Form Cdtfa-472 "Audit Sampling Plan" - California

Form CDTFA-472 or the "Audit Sampling Plan" is a form issued by the California Department of Tax and Fee Administration.

Download a PDF version of the Form CDTFA-472 down below or find it on the California Department of Tax and Fee Administration Forms website.

ADVERTISEMENT
STATE OF CALIFORNIA
CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION
EDMUND G. BROWN JR.
Governor
BUSINESS TAX AND FEE DIVISION
MARYBEL BATJER
450 N STREET, SACRAMENTO CA 95814
Secretary, Government Operations Agency
PO BOX 942879, SACRAMENTO CA 94279-00 MIC:
_______
1- 916-
-
• FAX 1-916-
-
NICOLAS MADUROS
www.cdtfa.ca.gov
Director
Use of Sampling in Auditing
The primary purpose behind the California Department of Tax and Fee Administration (CDTFA) audit program is to
determine, with the least possible expenditure of time for both the taxpayer/feepayer and the CDTFA, the accuracy of
reported amounts. Sampling serves to accomplish this purpose.
Sampling is a process of drawing a conclusion about an entire body of information based on measurements of a
representative sample of that information. Sales and use taxes are transaction taxes, meaning that tax is determined
on a transaction-by-transaction basis. Therefore, verification must be done at the source document level. Since in
many cases it is economically impractical to audit all transactions, the CDTFA encourages the use of sampling
whenever feasible.
There are generally two methods of sampling: judgment sampling and statistical sampling. A judgment sample
includes all samples obtained by non-statistical sampling methods. The most common type of judgment sample is
the examination of a block period of time (for example, day, week, month, or quarter). A statistical or random sample
is a sample in which each item in the population has an equal or known chance of being selected for examination.
Examples of statistical or random sampling techniques include unrestricted sampling, stratified sampling, systematic
sampling with random start, and cluster sampling.
While judgment samples are not necessarily less accurate than statistical samples, there is no way of objectively
evaluating the accuracy or reliability of the test. The advantages of statistical sampling over non-statistical sampling
are:
• It provides a selection process representative of the types of transactions involved and eliminates bias,
since every item in the population has an equal or known chance of being selected.
• It provides an advance estimate of the sample size required for a given objective.
• The results can be objectively evaluated.
• Multiple samples may be combined and evaluated.
• Properly conducted statistical sampling can yield more reliable results than judgment sampling.
• It is a method approved and recommended by the American Institute of Certified Public Accountants (AICPA).
Other factors to be considered in determining the best type of sample to conduct are the format, condition, storage,
and availability of business records. The auditor and taxpayer/feepayer should discuss the most beneficial approach
to examining source documents after the auditor has had an opportunity to review the business records but prior to
the selection of the sample.
The attached CDTFA-472, Audit Sampling Plan, was developed to document the sampling plan and to set the criteria
by which the sample results will be evaluated. The purpose of this form is to obtain information regarding the
taxpayer’s/feepayer’s operations in order to establish the most effective and efficient means of developing a sampling
plan. The form covers many common situations that might arise in sampling which should be discussed with the
taxpayer/feepayer. This form should be completed with the assistance of the taxpayer/feepayer, prior to the selection
of the sample.
The information and methods documented in this form are not binding for either the taxpayer/feepayer or CDTFA
staff. The sampling plan can, and should, be continually evaluated (and changed, if necessary) based upon
information obtained during the auditing process. In addition, it is possible that stratification or expansion of this
sample may be necessary depending on the results produced by this process. However, should any deviation to this
plan be required, it will be fully discussed with the taxpayer/feepayer and documented in the audit and on the
sampling plan.
If you have any questions regarding this form and accompanying information, please contact your auditor.
CDTFA-472 REV. 10 (8-17)
STATE OF CALIFORNIA
CALIFORNIA DEPARTMENT OF TAX AND FEE ADMINISTRATION
EDMUND G. BROWN JR.
Governor
BUSINESS TAX AND FEE DIVISION
MARYBEL BATJER
450 N STREET, SACRAMENTO CA 95814
Secretary, Government Operations Agency
PO BOX 942879, SACRAMENTO CA 94279-00 MIC:
_______
1- 916-
-
• FAX 1-916-
-
NICOLAS MADUROS
www.cdtfa.ca.gov
Director
Use of Sampling in Auditing
The primary purpose behind the California Department of Tax and Fee Administration (CDTFA) audit program is to
determine, with the least possible expenditure of time for both the taxpayer/feepayer and the CDTFA, the accuracy of
reported amounts. Sampling serves to accomplish this purpose.
