Standards, policies and procedures
assist managers
and owners to manage, control, analyze, compare, plan, prepare
financial reports and comply with laws and regulations. High
standards usually result not only in harm reduction but in increased
profits. High standards provide rewards. When we set standards for
activities we reduce stress and minimize risk. In the process, we
maximize service. Business activities where we set standards,
establish policies and procedures include:
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Records Management and Storage
Policy and Procedures Manuals
Internal Control Checklists and Evaluation Tools
Division of Duties
Risk Management
Safety in the Workplace – Stop work until it’s safe
Building quality relationships
Knowing your clients, employees, suppliers and customers and
your neighbours
Stating and showing you care
Invoicing – proud and prompt
Handling Money
Asset maintenance, repair and security
Documentation appropriate to the circumstances
Banking
Documenting Business Reasons
Allocating Business/Personal on purchases
Using full AP and AR Accrual Accounting
Obtaining rulings re Employee/Self-Employed
Ensuring compliance with all regulations/laws, not just tax
Maintaining Permanent and Annual files
Electronic Records Management
Time Management
Asset Management
Planning, Forecasting and Budgeting
Regular scheduled review of books and records with client –
monthly, quarterly or annual
Consistent, comprehensive working paper files and checklists
Identification and affiliation with business and industry
organizations
Identification and relationship with regulatory authorities
Audits by all regulatory authorities
© Copyright 2007 Eileen Reppenhagen
3/8/2016
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STANDARDS, POLICIES AND PROCEDURES THAT INOCULATE
YOU AND YOUR CLIENT AGAINST AN IVI TAX AUDIT:
1.
Account for each business, rental or investment property
separately, either with a separate general ledger or use jobs,
departments or classes to segregate common activities. Use
accrual accounting unless cash basis is allowed by the CRA
(farming and fishing).
2.
Keep all of the records for each client inside or securely stored
on top of a banker’s box with a lid attached. Keep the box away
from prying eyes. Only work on one client at a time on your
desk. If you have to put away one client to work on another,
take the time to put away one client and open up another. Do it.
Never lose or mix up several clients’ documentation by working
on more than one file at once.
3.
Sort all of the paper received from a client right away, or ask
your client to provide documentation sorted in the following
manner:
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4.
Bank statements by month by account.
Credit card statements by month by account.
Investment statements including RRSP’s and RRIF’s
by month by account.
All purchases regardless of payment type, sorted in
alphabetical order by supplier name with business
reason and customer/job, supplier or other name
clearly indicated.
Sales invoices by invoice number. This article on
Invoicing will provide assistance with how to invoice
and how to provide customers with statements.
Government reports and correspondence (GST/HST,
PST, WCB, Payroll, Tax, etc.).
Tax receipts for personal expenses (donations,
medical, RRSP, etc.).
Put any paperwork not listed above in the “To Do”
File for the accountant in the front of the box.
Always use the transaction date to post sales, deposits,
purchases and payments. GST/HST, Income Tax, PST, Payroll,
and WCB all require correct transaction dates. As you post each
transaction, file the documentation so if you are interrupted,
there is no pile of left over filing. When you start again, you
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know exactly what isn’t posted yet because it is not filed away.
Here’s what to post and reconcile and in what order:
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Post all sales first to Accounts Receivable at sale
date.
Post deposits when received from customer, record
in Undeposited Funds.
Accumulate and post deposits when deposited to
bank coded to accounts receivable to clear
Undeposited Funds.
Reconcile accounts receivable and provide the client
with a report of outstanding invoices.
Post all purchases to Accounts Payable using the
date on the invoice. Code purchases to expense or
prepaid, regardless of payment type.
Amortize prepaid expenses over the remainder of
their useful life. Keep the prepaid account with a
zero balance. If you have a prepaid that does not
amortize, place it in a separate prepaid long term
asset account.
Post cheques, debits, and cash or credit payments at
date of payment. Code all payments to accounts
payable to clear the sub-ledger and credit the
appropriate bank or other account, such as the
shareholder loan account for cash or personal
payments.
Reconcile Accounts Payable and provide the client
with a report of unpaid bills.
Reconcile bank accounts, credit card statements.
Amortize property and equipment over the
remainder of its useful life.
