Keeping Records
CRA’s presentation
Whistler CGA conference
in September 2006
Topics
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Electronic Commerce Audit Program
Keeping Records
Elements of a good electronic record
keeping system
Self Certification Software Initiative
CRA’s Electronic
Commerce Audit Program
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Electronic Commerce Audit (ECA)
provides computer related specialized
audit services to support CRA in
encouraging, assisting, verifying and
investigating compliance with the
legislation it administers
Program has been around since the
1970’s
What We Do
Business Systems Evaluations (larger Entities)
Electronic Record Evaluations (SME)
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The ECAS analyses computerized business systems to identify
data that is relevant to the audit so that the auditor can perform the
audit in an efficient and effective manner.
The ECAS will examine the taxpayers record keeping system for
adequacy to our record keeping requirements.
If inadequate then the taxpayer will be required to make changes.
Computer Assisted Audits (CAA)
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The ECAS will obtain those files identified during the Record
Retention Review from the taxpayer and prepare them for a
transfer to the auditor. The ECAS and the auditor will use
Computer Assisted Audit Techniques (CAAT’s) to analyze the data
in order to determine compliance with CRA legislation.
Electronic record keeping issues:
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Owners are not concerned with historical records and as a
result, prior versions of software are not maintained.
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Electronic Point of Sale Systems and Internet based systems
are becoming more widespread.
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Software developers are focusing on future development, not
concerned with looking backwards (newer versions can’t
always read past records).
Electronic record keeping issues:
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CRA auditors face on-going challenges in
readily accessing readable electronic
books and records:
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Deleted prior year data
Changes in versions of software
Upgrades to computer systems
Perception that printed records suffice
Electronic Record Keeping
Issues and the SBAC
1.
2.
What are some of the challenges faced by
small business regarding electronic record
keeping and the requirements of tax
legislation?
What can CRA do to assist the Small and
Medium Enterprises category of businesses
in reducing challenges they face related to
electronic record keeping?
Electronic Record Keeping Issues and
the SBAC
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challenge faced by small business regarding electronic record keeping
is primarily a lack of knowledge and awareness of CRA requirements
education is important; to accomplish this, develop publications that
use plain language and offer clear explanations
different formats, including CRA notices of assessment sent to
businesses, could be used to deliver the message
CRA should focus on the benefit to the small business clients that they
serve and who are ultimately responsible for the books and records
work with software developers to ensure that minimum standards on
electronic record keeping are taken into consideration when they are
developing their products
whether software is compliant with CRA standards should be
transparent to their potential customers. (self certification)
How do we get the message of proper
record keeping out to taxpayers
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Meetings with professional and industry
associations
IC’s and GST Memorandums
Brochure created
T2 Notices of Assessment/ Reassessment
short paragraph – start October for one year.
GST/HST summer newsletter
Work with the provinces
Create standards
Existing Publications
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Income Tax & GST books and records publications
 IC7810r3
 GST memorandum 15.1 and 15.2
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Last updated in 1998 to reflect retention of electronic records
The electronic record keeping world has changed tremendously
since then
 Accounting Systems have evolved
 POS systems are computerized and more complex
 Internet WEB based sales systems are prolific
 CRA ability to handle e-records has evolved
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New and Revised Publications
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Guides
· RC4409 Keeping Records
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GST/HST Memoranda Series
· 15.1
General Requirements for Books and
Records
· 15.2
Computerized Records
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Information Circulars
· IC78-10 Books and Records Retention/Destruction
· IC05-1 Electronic Record Keeping
These publications are available at
www.cra.gc.ca/forms:
Keeping Records
Records include:
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Accounting and other financial information
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Including all ledgers, journals, statements, accounts,
source documents, correspondence, charts, tables etc.
(traditional paper documents/reports)
Electronic
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accounting systems, point of sale systems, internet based
systems, electronic purchasing and restocking systems,
tax return preparation software, etc.
(emails, log files, system files, transactions data files etc.)
Keeping Records
Where and for how long ?
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Your records must be kept at your place of business or at
your residence in Canada,
 unless we give you permission to maintain them at a
different location
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Must be kept in either English or French.
