In Canada, the Canada Revenue Agency (CRA) audits the financial records of businesses. In 2019, the CRA identified $1.185 billion from audits. Auditors found these funds from the auditing of small and medium-sized companies.
If you receive a CRA notification, then read on. What follows is the ultimate guide to understanding an audit.
Your Guide to Auditing 101
An audit is just a review of the financial information you provided in your taxes. Your financial reports should include:
· A balance sheet
· An income statement
· A statement of changes in equity
· A cash flow statement
An audit reviews the details of your financials and confirms the profits or losses.
Auditing Process
The auditing process starts with a letter from the CRA. In this letter, the CRA will document the specific information they need for the audit. It is in your best interest to address the letter as soon as possible. While working with your accounting professional will make the process easier, they can not prevent the process from happening.
You or you and your accountant will prepare the necessary documentation requested by the auditor. Being as specific as possible with your documentation will help to ensure a quick review and settlement of the audit. After preparing the documents, you will meet with the auditor in person to review the records.
Auditing Standards
Auditors adhere to The Taxpayer Bill of Rights. The Taxpayer Bill of Rights consists of 16 specific rights. In essence, these rights guarantee that auditors act with a high degree of accuracy, professionalism, courtesy, and fairness.
Auditing Reports
After the completion of the audit, you will receive a report summarizing the findings of the auditor. If there was a discrepancy found, you will be assessed a fine. In addition, you will be forced to pay the difference between your paid taxes and the taxes found to be appropriate by the auditor.
What Auditors Do Not Do
As previously stated, auditors assess your financial statements. If there are discrepancies, they will not provide that information to members of your organization, board of directors, or competition.
They will not be checking every figure, table, and graph in your financial reports. They are looking specifically for the information in their letter, nothing more, nothing less.
The CRA Is NOT, Always, Right
If you are assessed fines or additional taxes, your tax accountant will review them for accuracy. Auditors are human; they too make mistakes. There is a review process in place to appeal assessments that are believed to be made in error.
If you have received a letter from the CRA check this blog on CRA auditing to avoid the crash and burn.
Do You Need to Stay in the Know?
After reading this article, we hope you have a better understanding of how the auditing process works. Now, you’ll be prepared should the CRA come knocking. Looking for more like this? We have articles on business, education, and fashion, and more. Check out our other posts to stay in the know.