Other adjustments for year end.
Timing: If you don’t have time to post purchases and amortize
prepaid expenses, post them later when the bank is reconciled.
It is more important to post your sales, clear your deposits, post
your payments and reconcile the bank than it is to post
purchases, unless you are using a Time and Billing system to
bring your purchases forward to your Sales invoices, in which
case, you had better post your purchases before your sales.
5.
Reconcile all business and personal bank accounts, credit cards
and supplier statements monthly and file in separate folders for
each account. Staple all of the documentation for each bank
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account to the statement including cancelled cheques, deposit
slips, deposit information submitted by the customer for the
reason for payment, which often makes no sense unless it’s with
the deposit slip as there often is no identifying information other
than an amount, someone else’s cheque # and a bunch of
invoice #’s, any money orders or drafts purchased to pay for
supplies or services.
6.
Keep the purchase document and the credit card payment slip
together and file the credit card purchase documents
alphabetically in the payables files. When you post the
payments to the credit card account, post the payments for
business reasons as payments to Accounts Payable.
7.
Keep all business and personal bank statements with all of their
attached documentation as well as credit cards statements by
account by year in separate files for each account. File the most
recent month on top.
8.
Invoice all sales. Produce 3-part invoices: part one for the
customer, part two file in numerical order for accounting
purposes and part three file in alphabetical customer files.
9.
Keep a file for all residential or commercial tenants with their
contact information, how much rent they paid you, rental
agreements and correspondence. For commercial tenants
including home based corporations, GST registration may be
required. For short term tenants, PST and/or hotel tax may be
required.
10.
Deposit all money received from sales intact to your business
account. This makes it easier to clear the accounts receivable
sub ledger by customer and to provide a clear trail of all
transactions. If you keep the cash, it means you have to find a
way to communicate the date and the amount received to the
accountant later. Any time there is missing information, it costs
you, because it takes time to reconcile accounts for missing
transactions.
11.
Document the source and reason for receipt of funds on all of
your deposits, business or personal, bank or credit card, no
matter whom they are from or what they are for. Taking care of
revenue means taking care of business first. Focus on revenue
generation first so you will have the funds to pay expenses.
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3/8/2016
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12.
Tear out your deposit information from the deposit book. Staple
the information that came with the deposit from the customer to
the back of the deposit slip that you keep for your accounting
records. Don’t leave your deposits or the copies of your
receipted deposits in your briefcase or car as replacing that
information is almost impossible if it is lost or stolen. Over the
years, I have at least one client each year whose briefcase is
stolen with their deposit book in it. Until the bank statement
arrives, tear out the daily deposit information and backup
materials and put the posted deposits in the front of the bank
statement file. Match and staple these deposits along with
cancelled cheques to the back of the bank statement when it
arrives at month end.
13.
Never remove cash physically from one account and deposit it to
another account at another branch or bank. It will look
suspiciously like double the revenue was earned. An auditor will
think that the new deposit is not the same money as the money
that was withdrawn from the other bank. Leave a paper trail
from bank to bank or account to account with electronic
transfers or cheques. It’s too easy for an auditor to say, ah,
that’s new money, not the money you took from the other
account, even if it was the same day. I don’t know how many
clients I have seen over the years that take money from their
business account, walk across the street and deposit it into their
savings account. It’s probably some childhood savings
technique gone awry; either that or I’ve been duped for years.
14.
Write why (business reason) and if applicable, especially for cost
of sales or for meals and entertainment or reimbursable
expenses who it’s for (customer or supplier or other name) on
every purchase document. It makes for easy identification of
cost of sales to match sales and costs and is required in order for
the bookkeeper to ascertain which expenses are personal and
which are business. Who wants to pay their bookkeeper to enter
a bunch of personal expenses only to have to re-categorize them
later as shareholder loan or proprietor’s draws? That’s a waste
of time and money, not only that, but the Civil Penalties rules
require that the owner/manager, accountant or bookkeeper
ascertain what is business and what is personal before it’s
entered. You are just helping them do their job. The exception
is when you record vehicle expenses and home office costs and
allocate a reasonable portion at the end of the year, adjusting
out the personal portion of the GST claim, same with 50% of the
© Copyright 2007 Eileen Reppenhagen
3/8/2016
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meals. The GST/HST administrative rules allow for an annual
adjustment of GST Input Tax Credits.
