News and thoughts from CS Odessa, maker of the ConceptDraw product line: ConceptDraw PRO, ConceptDraw PROJECT and ConceptDraw MINDMAP.

Thursday, October 25, 2012

How Flowcharts Help Companies Save Money, Get Accurate Audits, and Satisfy the Government

The following is the first of a series of interviews with ConceptDraw users. While this blog tends to focus on ConceptDraw MINDMAP users, this interview features ConceptDraw PRO user Brianna Reams, an auditor for one of the Big 4 auditing firms.

In the interview, Reams describes how using ConceptDraw PRO to create flowcharts can help a company in three primary ways.

Hobie: Give us an example of the kinds of things a company might use a flow chart for.
Reams: Well, consider how a company recognizes revenue. For instance, when a software company sells a license, it can recognize that revenue immediately. If it also sells maintenance contracts, the revenue would have to be recognized over the contract period.

Or maybe you’re a custom manufacturer and your contracts say you get a third payment up front, a third when the project is half finished, and the final third on delivery. That involves a totally different kind of revenue recognition. Each process involves a unique set of internal controls.

Hobie: This sounds pretty complicated. How do companies usually capture this kind of information?
Reams: Usually with text. But as you say, these kinds of processes can be complicated, and wading through text can make it seem even more so. Representing these processes visually in a flowchart makes them easier to understand, and easier to catch mistakes.

Hobie: So what's in it for the company? Don't they pay auditors to figure all this stuff out?
Reams: Yes, that is what they pay for. And if it's hard for us to figure it out, they pay us more. But there's another rreason for companies to create flow charts--the Public Company Accounting Oversight Board.

The PCAOB is nonprofit corporation established by Congress to oversee the audits of public companies in order to protect the interests of investors. The board used to just want written descriptions of a company's internal financial controls. But now it's starting to ask for flowcharts--for the same reason we do. Visual representations just make it easier to understand complex processes.

Hobie: So the flowcharts help the auditors and satisfy the PCAOB. What else?
Reams: Well, one of the best reasons to create flowcharts is to make these internal control processes clear to the company itself. When key personnel understand the controls, there's less chance that the financials will be misrepresented. So flowcharts help everybody: the company, the auditors, and the regulators.

Hobie: What are the risks of not communicating these internal controls clearly?
Reams: Well, as I said, the company might have to pay more for the auditing agency's time. But a much more serious risk is that the company may have to reclassify its financial statement because of a misunderstanding between the company and the auditor.

Hobie: And what's the fallout if that happens?
Reams: It never looks good to have to make an adjustment to a financial statement. It can cause both the company and the auditor to lose credibility. And if the markets have already responded to your filing--and then you have to file again with new numbers...that can cause a company's stock to get slammed.

Hobie: Okay, so clearly, creating flow charts to document internal financial controls is something companies should seriously consider. So why do you recommend ConceptDraw Pro?
Reams: In cases where a company has not created flow charts, sometimes I have to go in and make them myself. I've found ConceptDraw to be easy to use, and it works on both PCs and MACs. And while there are lots of expensive flowcharting software applications available, ConceptDraw PRO is affordable and relatively easy to learn.

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