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Must be retained for a period of six years from the end of the
last tax year to which they relate,
 unless permission to destroy them is obtained from the
Canada Revenue Agency (CRA).
Keeping Records
Adequate Books and Records
contain:
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Sufficient Information to enable
determination of taxes payable or other
amounts that should have been deducted,
withheld or collected.
Information related to the audit trail to
enable tracing of documents up to financial
accounts.
Agency authority to audit
The Agency may, at all reasonable time,
inspect, audit or examine the books and
records or any document of the taxpayer
"record"
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"record" includes an account, an agreement, a book, a
chart or table, a diagram, a form, an image, an invoice,
a letter, a map, a memorandum, a plan, a return, a
statement, a telegram, a voucher, and any other thing
containing information, whether in writing or in any
other form;
Excerpts GST Memorandum
15.2
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Electronic record keeping refers to those
electronic business systems that create,
process, store, maintain and provide access
to a person’s financial records. It includes but
is not limited to custom and commercial
accounting software, Point of Sale systems
and Internet based electronic commerce. (1)
Similar in IC05-1
Excerpts GST Memorandum
15.2
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…..electronic commerce which can be
broadly defined as the delivery of
information, products, services or
payments by telephone, computer, over
the Internet or any other automated
means. (4)
An electronic record is any
information recorded in an electronically
readable format. (6)
Excerpts GST Memorandum 15.2,
Para 6 of 15-2
Electronically readable format means, information supported by a
system capable of producing accessible and useable copy.
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Accessible copy means that the person must provide a copy of the
electronic records in an electronically readable and useable format
to CRA auditors to permit them to process the electronic records on
CRA equipment.
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A copy is useable if the electronic records can be processed and
analysed with CRA software.
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The useable copy must be in a common data interchange format
that is compatible with the CRA’s software.
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Electronic files retained in an encrypted or proprietary back-up
must be able to be restored at a later date to an accessible and
useable state are to meet the CRA’s requirements.
Similar Para 7 of IC05-1
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Excerpts GST Memorandum
15.2
Place of Retention
 …..businesses that operate via the Internet
and that are hosted on a server located
outside of Canada should be cognisant of
their responsibility of maintaining their
records within Canada. Person with Internet
based businesses have the same
responsibilities related to record retention as
all other business operations. (16)
Para 13 of IC05-1
Excerpts GST Memorandum
15.2
Third Party Service Providers
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A person who keeps records electronically is not relieved of any of the
record keeping, readability, retention, and access responsibilities
because the person contracts out the record keeping function to a third
party such as a bookkeeper, accountant, Internet transaction manager,
application service provider, an Internet service provider, through a time
share, service bureau, or other such arrangements. (41)
Working Papers
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Books and records may also be in the form of supporting documents
(e.g., an accountant’s working papers), whether in writing or any other
form, which assist in the determination of GST/HST obligations and
entitlements. (42)
Para 19 and 20 of IC05-1
Excerpts GST Memorandum
15.2
The person is responsible for ensuring that all
electronic records are retained for the period
of time specified by the Act, and that the
required data in an electronically readable
format is available to provide to the CRA
auditors when requested. A good practice is
to have the third party service provider furnish
the person with an acceptable copy of the
information required by the CRA in an
electronically readable format. (43)
Para 21 of IC05-1
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Excerpts GST Memorandum
15.2
Audit Trail
An audit trail, which is the information that is required to recreate a sequence of events, must include sufficient detail to
substantiate summarized information. The electronic records
must show an audit trail from the source document(s), whether
paper or electronic, to the summarized financial accounts. In
addition, the audit trail may include a number of links to other
associated processes and events such as front-end systems
(e.g., electronic commerce and point of sale), receipts,
payments, and stock inventories, all of which may have their
own system audit trails…….Internet-based electronic commerce
transactions,…………………...web logs, emails when used as
part of the transaction (e.g. invoice and confirmations) or
security measures such as digital signatures.(34)
Para 36 of IC05-1
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Excerpts GST Memorandum
15.2
Commercial and/or Customized Software
A person who uses commercial and/or
customized software to keep books and
records electronically is not relieved of the
responsibility to keep adequate electronic
records because of deficiencies in the
software. (40)
Para 18 IC05-1
Excerpts GST Memorandum
15.2
Inspections, Audits and Examinations
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……. Such examinations include the audit of
electronic records and, as a part of providing
reasonable assistance; registrants must allow CRA
auditors access to their electronic records. (44)
This access means that the registrant must
provide an acceptable copy of the electronic
records in an electronically readable and useable
format to CRA auditors so that they can process
the electronic records on CRA equipment. (45)
Para 43 of IC05-1
Imaging
24. Imaging and microfilm (including microfiche)
reproductions of books of original entry and
source documents must be produced, controlled
and maintained in accordance with the latest
national standard of Canada as outlined in the
publication entitled Microfilm and Electronic
Images as Documentary Evidence (CAN/CGSB72.11-930).