15.
Don’t code purchases or income to “Miscellaneous”: Use clear
coding choices. See the CRA Business and Professional Income
Guide T4002 for examples for self-employed or unincorporated
businesses. GIFI Codes are standardized coding of the chart of
accounts for corporate tax reporting in Canada. GIFI was
established so that corporations who are required to report their
balance sheet and income statement with their corporate return
would have standardized coding to make comparison between
years and analysis of results compared to similar business’s
possible by CRA.
16.
Document business claims for telephone use, cell phone use,
home office and vehicle usage by Km log, stating business
reasons and customer names in writing. Again, use ‘B’ for
Business and a ‘P’ for Personal to distinguish between business
and personal use.
17.
Post all purchases to Accounts Payable, regardless of method of
payment, be it cash, cheque, credit card or debit card or
employee expense account. Have a policy of only accepting
original receipts and of keep original receipts in your own
records. Provide customers with a copy attached to the invoice
if you are requesting to be reimbursed for expenses. Why? You
are required to have the original purchase documentation for
GST/HST Input Tax Credits claims. Imagine attempting to get
back the originals for all of your travel receipts because a
GST/HST auditor refuses your ITC claims for all of your
reimbursed expenses because you gave away your original
receipts. GST legislation requires originals to claim ITC’s and
you normally only have four years to claim the credits, two years
in larger organizations.
18.
Post all purchases as Bills and reduce payables with Payments by
source. That makes it easy to see the transactions for each
vendor all in once place. Use the Accounts Payable sub ledger as
clearing account for all purchases. If you have a payment, but no
receipt, or vice versa, the transaction will show up as not
cleared. This is what you call exception reporting. It is easy to
see that you have not posted the same transaction twice when
you review the vendor detail report. The date is usually the
biggest clue. Many clients try to pass off the restaurant receipt
© Copyright 2007 Eileen Reppenhagen
3/8/2016
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one month as cash paid and the credit card slip with the tip
included the next month as paid by the credit card.
19.
One method you could use for employee or owner expense
accounts is to use a separate credit card register to keep track of
the liability and payments to each employee or owner/manager
for expenses. Here’s how to do it:
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Write ‘Paid by” and the employee’s name on each
receipt rather than keeping them lumped together as
a set of receipts. Ditch the spreadsheet method.
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This way you can compare the purchases to other
claims by other employees or owners. Trust me,
employee or owner/manager expenses often get
claimed more than once and by more than one
person with a photocopy of the original receipt or the
second claim with the credit card payment slip.
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Post the Purchases in Accounts Payable Trade and
code the debit to expense.
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Post the amounts paid by the employee from their
list of payments to the credit card register account
as a liability. Code all amounts paid by employees to
Accounts Payable by the vendor name to clear the
payable. Remember that you have already expensed
the amount when you posted it to Accounts Payable
above.
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If you find that three different people have all been
claiming they paid for the same meal, you need to
consider your options. Do you approach them asking
for proof of payment, do you go back to find out how
long they have been doing this or do you just hand
back the box and say you are too busy and have a
nice life? This really happened to me with a new
client and when I investigated it had been going on
for years.
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File the receipts in alphabetical order in the payables
files so you can find the receipt by supplier name
without having to hunt through employee expense
reports to see who paid for it.
© Copyright 2007 Eileen Reppenhagen
3/8/2016
Page 7/21
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Post the payment to the employee to reduce the
credit card ‘expense account’. Theoretically the
payments to the employee or owner/manager should
net against the liability and you could reconcile the
account each time to nil.
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Put a copy of the register report with the total
amounts paid with a copy of the payment in the
employee file.
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By placing all purchases in alphabetical order
regardless of who paid for them, if you want to see
the receipt from a supplier, you will find it quickly
and easily. Why would you need to remember who
or how it was paid in order to find a receipt? When
you are looking for purchases later, you don’t care
who paid for them or how they were paid. If it is
broken and you want to invoke a warranty, the last
thing on your mind is which credit card you used or
which account you used to pay for it.
20.
