnetic tape magnetic
disks and terminals.The Flowcharting examples in the following sections illustrate techniques for
representing both manual activities and computer processes. We begin by documenting manual
activities and will add computer processes to the system later.

Flowcharting Manual Activities

To demonstrate the flowcharting of manual activities, let’s assume that an auditor needs to flowcharts a
sale order system to evaluate its internal controls and procedures. The auditor will begin by interviewing
individuals involved in the sales order process to determine what they do. This information will be
captured in a set of written facts similar to those discussed further in the text. Keep in mind that the
purpose here is to demonstrate flowcharting. Therefore, for clarify, the system facts are intentionally
simplistic.
1. A clerk in the sales department receives a hard-copy customer order by mail and manually
prepares four hard copies of a sales order.
2. The clerk sends copy 1 of the sales order to the credit department for approval. The other three
copies and the original customer order are filed temporarily, pending credit approval.
3. The credit department clerk validates the customer’s order against hard-copy credit records
kept in the credit department. The clerk signs Copy 1 to signify approval and returns it to the
sales clerk.
 4. When the sales clerk receives credit approval he or she files Copy 1 and the customer order in
the department. The clerk sends Copy 2 to the warehouse and Copies 3 and 4 to the shipping
department.
5. The Warehouse clerk picks the products form the shelves, records the transfer in the hard-copy
stock records, and sends the products and Copy 2 to the shipping department.
6. The shipping department receives Copy 2 and the goods from the warehouse, attaches Copy 2
as a packing slip, and ships the goods to the customer. Finally, the clerk files Copies 3 & 4 in the
shipping department.

Based on these facts, the auditor can create a flowchart of this partial system. It is important to
note that flowcharting is as much an art form as it is a technical skill, giving the flowchart author a great
deal of license. Nevertheless, the primary objective should be to provide an unambiguous description of
the system.

Flowcharting Manual Activities (con’t)

With this in mind, certain rules and conventions need to be observed.
1. The flowchart should be labeled to clearly identify the system that it represents.
2. The correct symbols should be used to represent the various entities in the system.
3. All symbols on the flowchart should be labeled.
4. Lines should have arrowheads to clearly show the process flow direction and sequence of
events.
5. If complex processes need additional explanation for clarify, a text description should be
included on the flowchart or in an attached document referenced by the flowchart.

Lay Out the Physical Areas of Activity

Remember that a flowchart reflects the physical system, which is represented as vertical
columns of events and action separated by lines of demarcation. Generally, each of these areas of
activity is a separate column with a heading. From the written facts, we see that there are four distinct
areas of activity: sales department,credit department, warehouse, and shipping department. The first
step in preparing the flowchart is to lay out these areas of activity and label each of them. This step is
illustrated in Figure 2-18.

Transcribe the Written Facts into Visual Format

At this point, we are ready to start visually representing the system facts. The symbols used for this
purpose will be selected from the set presented in Figure 2-19.

We begin with first stated fact:

1. A clerk in the sales department receives a hard-copy customer order by mail and manually
prepares four hard copies four hard copies of a sales order.
Figure 2-20 illustrates how this fact is represented. The customer is the source of the order but is not
part of the system. The oval object is typically used to convey a data source or destination that is
separate from the system being flowcharted. The document symbol entering the sales department
signifies the hard-copy customer order and is labeled accordingly. The bucket-shaped symbol represents
a manual process. In this case, the clerk in the sales department prepares four copies of the sales order.
Notice that the clerk’s task, not the clerk, is depicted. The arrows between the objects show the
direction of flow and the sequence of events.
By transcribing each fact in this way, we systematically construct a flowchart. See how the
second and third facts restated further in the text add to the flowchart in Figure 2-21.
 2. The clerk sends Copy 1 of the sales order to the credit department for approval. The other three
copies and the original customer further in the text add to the flowchart in Figure 2-21

3. The credit department clerk validates the customer’s order against hard-copy credit records
kept in the credit department. The clerk signs Copy 1 to signify approval and returns it to the
sales clerk.
Figure 2-18 FLOWCHART SHOWING AREAS OF ACTIVITY

Two new symbols are introduced in this figure. First, the inverted triangle symbol represents the
temporary file mentioned in Fact 2. This is a physical file of paper documents such a drawer in a filing
cabinet or desk. Such files are typically arranged according to a specified order. To signify the filing
system used, the file symbol will usually contain an “N” for numeric (invoice number), “C” for
chronological (date), or “A” for alphabetic order (customer name). Second the parallelogram shape
represents the credit records mentions in Fact 3. This symbol is used to depict many types of hard-copy
accounting records, such as journals, subsidiary ledgers, general ledgers, and shipping logs.
Having laid these foundations, let’s now complete the flowchart by depicting the remaining facts.

