auditsamplingmanual - MANUAL AUDIT SAMPLING Sampling is the...

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MANUAL AUDIT SAMPLING Sampling is the application of an audit procedure to less than 100% of the items within an account balance or class of transactions for the purpose of evaluating some characteristic of all the items within the balance or class of transactions. Much of the information included in this manual was taken from the Statement on Auditing Standards No. 39 on Audit Sampling which provides guidance on the use of sampling in an audit of financial statements. This information has been adapted to fit the circumstances most often encountered in tax auditing. HISTORY The Department has used sampling in its audit procedures for many years. That sampling, for the most part, has been block sampling. That is, taking a period of time and testing 100% of the records during that time. Until 1990, the Department's policy on sampling was to take 100% samples from three test months per year selected for being the high, low and average months of the year. From 1990 forward the Department has adopted other systematic or random sampling techniques. Random sampling techniques are both convenient and accurate when performed properly, for these reasons sampling is the rule rather than the exception in most audits performed by the Department. The convenience and accuracy extends to taxpayers as well. Audits based on sampling have been challenged. When challenged we have allowed the taxpayer to present detailed information to refute the results of the sample. PURPOSE OF AUDIT SAMPLING Sampling is performed because it is more efficient than testing 100% of a population. In tax audits, if the taxpayer and the Department can agree on a representative sample, it can save both parties time and money. By definition, any procedure that does not examine 100% of the items in question is a sampling procedure. WHEN NOT TO SAMPLE There are many audit procedures which do not involve sampling. Inquiry and Observation: Reviewing records for the method of accounting and other information. Observing accounting procedures. Discussing methods of accounting and reporting with taxpayer. Scanning documents for possible issues. Analytical Review Procedures: Comparing records reports and other information. Recomputing or estimating amounts. Reviewing trends in reporting. Comparing similar businesses. One-Hundred Percent Examination: Reviewing all fixed asset purchases, where appropriate. Examining all contracts, where there are a small number. Reconciling each years gross receipts to CIT A sales factors or Schedule C receipts. Zero Percent Examination: This occurs when the auditor determines that a type of receipt, deduction, exemption or other item does not need to be tested. Page 1 of 15
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Note: Even though 100% examination may be done where appropriate. It is not mandatory for any particular taxpayers or tax programs. Sampling procedures discussed below may be more cost effective.
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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.

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auditsamplingmanual - MANUAL AUDIT SAMPLING Sampling is the...

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