File all purchases, no matter how they were paid by vendor in
alphabetical order. Use a separate file for vendors whose names
start with A, B, C …Z and more individual files for suppliers with
more than 10 pieces of paper in a year.
21.
If the business is very small, you could use A-B, C, D-F, G-I, J-L,
M-O, P-R, S, T-V, X-Z. You would probably create a separate
folder for the phone, gas, hydro, their 3 largest suppliers and
their favourite stationery store in addition to those 10 folders.
Why separate files for C and S you ask? Over the years I have
discovered that there are more suppliers whose names start with
those letters than any other section of the alphabet.
22.
File supplier statements in the same file as the purchases after
reconciling invoices and payments to the balance owed as stated
by the supplier. Call to reconcile differences or dispute balances
owing while it’s still a current item. Rather than waiting for a
dunning phone call, take the initiative to make the call and you
will often find that you make a friend. Then when there is a
problem it’s much easier to talk to the bookkeeper or business
owner/manager than if you have never connected before. Being
on the end of collections calls is never fun but if you know the
person, it takes out the feeling of a sting.
© Copyright 2007 Eileen Reppenhagen
3/8/2016
Page 8/21
23.
Know and implement the Employee or Self-employed criteria to
minimize risk (includes spouse and family payroll). See CRA
Guide RC4110 and take to heart that if you own the company,
you likely are not self employed by the company. Your
relationship is that of either a shareholder or an employee. The
cost of the CPP is exactly the same whether you deduct it or the
company deducts it and yes there will be tax rate differences,
but then integration eventually puts you back in exactly the
same position. The cost of not doing this could be very
expensive. If you hire your spouse as your bookkeeper, they are
more likely than not an employee, not likely a self-employed
person with their own home office. They may be an employee
who works from home and home office costs for an employee
would not include the mortgage on the house. 30% of the cost
of that second vehicle would not be required driving for an
employee to make a weekly deposit and no it is not a daily
deposit because there are not daily deposits to the bank on your
statements.
24.
If you hire your spouse, you must consider what you would pay
an arms length third party as wages for similar work and that’s
what you should be paying as hourly wages. That means a time
sheet and a job description too. Just because they have a
University degree in anthropology does not mean that they
should be compensated as a University grad when performing
bookkeeping, running errands and dropping the deposit at the
bank. These are not high paying jobs. Same goes for the kids
and when you hire them, pay them so they can pay for the
things they want to pay for. Don’t offset it against room and
board. Don’t pay their university tuition or their down payment
on their car. Pay them and let them spend their own hard
earned money that they worked for how they choose. Yes there
are barter and exchange interpretations and it is possible that
this would not be a problem. The reality is that you likely will
get stuck explaining your barter system to an auditor who has
no idea what room and board means as their culture does not
include such a concept. The fact that the room and board
doesn’t even cover the pop and chips they eat will not be taken
in with any modicum of sympathy at your plight. Pop and chips
may not be a food group they understand.
25.
Report contract payments for contractors when required to.
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3/8/2016
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26.
Review for elections in IC07-1 TaxPayer Relief Provisions, which
has a list of Elections in Appendix A, file all tax returns and
elections on time and always keep a copy on file.
27.
Review capital cost allowance for your assets every year. Keep a
schedule of the capital cost and adjusted cost base of all assets
in the pool. When you sell or dispose of an asset, you must
always check the proceeds are less than the original cost or
claim proceeds and capital gain on the amount over and above
the original cost. Check for special pool rules, half year rules,
and personal use changes. Ask about any dispositions or
disposal of assets due to obsolescence. Do not assume that
nothing has changed. There are a number of changes to the
capital cost allowance rates and categories every year.
28.
Did you know that the CCA on computers changed from the
separate pool rules on over $1,000 at 30% to 45% for
computers, and were bumped after March 18, 2007 to 55% (not
yet passed as of October 2007) but no separate pool? The
separate pool rules for computers, did you know that you had to
attach a special letter in the year of acquisition? Review for the
dates on your computer equipment every year. Notice that
there was an expiry of five years on the separate pool rules at
which point they rejoin the main pool if they have not been
disposed of in which case there could be a terminal loss.
29.
