The Tax Office is committed to a policy of continually improving the efficiency and effectiveness of the general administration of taxation law. As stated in paragraph 7.1 of the Code of Conduct, 'auditors are expected to complete audits in the shortest time practicable and with the minimum inconvenience and disruption to the taxpayer'.
Why statistical sampling
The Tax Office has recognised that where circumstances are appropriate, statistical sampling has the potential to significantly reduce the time and resources required to complete some aspects of these audits. Accordingly, statistical sampling can provide major benefits to both the Tax Office and the taxpayer.
Reflecting population characteristics
Statistical sampling involves the random selection and examination of characteristics of part of a population of items for the purpose of estimating the characteristics of the whole population. For example, a taxpayer's repairs and maintenance transactions is an example of a population in the context of a specific Tax Office audit. As the individual items are chosen at random from the population, the probability of selection can be calculated. Consequently, mathematical statistical theory can be used to provide various statistics relating to the sample and the population. These statistics are useful in the overall interpretation of the estimates of the population characteristics.
Previous population audits
The use of statistical sampling techniques to assist in the audit of taxpayers has been increasing for some time. Examples of specific audit 'populations' where these techniques had been successfully applied include:
- the examination of bad debts as part of audits of financial institutions
- the examination of account items where a significant number of transactions is involved
- the examination of sales tax invoices as part of sales tax audits
- the review of:
- vehicle log books and expense sheets
- employee housing benefits, and
- employee living away from home allowances
as part of fringe benefits tax (FBT) audits.
As well as the above examples, statistical sampling may form an integral part of electronic audits.
In view of the potential benefits arising from use of the statistical sampling techniques in Tax Office audits, these guidelines have been developed to provide interested parties with an understanding of the procedures to be adopted.
Last Modified: Friday, 29 September 2006