Organized and easy to use, general ledgers makes it easy for auditors to access relevant information when conducting an audit
Vancouver, BC -- (ReleaseWire) -- 04/18/2019 --A CRA tax audit is something many mature businesses will have to endure at least once during their lifetime. But according to the Vancouver Chartered Professional Accountants at Mew + Company, having a set of financial records that is easy for the auditor to examine can really expedite the process. For more, go to: https://www.mewco.ca/blog/why-a-real-general-ledger-is-the-first-line-of-defence-during-a-cra-tax-audit/
The CRA audit has changed from twenty years ago. In the past, an actual person came to the business premise to examine the books and records. If the business has a spare room or desk for the auditor, the audit was carried out on site. The business owner had to make financial records available for the auditor and avail themselves to answer questions from the auditor.
Today, the auditor can be in the Winnipeg tax office while auditing a Vancouver business. This is because the CRA has shifted the logistical burdens of audits solely onto the taxpayers. The taxpayer will receive a letter from the CRA informing them of the period and the matter being audited. It is up to the taxpayer to provide all the financial information necessary to the CRA through electronic or paper format.
This lack of face-to-face communication creates openings for mistakes. The CRA could conceivably not receive the information it is seeking despite availability because the taxpayer and the auditor are not in the same room to go over the information.
Today, many small businesses, particularly successful ones, keep a general ledger. A general ledger is a well-sorted set of financial data that is very user-friendly for accountants. It is like a logically organized garage where similar items are in the same place and can be readily counted or audited as needed.
When a general ledger report exists, it allows the users, (taxpayer and the CRA) to examine records efficiently through sampling and various other selection criteria. It allows the user to sort financial records so that they can quickly determine the tax status of various types of receipts and expenses. After all, the auditor is an employee with a workload just like any other employee. If the taxpayer cannot provide information in a timely manner during the audit, the auditor is given no choice but to reassess the taxpayer unfavourably.
This is the exact recent experience of a taxpayer who was busy running a very profitable business and did not attend to keeping a proper general ledger. Although a very clean Excel bank synoptic existed, this did not provide the information the auditor was looking for. The auditor was handed a file of source documents and receipts instead. The taxpayer also did not seek the assistance of a professional tax advisor to work with the CRA during the audit process.
The initial reassessment from the audit was the worst possible outcome for the taxpayer. Basically, the taxpayer will pay the price for not investing in a system that was easy to audit. If you want to stay out of trouble with the CRA, invest in an accounting system that is easy for the auditor to examine.
To learn more about keeping a general ledger or working through an audit by the CRA, contact the Chartered Professional Accountants at Mew + Company at 604-688-9198.
About Mew + Company Chartered Professional Accountants
Mew + Company, Vancouver, is an ideal solution to the taxation problem. With a simple philosophy of building long-lasting customer relationships, the company has been serving corporate clients in a variety of fields—including restaurants, real estate, retail, and the service industry. Investing in their specialist services will undoubtedly be fruitful for all kinds of clients.
To learn more about Mew + Company and discuss their services, log on to https://mewco.ca/
Lilly Woo, CPA, CA, CFE, CFP
Mew + Company Chartered Professional Accountants
604 688 9198
Company Website: https://www.mewco.ca