4. When the sales clerk receives credit approval, he or she files Copy 1 and the customer order in
the department. The clerk sends Copy 2 to the warehouse and Copies 3 and 4 to the shipping
department.

5. The warehouse clerk picks the products from the shelves, records the transfer in the hard-copy
stock records, and sends the products and Copy 2 to the shipping department.

6. The shipping department receives Copy 2 and the goods from the warehouse, attaches Copy 2
as a packing slip, and ships the goods to the customer. Finally, the clerk files Copies 3 & 4 in the
shipping department.
Figure 2-19 SYMBOL SET FOR REPRESENTING MANUAL PROCEDURES

Figure 2-20 FLOWCHART SHOWING STATED FACT I TRANSLATED INTO VISUAL SYMBOLS
Figure 2-21 FLOWCHART SHOWING STATED FACTS I,2 & 3 TRANSLATED INTO VISUAL SYMBOLS

The completed flowchart is presented in Figure 2-22. Notice the circular symbol labeled “A” This is an on
page connector used to replace flow lines that otherwise would cause excessive clutter on the page. In
this instance, the connector replaces the lines that signify the movement of Copies 3 & 4 from the sales
department to the shipping department. Lines should be used whenever possible to promote clarity.
Restricted use of connectors, however, can improve the readability of the flowchart.
Notice also that the physical products or goods mentioned in Fact 5 are not shown on the flowchart. The
document (copy2) that accompanies and controls the goods, however is shown. Typically, a system
flowchart shows only the flow of documents, not physical assets.
Finally, for visual clarity, system flowcharts show the processing of a single transaction only. You
should keep in mind, however, that transactions may flow through a system in batches (groups) rather
than as single events. Batch processing involves gathering together large numbers of similar transactions
and processing them as a single unit of work. This provides for certain operational efficiencies that are
discussed in a later section of this chapter.

Flowcharting Computer Processes

We now examine flowcharting techniques to represent a system that employs both manual and
computer processes. The symbol set used to construct this system flowchart will come from both.
Figure 2-22 FLOWCHART SHOWING ALL STATED FACTS TRANSLATED INTO VISUAL SYMBOLS

Figure 2-19 and Figure 2-23 Again, our example is based on a sales with the following facts:
1. A clerk in the sales department receives a customer order by mail and enters the information
into a computer terminal that is networked to a centralized computer program in the computer
operations department. The original customer order is filed in the sales department.
Facts 2,3 and 4 relate to activities that occur in the computer operations departments.
2. A computer program edits the transactions for data entry errors, checks the customers’ credit
by referencing a credit history file, and produces a transaction file of sales orders.
3. The sales order transaction file is then processed by an update program that posts the
transactions to corresponding records in AR and inventory files.
4. Finally, the update program produces three hard copies of the sales order. Copy 1 is sent to the
warehouse, and Copies 2 & 3 are sent to the shipping department.
5. On the receipt of Copy 1, the warehouse clerk picks the products from the shelves. Using Copy
1 and the warehouse personal computer (PC), the clerk records the inventory transfer in the
digital stock records that are kept on the PC. Next, the clerk sends the physical inventory and
Copy 1 to the shipping department.
6. The Shipping department receives Copy 1 from the warehouse. The clerk reconciles the goods
with Copies 1,2 and 3 attaches Copy 1 as packing slip. Next, the clerk ships the goods (with Copy
1 attached) to the customer, Finally, the clerk records the shipment in the hard-copy shipping
log and files Copies 2 and 3 in the shipping department.
 The flowcharting process begins by creating a template that depicts the areas of activity similar
to the one shown in Figure 2-18. The differences in this case are that this system has a computer
operations department and does not have a credit department.