Review all of the special rules, notice if you don’t need to claim
CCA and discuss whether doing so is a good idea to build up the
losses or whether it’s better to defer the claim as the losses
would not be utilized in time before they dropped off the table.
Watch for recapture on the sale of assets. Always do the full
calculations on the split between land and buildings, no matter
how awful that calculation is to do. Ask whether there is tenant
every year. Did you know that May 1, 2006, the small tools
threshold moved from $200 to $500 for Class 12 at which point
it moves to Class 8?
30.
Always check out the GST/HST rules based on the vehicle type
and percentage of use for business in the first year.
31.
File all Notices of Assessment, Re-Assessment, correspondence,
Notice of Objection and other tax information with the tax
returns for ease of review.
© Copyright 2007 Eileen Reppenhagen
3/8/2016
Page 10/21
32.
Keep a separate file for each year for each employee and
contract worker. Include copies of pay cheques, summaries,
correspondence, TD1, both federal and provincial, T1213, any
garnishee orders by banks or government, job descriptions and
time sheets for each employee and owner/manager too. Ensure
that every employee completes a time sheet and has a job
description, especially those who are related to the owners of the
business. Document fair market value of wages paid to family.
Have a permanent file for each employee as well with their hiring
information, resume, any reprimands, kudos and notes.
33.
Check for compliance with GST/HST, PST and not just PST in
your own province/territory, Excise Duty and Tariffs,
Import/Export, Payroll and Benefits, WCB and Provincial
Employment Standards. Ensure compliance with regulations
with regards to spouse/partner or other relatives.
34.
Ensure that km logs are available for all business use of vehicles.
Avoid company cars and reimburse all employees and
shareholders with a flat, reasonable kilometre rate.
35.
Discourage mixed use of personal and business transactions on
bank and credit card statements, either for corporations or
business. Not only does it take much longer to do the
accounting because of the volume of transactions, the less an
auditor sees of personal transactions in the business books, the
more likely the audit will be short.
36.
Keeping books and records up to date is not just a good business
practice; it’s actually required by law. Recognition and
acceptance of this requirement will make it easier on everyone.
37.
Keep documentation for each year as a set of records with copies
of your tax return and tax return schedules. Don’t shred or throw
out financial records for at least 6 years after assessment or reassessment. Information Circular 78-10, Books and Records
Retention/Destruction, and its Special Release. If you want to
destroy your books, records and related vouchers before the
minimum six-year period is over, you must first get written
permission from the Director of your tax services office. To do
this, either use Form T137, Request for Destruction of Books and
Records, or prepare your own written request.
© Copyright 2007 Eileen Reppenhagen
3/8/2016
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38.
General Ledger review is essential. The other day I reviewed a
potential client’s books only to find in excess of $300,000 in
negative revenue posted to expenses and vice versa, $200,000
in expenses posted as revenue.
 Schedule regular review with client and accountant for all
transactions (monthly, quarterly, annual)
 Review reasonability of all tax returns, whether payroll,
GST/HST or PST every time a return is filed
 Adjust for personal component of GST/HST at year end for
vehicle or asset use, 50% of meals, home office use etc.
 Review for
o Capital versus income
o Revenue and expense coding
o CCA classes
o Prepaid
o Bank reconciliations
o Accounts receivable aging and collections
o Accounts payable unpaid or not posted
o Accruals
39. Policies and Procedures Manual can become critical in the event
of an unforeseen disappearance of a key player like your
bookkeeper. Have one and know where it’s kept and schedule a
regular review every few months to check that it’s still current.
