In a prior video we talked about the direct method of testing. The direct method of testing involves testing actual source documents, lining up and comparing them when you have a breakdown in the direct method. Then sales tax auditors will resort to what they call indirect methods. Indirect methods of testing is a fancy way of saying we’re going to play guessing games with statistics. So one of the indirect methods of testing is audit path sales. They look at current sales and they’ll do statistical comparisons between past sales and current sales. So one of the easiest ones they do is they do an observation test. They’ll send an auditor in a business for a couple of days to look at the sales that are being performed, whether the employees are ringing everything up correctly, whether they’re charging tax and then the auditor will sit there and literally record every single transaction and they’ll compare that against the POS system reports to see if there are any discrepancies. That’s called an observation test so if there is an error within that test, then they’ll do certain things based on
What Is the Direct Method of Testing in a Sales Tax Audit?
Brotman Law video has all the information you need to know to test during the direct method of the Sales tax audit.