Page 113 - DCOM509_ADVANCED_AUDITING

Advanced Auditing

Notes 7.1.1 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.

Did u know? 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 year’s 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.

Notes 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.

7.1.2 Techniques for Audit Sampling

There are certain important sampling techniques that can be adopted by an auditor. These
include:
 Haphazard sampling: The haphazard sampling technique is the one adopted by the auditor
in cases where the sample does not follow a structured technique. Haphazard sampling is,
however, not appropriate during the use of statistical sampling. Besides, it is also important

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