Transcribe the Written Facts into Visual Format

As with the manual system example, the next step is to systematically transcribe the written facts into
visual objects. Figure 2-24 illustrates how Facts 1,2 & 3 translate visually.
The customer, customer order and file symbols in this flowchart are the same as in the previous
example. The sales clerk’s activity, however, is now automated, and the manual process symbols has
been replaced with a computer terminal symbol. Alsom because this is a data-input operation,the
arrowhead on the flowchart line points in the direction of the edit and credit check program. If the
terminal was also used to receive output (the facts do not specify such a operation) arrowheads would
be on both ends of the line.
Recall that emphasis in flowcharting is on the physical system. For example, the terminal used
by the sales clerk to enter customer orders is physically located in the sales department, but the
programs that process the transactions and the files that it uses and updates are stored in a separate
computer operations department.
Notice how the flow line points from the credit history file to the edit program. This indicates
that the file is read (referenced) but not changed (updated) by the program. In contrast, the interactions
between the update program and the AR and inventory files are in the opposite direction. The relevant
records in these files have been changed to reflect the transactions. The file update process is explained
later in the chapter.
Let’s now translate the remaining facts into visual symbols. Fact 4 states that the update
program produces three hard-copy documents in the computer operations department, which are then
distributed to the warehouse and shipping departments. The translation of this fact is illustrated in
Figure 2-25.
Figure 2-23 SYMBOL SET FOR REPRESENTING COMPUTER PROCESSES
Figure 2-24 FLOWCHART SHOWING THE TRANSLATION OF FACTS 1,2 & 3 INTO VISUAL SYMBOLS

Fact 5 states that the warehouse clerk updates the stock records on the department PC and
then sends the physical inventory and Copy 1 to the shipping department. Notice on Figure 2-25 how
this computer activity is represented; the warehouse P is a stand-alone computer system that is not
networked into the computer operations department like the terminal in the sales department. The PC,
the stock record update program, and the stock records themselves are all physically located in the
warehouse. As with manual procedures, when documenting computer operations, the flowchart author
must accurately represent the physical arrangement of the system components. As we will see in later
chapters, the physical arrangement of system components (both manual and computer) often plays an
important role in the auditor’s assessment of internal control.
Finally, Fact 6 describes how the shipping department clerk reconciles the goods with the
supporting documents, sends the goods and the packing slip to the customer, updates the shipping log,
and the files two copies of the sales order. This entirely a manual operation, as evidenced by the
symbols in Figure 2-25. Note that the shipping log uses the same symbol that is used for representing
journals and ledgers.

Program Flowcharts
The system flowchart in Figure 2-25 shows the relationship between computer programs, the files they
use, and the outputs they produce. This high-level documentation, however, does not provide all the
operational details that are sometimes needed. For example, an auditor wishing to assess the
correctness of the edit program’s logic caot do so from the system flowchart. This requires a program
flowchart. The symbol set used for program flowcharts is presented in Figure 2-26.
Figure 2-26 PROGRAM FLOWCHART SYMBOLS

Every program represented in a system flowchart should have a supporting program flowchart
that describes its logic. Figure 2-27 presents the logic of the edit program shown in Figure 2-28. A
separate symbols represents each step of the program’s logic, and each symbol represents one or more
lines of computer program code. The connector lines between the symbols establish the logical order of
execution. Tracing the flowchart downward from the start symbol, we see that the program performs
the following logical steps in the order listed:
1. The program retrieves a single record from the unedited transactions file and stores it in
memory.

2. The first logical test is to see if the program has reached the end-of-file (EOF) condition for the
transaction file. Most file structures use a special record or marker to indicate an EOF condition.
When EOF is reached, the edit program will terminate and the next program in the system (in
case, the update program) will be executed. As long as there is a record in the unedited
transaction file, the result of the EOF test will be “no” and process control is passed to the next
logical step in the edit program.
3. Processing involves a series of tests to identify certain clerical and logical errors. Each
test,represented by a decision symbol, evaluates the presence or absence of a condition. For
example, an edit test could be to detect the presence of alphabetic data in a field that should
contain only numeric data.
4. Error- free records are sent to the edited transaction file.
5. Records containing errors are sent to the error file.
6. The program loops back to Step 1, and the process is repeated until the EOF condition is
reached.
Figure 2-27 PROGRAM FLOWCHART FOR EDIT PROGRAM