Imaging
Electronic image means the representation of a source
document that can be used to generate an intelligible
reproduction of that document.
Policy and procedure relating to the imaging systems have to be
at a high level as outlined in the standard.
This high level means that the image should meet the best
evidence rule in order to be possibly accepted in court.
26. Paper source documents that have been imaged in
accordance with the latest national standard of Canada (see
paragraph 24) may be disposed of and their images kept as
permanent records.
Excerpts GST Memorandum
15.2
22. To ensure the reliability, integrity and
authenticity of electronic records, the pending
national standards publication entitled Electronic
Records as Documentary Evidence (CAN/CGSB72.34-2005) will outline electronic record
management policies, procedures, practices and
documentation that will assist in establishing the
legal validity of an electronic record.
Note: CAN/CGSB-72.34-2005 published January
2006 by
CGSB
Canada Evidence Act
The following “Standards Rule”was added to the
Canada Evidence Act and to most provincial and
territorial Evidence Acts:
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"Standards may be considered ...for the purpose of
determining under any rule of law whether an electronic
document is admissible, evidence may be presented [in any
legal proceeding] in respect of any standard, procedure,
usage or practice concerning the manner in which electronic
documents are to be recorded or stored having regard to the
type of business, enterprise or endeavour that used,
recorded or stored the electronic document and the nature
and purpose of the electronic document."
Standards
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The standards are not a law, it is a guideline.
Compliance with the standard is not
mandatory.
Compliance with the standard is a safe
harbour, not a guarantee of any legal result.
The standard is a statement of best practices.
The Evidence Act says a court “may
consider”compliance with the standard –if
party asks.
Electronic Commerce Auditing
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What happens when an auditor
contacts you to set up an audit of your
business, or,
What happens when your client calls
and says that he/she is going to be
audited and the CRA want the
electronic records.
Electronic Commerce Auditing
Auditors Role
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Auditor makes contact and sets up the audit
They will usually ask whether you maintain an electronic
record keeping system
Will mention that an Electronic Commerce Audit Specialist
will call to arrange to discuss the electronic records
Contact name to handle questions on the electronic records
and accounting software
What software do you use? Or did you use during the audit
period?
What version(s)?
If the records are located at a different site I.e accountants,
service bureau, other, they will need permission to talk to the
third party. It would be best for taxpayer to contact the third
party and make them aware.
Electronic Commerce Auditing
ECAS Role
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ECAS will make contact and arrange a
meeting and ask some questions.
ECAS will identify the files that are needed for
the upcoming audit
Ask for a copy of the files in a readable and
useable format (not the originals)
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Readable and Useable Format
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Format that can be used with Agency software such as
IDEA.
ASCII Text, EBCDIC, DBF, ACCESS, Excel, Print file, etc.
Electronic Commerce Auditing
ECAS Role
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ECAS will take those files and load them onto
Agency computers (laptops or PC’s)
Import them into IDEA
Interactive Data Extraction and Analysis
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Analytical tool to allow ECAS and Auditors to
extract and summarize the data provided.
www.caseware-idea.com
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Electronic Commerce Auditing
ECAS
Role
ECAS will verify that everything is included in the data and
reconcile the data by creating summaries that can be reconciled
to financial statements and reports such as:
 Trial Balance, Financial Statements or other reports as
needed.
