Feel Free Read California Audit Manual Chapter 13, Statistical Sampling RTF
This chapter provides guidelines to follow when a statistical sample is used to perform a test in an audit. There is no intention to establish rigid rules; rather this chapter will set forth general goals for statistical sampling and will allow the auditor discretion in the implementation of various analytical procedures to develop an appropriate sampling plan. Planning and evaluating audit samples is a critical part of the California Department of Tax and Fee Administration’s (CDTFA) mission, as stated in AM section 0101.03. During the sample planning phase, the auditor gathers information about the taxpayer’s accounting systems and tax issues. The auditor should take the opportunity to educate the taxpayer on the objectives of the sampling process and encourage the taxpayer to offer suggestions on designing the sampling plan. The taxpayer may be able to share specialized knowledge of the accounting system and sampling techniques that could result in a more effective and efficient audit. The auditor should work with the taxpayer to find the best procedures for the given situation. However, it is a general principle of auditing that the auditor is ultimately responsible for assuring that adequate tests are conducted to provide the auditor with assurance of the accuracy of the records. The auditor should refer to Chapter 4 for general audit procedures regarding tests of specific items. The primary objective of a sales and use tax audit is to determine, with the least possible expenditure of time for both the taxpayer and staff, the accuracy of reported tax. To accomplish this, the auditor should take into account the possibility of both overpayments and underpayments in analyzing the sampling plans necessary to accurately determine the proper amount of tax due. All such differences should be taken into account by the auditor when assessing the net overpayment or underpayment resulting from the audit. A sample or an audit may result in a net refund if the dollar value of tax overpayment errors exceeds the value of tax underpayment errors. As stated in AM section 0101.20, CDTFA is just as willing to recommend a refund of an overpayment as we are to propose a deficiency determination. AM section 1309.00 contains a glossary of terms relevant to testing by the statistical sampling method. CDTFA auditors are required to have a working knowledge of these terms. It is suggested the auditor be familiar with these terms prior to reading this chapter