Sampling is a process of drawing a conclusion about an entire body of information based on measurements of a
representative sample of that information. Sales and use taxes are transaction taxes, meaning that tax is determined
on a transaction-by-transaction basis. Therefore, verification must be done at the source document level. Since in
many cases it is economically impractical to audit all transactions, the CDTFA encourages the use of sampling
whenever feasible.
There are generally two methods of sampling: judgment sampling and statistical sampling. A judgment sample
includes all samples obtained by non-statistical sampling methods. The most common type of judgment sample is
the examination of a block period of time (for example, day, week, month, or quarter). A statistical or random sample
is a sample in which each item in the population has an equal or known chance of being selected for examination.
Examples of statistical or random sampling techniques include unrestricted sampling, stratified sampling, systematic
sampling with random start, and cluster sampling.
While judgment samples are not necessarily less accurate than statistical samples, there is no way of objectively
evaluating the accuracy or reliability of the test. The advantages of statistical sampling over non-statistical sampling
are:
• It provides a selection process representative of the types of transactions involved and eliminates bias,
since every item in the population has an equal or known chance of being selected.
• It provides an advance estimate of the sample size required for a given objective.
• The results can be objectively evaluated.
• Multiple samples may be combined and evaluated.
• Properly conducted statistical sampling can yield more reliable results than judgment sampling.
• It is a method approved and recommended by the American Institute of Certified Public Accountants (AICPA).
Other factors to be considered in determining the best type of sample to conduct are the format, condition, storage,
and availability of business records. The auditor and taxpayer/feepayer should discuss the most beneficial approach
to examining source documents after the auditor has had an opportunity to review the business records but prior to
the selection of the sample.
The attached CDTFA-472, Audit Sampling Plan, was developed to document the sampling plan and to set the criteria
by which the sample results will be evaluated. The purpose of this form is to obtain information regarding the
taxpayer’s/feepayer’s operations in order to establish the most effective and efficient means of developing a sampling
plan. The form covers many common situations that might arise in sampling which should be discussed with the
taxpayer/feepayer. This form should be completed with the assistance of the taxpayer/feepayer, prior to the selection
of the sample.
The information and methods documented in this form are not binding for either the taxpayer/feepayer or CDTFA
staff. The sampling plan can, and should, be continually evaluated (and changed, if necessary) based upon
information obtained during the auditing process. In addition, it is possible that stratification or expansion of this
sample may be necessary depending on the results produced by this process. However, should any deviation to this
plan be required, it will be fully discussed with the taxpayer/feepayer and documented in the audit and on the
sampling plan.
If you have any questions regarding this form and accompanying information, please contact your auditor.
CDTFA-472 REV. 10 (8-17)
CDTFA-472 REV. 10 (FRONT) (8-17)
AUDIT SAMPLING PLAN
TAXPAYER/FEEPAYER NAME
SCHEDULE NUMBER
ACCOUNT NUMBER
CASE ID
AUDIT PERIOD
to
PART A. SAMPLE SET UP
THE OBJECTIVE(S) OF THIS TEST
THE POPULATION AND PERIOD BEING TESTED
THE SPECIFIC TYPE OF RECORDS TO BE EXAMINED IN THE POPULATION
THE FILING METHOD FOR THE RECORDS TO BE EXAMINED (for example, numerical, alphabetical, electronic)
THE POPULATION WILL BE VALIDATED TO THE BOOKS AND RECORDS USING THE FOLLOWING METHOD
TYPE OF SAMPLES
Statistical Sample
Block Sample
Other
(describe)
THE SPECIFIC SAMPLING UNIT EXAMINED IN THE SAMPLE (for example, invoice, purchase order, line items, manifest, bill of lading)
REASON FOR SELECTING THE TEST PERIOD AND SAMPLING UNIT
THE FOLLOWING WILL BE USED IN THE SAMPLE SELECTION
Computer Audit Specialist
Random Number Generator
Random Number Tables
Other
(describe)
PART B. SAMPLE PARAMETERS
POPULATION
POPULATION
SAMPLE BASE
SAMPLE BASE
TEST PERIOD OR STRATA BOUNDARIES
BASE
BASE
(UNITS)
(DOLLARS)
(UNITS)
(DOLLARS)
1.
2.
3.
4.
5.