Even if it only has some basic things in it like these ones below so
that you can access the data or figure out how to get the billings
out so you can pay wages or payroll liabilities which general huge
penalties for late payment in an emergency. If you don’t have a
description of how to do any of these things if the bookkeeper gets
hit by a bus:
 Obtain passwords to computers, data files, both accounting
software and spreadsheets or other medium,
 Obtain internet access to internet sales requests,
 Obtain access to online banking (your bookkeeper should not
have access to this unless it’s restricted for Bill Payment or
Transfer and only allows for data access)
 Locate backups of the data files
 Understand the naming conventions used for file storage
 Accumulate information from sales orders to invoice
customers
 Record sales on an invoice to get billings out to keep cash
coming in
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3/8/2016
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 Record purchases to pay bills
 Enter bank transactions to reconcile the bank balance to the
book so you don’t write cheques when the bank doesn’t have
enough money
 Figure out who owes you money to collect
 Calculate and pay critical payments on time, i.e. payroll
withholdings and GST/HST, PST, WCB or Income Tax
 Find the cheques
 Pay Bills
 Know who the signing authorities are and have alternatives in
case of emergency
 Know who has power of attorney and what the limitations of
that power of attorney are and where the power of attorney is
located in order to present it as proof of ability to sign
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3/8/2016
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Checklist of Annual Files:
 Every business bank account in a separate file by account with
reconciliations for each month
 Personal bank accounts of owners/partners/proprietors in a
separate file for personal tax clients
 Every business credit card account
 Every personal credit card account for
owners/partners/proprietors/personal tax clients
 Sales (numerical)
 Customer file for each customer (permanent)
 Purchases (alphabetical)
 GST/HST reports/reconciliations/correspondence
 Excise reports/reconciliations/correspondence
 Import/Export reports/reconciliations/correspondence
 PST reports/reconciliations/correspondence
 WCB reports/reconciliations/correspondence
 Employee file for each employee (Permanent)
 T1 for each taxpayer, shareholder, spouse, relative
 T2 Corporate returns/assessments/correspondence
 T3 Trust returns/assessments/correspondence
 T4 and PD7A Payroll Summary/PIER reports
 T5 Dividends and Interest reporting
 Contract payment reporting
 General Ledger – paper or electronic copy as required (see
electronic record keeping IC-05)
 Working paper file
 Working paper for intercorporate or non arms length
transactions
 Foreign reporting requirements
 Log of Days out of the country
 Km Log for each person claiming business use of vehicle(s)
 General Correspondence
© Copyright 2007 Eileen Reppenhagen
3/8/2016
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Checklist of Permanent Files:
1. All investment account statements and information for each
account since inception. This includes both RRSP and non
registered investments. Checking over-contributions of RRSP’s
now that the Attorney General pointed out to CRA that they
weren’t auditing. Verify Proceeds on a deemed disposition of an
investment to an RRSP since brokers don’t provide that
information on the disposition reporting T5008. All of this
documentation is required to prove the calculation of the
adjusted cost base of each investment; especially if there are
capital losses to carry forward that are not used up. You can’t
toss those loses until you use them up and then you must keep
them for another 7 years past that.
2. All information about the cost of each property, plant and
equipment in a separate file. Required when you sell assets,
including principal residence, business and personal assets with
or without a rental suite, rental property, boats, cars or motor
homes. Records of change in use from personal to business use
or vice versa. Calculations of opportunity cost of benefit
foregone as well as fair market value rent for personal use,
especially for condo’s at Big White which were targeted by CRA
under a special project last year.
3. Information about tax values such as PUC (paid up capital)
and/or ACB (adjusted cost base) for all major assets and shares,
Capital Dividend Account balances (CDA)
4. All information about the debt associated with each
acquisition of property, plant and equipment. Include your
home mortgage documentation as you may be required to prove
that the amount you owe today is the original amount borrowed
or that you have claimed an appropriate percentage of the
mortgage interest compared to the original mortgage.
5. All information about each customer should be kept in a set of
customer or contract files. Customer files could be broken down
into a number of files for each customer if there is significant
volume of information about each customer including
Permanent, Correspondence, Billing, Contract, and Job or Project
files.
