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Unformatted text preview: YES YES NO 1. Calculat e standard deviation of population 2. Calculate the average value of an it em YES NO YES NO Kelly Legner Audit Sampling Paper Overall tax audit risk is made up of the risk of inaccurate records and the risk of misapplication of the tax law. Both of these risks are made up of two components as well. 1. Risk that there are errors (inherent risk). 2. Risk that procedures will not find errors (audit risk). Audit risk, in turn is made up of two components, the risk that a procedure is not effective and sampling risk. Sampling risk is the probability that the sample results are not representative of the entire population. In general, factors that may lessen sampling risk include: 1. Taking larger size samples 2. Using random sample selection methods 3. Stratifying the sample 4. Properly defining the test objective 5. Properly defining a deviation 6. Exclusion of nonrecurring, nonsystematic errors. 7. Properly evaluating errors. There are several steps in designing a sampling application for an audit or investigation. The steps are discussed in detail in the next pages. 1. 1 .Define the objectives of the test 2. Determine the type of test to be performed o Variables Sampling o Attribute Sampling 3. Define the deviation conditions 4. Define the population o Decide what period will be covered by the test o Define the sampling unit o Consider the completeness of the population o Consider how the error rate will be extrapolated 5. Determine the method of selecting the sample o RandomNumber sampling o Systematic sampling o Other sampling 6. Determine the sample size o Variables Sampling o Attribute Sampling 7. Perform the sample o Compare the sample to the population before completing the sample Page 1 of 16 8. Evaluate the sample results o Interpret results o Extrapolate results o Consider the qualitative aspects of the deviations o Reaching an overall conclusion about the population 9. Document the sampling procedure DEFINE THE OBJECTIVES OF THE TESTSTEP 1 The auditor must have a definite question to be answered by the test. Examples of questions to be answered are. 1. Does the Sales Summary contain all invoices and is information recorded accurately? 2. How often are invoices voided without explanation? 3. Does the taxpayer record all supplies pulled from inventory in the inventory log? 4. Does the sales supervisor correctly batch sales by destination so that they can be recorded by state in the summary journal? 5. What is the amount of deductions not supported by NTTC's? 6. What is the percentage of sales of services to the government relative to total sales? 7. What percentage of supplies are pulled from inventory held for sale each month?...
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This note was uploaded on 05/23/2011 for the course ACCT 842 taught by Professor Shekib during the Spring '11 term at Governors State University.
 Spring '11
 shekib

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