ADDITIONAL INFORMATION OR STRATA
PART C. SPECIFIC TESTING SITUATIONS
DUPLICATE SAMPLE UNITS WILL BE
Replaced
or
Not replaced (each duplicate unit will be included in the sample)
MISSING SAMPLE UNITS
If a selected document is missing, the auditor should ascertain the reason for the missing or incomplete documents and/or use other
available information to determine if the sample unit represents an error. Based upon the facts of the situation, the auditor and the
taxpayer/feepayer together should discuss whether to consider missing or incomplete documents as incorrect (error), correct (no error),
or whether to substitute another sample unit, or whether they should be removed from the sample base and projection (as set forth in
section 1302.25 of the Audit Manual).
CDTFA-472 REV. 10 (BACK) (8-17)
VOIDS OR CANCELLED TRANSACTIONS
Leave voids and cancelled transactions in the population and treat as a non-error.
Remove voids and cancelled transactions from the sample and population.
Voids are not included in the population and will be disregarded.
SAMPLE UNIT IS A CREDIT INVOICE, CREDIT MEMO, OR DEBIT MEMO
Method 1—Remove credits from population. Allowable credit transactions may be examined and offset as needed.
Method 2—Credit transactions will remain in the sample and will be treated as non-errors.
Method 3—Credit transactions will remain in the sample and will be treated in the same manner as positive transactions.
SAMPLE UNIT IS FOR “TAX” ONLY
Consider correct
Other
(non-error)
(describe)
The following situations will be handled accordingly:
Sample unit is an error, but the transaction later resulted in a bad debt: Allowable bad debts will either be offset against
sample items or be tested and adjusted separately (as set forth in section 1302.25 of the Audit Manual).
Sample unit is an error, but the transaction is corrected at a later date: If a sample unit is an error, but the transaction is
corrected at a later date, the sample unit will be considered a non-error. However, if a sample unit is an error, but the
transaction is corrected as a result of the audit investigation, the sample unit will be considered an error for projection of
error purposes, and an offset credit should be allowed in the amount of the error.
Sample unit is a partial/down/installment or progress payment: Partial, down, installment, or progress payments will not
constitute differences for sampling purposes because they do not represent a sale. On the other hand, payments made
in conjunction with an act that constitutes a sale will be considered a difference for sampling purposes and may be
considered an error upon investigation (as set forth in section 1302.25 of the Audit Manual).
OTHER
PART D. PROJECTION OF ERROR
The CDTFA’s minimum error policy is as follows:
 A minimum of three errors are required in a statistical sample or stratum before the errors may be projected.
 Errors in block samples should be projected even if the errors are from the same customer or vendor when the sample is
representative of the business for the time period in question. This applies even when there are three or fewer errors.
Auditors must justify their decision to project or not to project the errors in the verification comments.
 Cluster samples do not require a minimum number of errors to project.
IF ERRORS FROM A SAMPLE WILL BE PROJECTED, THEY WILL BE PROJECTED USING THE FOLLOWING METHOD
Percentage of Error
Difference Estimation
Mean Per Unit Estimation
Other (describe)
If it is decided to not project the error(s), the auditor may use one of the alternatives listed below to handle the error(s) in that
sample or stratum. The auditor, if necessary, will discuss the alternatives with the taxpayer/feepayer after the sample results
are known and then make a decision on the alternative to use:
 Assess or allow known errors on an actual basis for the audit period.
 If feasible, expand that sample or stratum.
Examine specific customers, vendors, accounts, known errors, etc., on an actual basis for that stratum.
PART E. TAXPAYER'S/FEEPAYER'S SIGNATURE FOR RECEIPT
This sampling plan is a collaborative effort by the auditor and taxpayer/feepayer to determine the most efficient method of determining
the accuracy of reported amounts and establishing an estimated percentage of error, if any, for the population being tested. CDTFA
staff should aid the taxpayer/feepayer in gaining a correct understanding of the law and demonstrate that we are as willing to
recommend a refund of an overpayment as we are to propose a deficiency determination. The information and methods documented
in this form are not binding on either the taxpayer/feepayer or CDTFA staff. This sampling plan may be modified if new or additional
data is encountered. Should any deviation to this plan be required, it will be fully discussed with the taxpayer/feepayer.
AUDITOR’S SIGNATURE
DATE (copy of this sampling plan was provided to the taxpayer/feepayer)
DATE
TAXPAYER’S/FEEPAYER’S SIGNATURE FOR RECEIPT OF COPY
CLEAR
PRINT
ADVERTISEMENT
Page of 3