6. Minute books should be kept at the lawyers office, not your
office, but you might have copies of relevant sections of the
Minute Book on hand to refer to in a file
7. Financial Statements and reports for management
8. Tax continuity schedules for retained earnings, dividends
9. Audit Correspondence and Statistics Canada reporting
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3/8/2016
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Audit Checklist
 Require documentation to record:
 All sales, purchases, deposits, payments
 All credits/transfers from Retained Earnings
 All payables to shareholder/proprietor
 All prepaid amounts
 All capital acquisitions and dispositions
 Required for all employees on payroll, especially for shareholders
and their relatives
 Time sheets
 Tasks completion reporting
 Job descriptions
 Ensure that:
 There are contracts for employment, especially for
shareholders and their families and essential if there is a
PHSP as it would be invalid without one
 Dividend transactions are recorded in the minute book and
recorded appropriately
 Bank accounts and debts are all listed and activities
recorded and reconciled
 All receivables are collected – keep a full set of books for
self-employed persons
 Bad debts/reserves are documented as to the reason and
current status
 All reimbursements of expenses are recorded as revenue
and GST is charged
 All purchases have documentation about business reasons
 All balance sheet accounts are reconciled and working
papers prepared for contents of each account even if it is
nil start/finish – use the GL to check for accounts with
transactions but no balance beginning or ending
 Posting of purchases
 All purchases through payables and reconcile to suppliers
payments
 Prepaid amounts and capital amounts to asset accounts
from payables
 Only record business purchases through the business
books
 Adjust GST on personal items prior to filing tax returns
 Adjust GST claims annually for personal portion of meals, auto
expenses, personal expenditures and ITC claims on business use
of personal vehicle
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 Adjust UCC of vehicles on T1’s for ITC’s claimed for business use
of personal auto’s
 Ensure all potential GST registrants are identified
 When paying people for any services require:
 TD1’s for all employees with SIN and birthday, address and
contact information and signature (Check SIN for 9’s – Work
Visa)
 All contractors be self-employed or require Rulings for
questionable circumstances
 Invoices and contracts for all contractors
 BN #’s and invoices – no cash deals
 All barter transactions recorded at fair market value
 Review records each year before filing T4’s in February to
ensure:
 T4’s include all taxable benefits for all employees, directors and
officers
 Records are up to date for the year to December 31, not just the
last year end
 Review for T5018’s - Contractor Payments
 Promptly review/respond to any PIER reports or queries from
payroll section
 Ensure T4’s or T4A’s as appropriate are issued for other
payments including shareholder benefits and loans not repaid or
a series of transactions re S.15
 Ensure that T5’s are filed for all reasons including interest and
dividends and include S.80.4 interest on shareholder loans in a
debit position
 File all slips, returns, elections and returns on time
 Ensure that taxpayer is in compliance with all laws, not just tax,
but Provincial taxes and laws, WCB, etc.
 Ensure client is registered for PST and research that they are in
compliance with regulations for both sales and self-assessment
of purchases
 Downloading software
 Norton Anti-Virus
 Used goods
 New goods over the internet from out of province or
country
 Ensure client is registered for WCB
 Corporate
 Self-employed and hiring sub-contractors or employees
 Ensure employer/client has policy and procedure
 To obtain Clearance Certificates for sub-contractors who pay
their own coverage
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 To identify Personal Services Business Corporations who should
be covered
 To identify self-employed individuals without WCB who should be
covered
 Calculate Capital Gains Dividend accounts and update each time
there is a change during the year
 Reconcile financial information to tax returns for capital assets,
reserves and deferrals of tax every year in the working paper
files
 Reconcile Retained Earnings every year for continuity to ensure
that there are no entries from Retained earnings to shareholder
loan accounts that are then paid out to shareholders without a
dividend declaration
 File returns on time as late filed returns are a flag for audits
 Advise employers/clients when certain items will almost certainly
trigger an audit
 Discourage any personal expenditures posting in the records
 Document payments to all related persons, officers and directors
with explanations, contracts, time logs, documentation of
reasonability and fair market value
 Determine personal use and document with appropriate
personal/business use of company assets and record personal
use benefits
 Document fair market value of all transactions with shareholders
and related parties with independent appraisals
 Avoid companies owing cars or ski condos,
 Reimburse tax free km’s from km log documentation
 Reconcile shareholder accounts and monitor for S.80.4 interest
and S. 15 benefits, record all shareholder transactions in the
shareholder accounts, do not mix in with trade receivables
and/or payables
 Recommend taxpayers keep all personal banking, credit, debt
statements with their tax returns as CRA auditors will require
them and if not available will insist that taxpayer pay for copies
and explain deposits
 Require documentation/explanation for all deposits to all bank,
credit and loan information for corporate and personal accounts
 Require accounting of all investment portfolio accounts and
tracking of ACB to FMV for both corporate and personal
investments, not just the slips for what was sold this year if they
can find them
 Identify all related parties and monitor for fair market value of
transactions between parties
 Track personal net worth
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3/8/2016
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 Assist with budgets for personal expenditures and income
 In practice, consider a policy of ‘the big picture’ and full inclusion
of all work for all related parties as it is easy to bury related
party transactions when you do not see the big picture. What
for:
 If clients ‘divide and conquer’ consider if you are missing the big
picture
 If you do the tax for one corporation
 Someone else does another corporation or trust
 They prepare their own personal returns
 Communicate clearly with everyone involved
 Auditors
 Clients
 Employees
 Employers
 Document everything
 Obtain advice when unsure how to proceed to:
 Minimize risk
 Maximize client service
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3/8/2016
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Checklist for your files about the client:
 Check in with yourself about your own documentation
 Review engagement letters to ensure they include service in
event of an audit, if not refer to CGA Public Practice Manual for
specific engagement letter
 Prepare a new Engagement letter to explain what services you
will provide during an audit and set standards about what you
expect from your client
 Good idea they may not want you to assist and you might not
want to either
 Before you agree to take on the work…
 Do not be afraid to recommend someone else handle the audit
 Do not take on the audit work if you do not have enough time or
the expertise.
