Page 122 - DCOM509_ADVANCED_AUDITING

Unit 7: Audit Sampling

Notes
!
Caution Auditors should be careful not to include factors in the deviation, which do not affect
the objective of the test.

For instance, in the first test described above, invoices where the customer name was misspelled
would not affect the objective of the test and should not be treated as deviations. On the other
hand, auditors should also be careful to include all factors, which may affect the objective of the
test. For instance, if an invoice contains the initials of a supervisor from another Department
who is not familiar with the customers who have Non Taxable Transaction Certificates (NTTCs)
on file, the invoice should be picked up as a deviation, even though it contains a supervisor’s
initials.
Some of the most common problems faced by auditors performing any kind of test come from
not properly defining the deviation, and finding out after the test has been performed that there
were other conditions that should have been considered.

Define the Population Step 4

The auditor should determine if the population from which the sample is selected is appropriate
for the specific audit objective, because sample results can be projected to only the population
from which the sample was selected. If a change in the business results in more than one distinct
population, then each needs to be tested separately. The auditor should also evaluate the
reliability of the data presented as the population. The data should be complete and should also
tie to other records such as CRS-1s, journals, summary reports, etc.
Analysis may reveal that the taxpayer changed a specific control procedure during the period
under audit. The auditor needs to decide whether to design one sample and test both controls or
do two separate samples. The auditor might also discover that the non-taxable sales do not
match the CRS-1 reports due to the exclusion of a particular type of sale or due to the inclusion
of non-New Mexico sales.
Decide What Period will be Covered by the Test

Generally, a sample should be drawn from the entire period to which the test results will be
applied. However, there are many situations when this is not practical. In any test where the
auditor decides to limit the period from which the sample will be drawn, the auditor should
evaluate sample results, as well as the period outside the sample, and determine the following:

1. What were the results of the sample and could they reasonably be expected to apply to the
period not sampled?
2. What is the nature of the remaining period, does it have similar characteristics to the
period tested?
3. How large is the remaining period? Ideally, the period from which the sample is drawn
should be as large as possible. Limiting the period to a day out of each year or a week from
the total audit period is not a sound basis for extrapolating results to the period not
sampled. The more the sample is spread throughout the audit period, the more reliable
the results will be.
4. What is the nature and amount of the transactions involved? The more homogeneous the
population and the greater the size, the more likely a sample taken from only part of the
period under audit will be representative.

LOVELY PROFESSIONAL UNIVERSITY 117