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The data files are transferred to the auditor so that they can
perform audit tests on the data in the normal course of their audit.
Auditors are equipped with laptops loaded with the IDEA
software.
At the end of the audit and any appeal period the data is deleted
from the ECAS computers and any Agency CD’s with Taxpayer
data are destroyed and the taxpayer’s CD’s tapes etc are
returned to the taxpayer.
Security
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Data that is stored on the CRA laptops
and PC’s are protected with Safeguard
Easy.
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Encryption and Access Controls
Electronic Record Keeping
Systems
What are the elements of a good
electronic record keeping
system?
Electronic Record Keeping
Systems
LPOS
Maitre’D
ACCPAC
Quickbooks
Newviews
Positouch
Simply
Oracle
Business Visions
MAS 90
SAP
SMS
Great Plains
PixelPoint
Platinum
Peoplesoft
Squirrel
BAAN
Solomon
Peachtree
JD Edwards
MYOB
Micros
Many Other Accounting and POS
Software and Electronic Cash
Registers
Navision
SME Issues
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Large businesses usually or should have
robust internal control systems and
procedures
SME businesses can have significant
compliance costs and difficulties in
understanding and complying with tax
requirements
Ability of SME to create, record and maintain
adequate transaction information data as part
of their normal business operations is limited
SMEs are engaged in cross border trade at an
ever increasing rate
Elements of a Good Electronic
Record Keeping System
Why??
 Good business practices
 From a CRA perspective we want to
encourage voluntary compliance
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To increase efficiency and effectiveness of
computer based auditing by the Agency
and taxpayer external auditor
Elements of a Good Electronic
Record
Keeping
System
Good business practices
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Good records will keep you informed about the past and present financial
position of your business and keep you in control and give you the
information needed to make good business decisions.
Good record keeping increases a new business' chances of survival and
an established business's chances of staying in business and earning
good profits. (Canada Business Service Centre)
Good records will satisfy Canada Revenue Agency, Canada Pension
Plan, Employment Insurance, Department of Finance, Goods and
Service Tax, Workers' Compensation Board, Provincial Revenue
Authorities etc. and facilitate correct and timely remittances.
From a CRA perspective we want to encourage voluntary compliance
 To increase efficiency and effectiveness of computer based auditing
by the Agency…… and…… taxpayer’s external auditor
Elements of a Good Electronic Record
Keeping System;
Agency Perspective
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Sufficient details captured and produced
Accuracy and completeness of
accounting records
Transaction integrity and security
Retention of files in a legible format
Access to electronic records
Adequate backup and export
procedures
Sufficient details captured and produced
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The software should have the capacity
to capture and produce sufficient detail
to determine income and consumption
taxes administered by the Agency.
Details of each transaction should be
captured
An audit trail for each transaction
should be created and preserved
Accuracy and completeness of accounting
records
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The software should have the capacity to
ensure that all transactions are recorded
accurately and completely.
Adequate internal controls should be
incorporated in the software
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Zero balancing control total for general ledger
transactions
Transaction sequential number validation
Transaction date validation
Transaction integrity and
security
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Access controls to ensure that only authorized users can have access to a
computer system to process data.
Adequate internal controls should be incorporated in the software
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Controls that prevent the editing and deleting of recorded transactions.
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No single entry transaction correction should be allowed
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Changes to recorded transaction should be made by journal
entry. Any changes to recorded transactions must be adequately
documented and at least include the following:
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1.
Person making modifications
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2.
Date of change
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3.
Previous transaction details
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4.
Current transaction details
Transaction integrity and
security
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Adequate internal controls should be incorporated in
the software
 Password protected access to information
generated by the software
 Data processing batch control
 Transaction unique sequential numbering
 Access and activity log
The software should produce and save information
related to transaction integrity and security
Retention of files in a legible
format
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The software should have the capacity to
create, save and backup files and/or tables
containing information required by the
Agency in a legible format.