 Find expert help, ensure you have adequate staff and expertise
in your practice to handle the increased workload
 Seek other professionals on a contract basis to assist or
recommend that the client seek other experts
 Organize your files and client communications to ensure you
know what is in your files
Obtain advice if you are not sure:
 If you are an employee, involve and obtain professional advice
from the organizations auditors and lawyers or your own if you
are not confident of their advice
 Recommend employer/client obtain legal advice from a tax
lawyer
 Obtain legal advice for yourself from a tax lawyer who is
competent to handle this specific type of legal work
 Call CGA BC public practice advisor, Tina Peters to discuss how
best to proceed (even if you are in industry, you can call her and
she is sworn to secrecy)
 Hire a practice mentor or a CGA with audit experience to help
you if you do not have experience
 Any technical areas that you are not sure of, research and ask
other professionals with experience right away
 If there is any potential for an insurance claim, notify your
insurance carrier, ask how to proceed and take their
recommendations seriously. It is up to you to work with the
owner/manager/client to mitigate claims.
 Review your procedures to determine how you could reduce risk
of another audit by having sufficient documentation
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3/8/2016
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Checklist for Auditor Visits:
 Start an audit file for each audit to keep all correspondence and
notes about the audit, the auditor and the findings
 Record and document all conversations with CRA with names,
dates, times, attendees
 Be ready for CRA request for electronic and paper files and
communications including
 Documents, correspondence, contracts, payroll and HR
 Your working paper files, special project files
 Electronic records such as Email, Word files, Notes,
Outlook calendar, Excel spreadsheets and General Ledger
 Owner/Manager’s personal net worth, assets listing, bank
accounts, credit, debt, investment transactions
 Logs including Km, Meetings, Inventory records, Tracking
documentation for jobs/shipments
 Correspondence, Contracts, Calendars and Day Timers
 Minute books and other legal documentation
 Audits should trigger an internal review. Update Policy and
Procedure Manuals to ensure you have a clear statement of
standards for Record Keeping and edit the manuals with any
findings
 Ensure procedures and standards have/are being followed
 Review/Talk about your Policies and Procedures with CRA,
employer, client, staff, employees
 Use the audit as the perfect time to introduce/raise standards if
you are feeling uncomfortable about current procedures and
policies or something comes up during the audit that you were
not aware of:
 Capitalize on the audit to raise the bar
 Listen carefully to the audit questions/ask the auditors for
areas you could improve on
 Question why you were audited and if you are audited frequently
what has put you on their radar? What could you do differently
that would reduce the number of audits you are experiencing?
Are there standards you could set, internal controls, policies and
procedures you could implement to reduce the risk of audits?
 Keep the audit file for each audit with the permanent records as
you may find it useful to refer to it in the future when reviewing
your standards, policies and procedures
Eileen Reppenhagen, CGA, Certified QuickBooks ProAdvisor writes and
speaks about accounting and tax. Visit her website at
http://www.taxdetective.ca
© Copyright 2007 Eileen Reppenhagen
3/8/2016
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