All transactions and required information
created or captured by the software should
be saved to files and/or tables
Legible format includes commonly used
formats such as Comma Separated Value
(CSV), ASCII / EBCDIC (flat file), DBF, Default
(MS) ODBC and other.
Access to electronic records
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The software should allow Agency
representatives access to electronic records
and to the business system documentation.
The software should have the capacity to
retrieve or rebuild and export original
transactions to legible format files accessible
to Agency representatives.
The software documentation should allow
Agency representative to gain a better
understanding of the business system.
Adequate backup and export procedures
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In order to facilitate compliance with
data retention, accessibility and
readability requirements, the software
should provide user with adequate
backup procedures and offer the
capacity to export the required files in a
commonly used format.
Adequate backup and export procedures
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It should also provide backward compatibility
of data and backups.
Backup files are not recommended as a
method of record retention since the
proprietary format of the files only makes
them useable, readable and importable by
the software version that created the file. As
a result, taxpayers depending on backups as
a method of record retentions method usually
have problems with accessibility in years that
follow.
Self Certification
Software Initiative
What is the Self Certification
Software Initiative
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Multi-jurisdiction initiative led by the
CRA to help software developers ensure
that their software meets CRA and
Provincial record keeping requirements
for tax purposes.
Record Keeping Obligations
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CRA requirements
The provinces have similar
requirements to maintain and retain
proper books and records.
Who is Involved
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Initial collaboration with provincial
revenue authorities
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Quebec
Ontario
British Columbia
Working group formed
Working Group
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Canada Revenue Agency
B.C Ministry of Small
Business and Revenue
Ontario Ministry of Finance
Ministère du revenu du
Québec
Canadian Institute of
Chartered Accountants
Certified General
Accountants Association of
Canada
The Society of Management
Accountants of Canada
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Sage Software
Intuit Canada
Fortsum Business Solutions
POSERA
NCR Canada
Small Business Advisory
Committee to CRA
Information Systems Audit
and Control Association
(ISACA)
Working Group
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Adapt principles based on OECD
Guidance to develop specifications for
software
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Guidance on Tax Compliance for Business
and Accounting Software
Standard Audit File - Tax
Working Group
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Create Canadian Guidance Document
for Business and Accounting Software
Developers
Create Canadian Standard Audit File
Specifications
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Accounting and POS systems
Why are these specifications
being developed
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Improve
Improve
Improve
Improve
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reliability of business systems
adequacy & retention of records
accessibility to transactions
efficiency of the audit process
Governments seek to minimise their tax system
operating costs while at the same time keeping
taxpayer compliance costs as low as possible
Guidance Document for Business
and Accounting Software
Developers
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Standards that should be applied to
accounting and POS software in Canada
(e.g.)
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Adequate internal controls
Adequate audit trails
Electronic export facility (SAF)
Ready access to data for compliance testing (SAF)
Archive procedures that ensure the integrity and
readability of electronic records after an extended
period
Adequate Internal Controls

Software developers are encouraged to
ensure that application software
incorporates adequate internal controls
to ensure reliability of entry processing
Audit Trails

Software developers are encouraged to
ensure that application software creates
adequate audit trails to assist auditors
gain audit assurance
Standard Audit File
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File containing reliable accounting data
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Standard layout and format
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Detail level
E.g. XML
Extensible
Archive procedures that would allow
auditors to retrieve the SAF as required
Benefits
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Improve record keeping of Businesses
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Records are reliable, complete and accessible
assist in the management of the business
Assist businesses in meeting their tax
obligations
Business owners will know that their record
keeping software produces information
needed during a tax audit thus less time
could be taken for an audit
Benefits

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Developers of Software that meet the
specifications will provide an attestation
to the CRA that they meet the
specifications
Businesses, when purchasing or
upgrading their software, will be able to
access a list of self certified software on
a CRA web page
Benefits

Software vendors
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One uniform requirement makes product
marketable in many jurisdictions
Public accountants
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Simplify assignments of preparing
accounting statements and of auditing
prepared statements
When
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Specifications posted to the CRA
Website by Sept 2007
Software available and listed after this
date as software is developed and self
certified